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Understand the Trading Psychology - by ifcmarkets [message #2058] Tue, 26 August 2014 12:36
oladare  is currently offline oladare
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Location: Lagos
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In the contemporary exchange market exchange rates are defined through decisions of thousands of traders and investors. The psychology of human behavior is considered to be the clue of understanding what happens in financial markets. In stock trading decisive influence on the behavior of the trader is made by common to all feelings such as fear, greed, hope, etc. Weak and self confident, greedy and slow; all these people are doomed to become the victims of the market. The recognition of your own abilities, positive or negative qualities will help the trader to avoid failure.

One of the driving forces, making you to take part in the work of speculative financial markets, is the possibility of earning "easy money" or, saying directly, greed. The result of greedy action is the motivation for making deals.
One can distinguish between two kinds of motivations:

* Rational motivation is expressed through cold prudence when taking decisions about making a deal.

* Irrational motivation is expressed through passion of the player; the others are the slaves of their emotions and are practically doomed to lose.
If the trader does not have a working plan formed before making deals, it speaks about the fact that the person is likely to work under the influence of greed but not reason.

The following factor motivating the trader to make deals is the hope to get profit. If the hope prevails over the profit calculation, the trader undertakes the risk of overestimating his abilities when analyzing the situation. Hope must be placed in subordinate relations both with calculation and greed. It is the great hope that brings beginners to failure. The trader, living with hope, is doomed to failure. It is a hope that pushes traders towards making one of the most cruel mistakes- shift of the stop-loss orders level.

Extremely trading seems to be an utterly simple matter. But in reality for the majority of people it later on appears to be the most difficult of all the issues.
You will not be able to become a successful trader until you are ready both for victories and losses. Both of them are important and inseparable parts of the trading process. On the way of mastering the art of trade very often barriers are met. When the trader focuses on the problems (there can be numerous problems, for instance, lack of means, resources and knowledge), he feels anger, guilt, disappointment and dissatisfaction. But such an emotional state will not let him move forward. If the loss is unacceptable for the trader, he will not be able to close the losing position. When the trader is not ready to face losses, they usually become more.

In trading, there is a tiny minority of winners and overwhelming majority of losers and the latter wish to know the secrets of success of the winners. But is there a difference between them? Yes, there is; it is the one who makes money week for week, month for month and year for year, keeping self-discipline. To the question of the secrets of his stable market triumph such winner answers without hesitating that he was able to reach such heights, when he learned how to control his emotions and change his decision to match market.

Note, self discipline, control of emotions and the ability to reconsider are all psychological moments which are not related to information services, consultation firms, new exchanges, technical or fundamental trade systems (with computer programs or without them). Do not confuse confidence with extreme self-confidence.

Interviews with traders confirm that extreme self-confidence plays an important role in making trading decisions. If the trader receives good profit, he becomes more prone to risk which is followed by negative consequences. This is a tendency of becoming extremely self-confident after success, which mostly happens with the less experienced market participants. Extreme confidence easily transforms into a dangerous quality, as people who are too much confident in their beliefs will not pay attention to important information which is valuable for their trading decisions. Confidence and negative emotions are directly related to each other in strength. In general, confidence and fear are similar senses by nature; only the one is with a "plus" sign and the other with - "minus" sign. If the person feels more confident, there is a little room left for confusion, alarm and fear.
How does the sense of self confidence develop?
In a natural way, the person gets used to relying on himself in everything that he has to do without any hesitation. With such trust in himself he does not have to fear the market with its seemingly unpredictable and chaotic behavior. The matter here is not with him at all, as the market did not change but the inner world and psychological warehouse of the trader have.

There are two important terms in relation to a good trader.
To set a principle of trading exclusively on the basis of self discipline.
To learn how to remove the negative emotional energy of the last trade experience.

Due to the principle to self discipline, self trust is being formed, which is necessary for successful trading actions. Almost in the majority of cases each trader starts his way on the primary level without the required psychological installation and without the principle of self discipline. And it is likely to get psychological trauma (a psychological state which is capable of making people feel fear) of this or that severity. It is necessary to learn how to get rid of worries. When there is little fear as a consequence, you absorb new knowledge about the nature of the market.

Do not forget that each moment is an excellent indicator of your development level. But if you consider each failure (if it did not happen as you have expected or wanted) to be a mistake, you very often deprive yourself of understanding yourself. While people become shy of learning something new about them. Why? Because mistakes mean an emotional pain for them. Avoiding pain instinctively, the person unconsciously refuses to recognize himself, when it is necessary to manage better a similar situation in future.

To reach a success in trading, you need to take the whole responsibility of your decisions and actions on yourself.
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