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Trading Psychology: Understanding Fear and Greed

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Fear and greed are two of the most important aspects of trading psychology as these emotions can affect your trading career and profitability – big time! So read this article and learn how to take these emotions out of the picture.

Trading Psychology

The psychological aspect of trading is extremely important. Traders Wibest FSMsmart Review usually dart in and out of stocks on really short notice, requiring them to come up with quick decisions.

To do this, they need a certain presence of mind. By extension, they also need discipline so that they will stick with the previously established trading plans and know when to book profits and losses. Emotions simply aren’t necessary when it comes to trading.

Understanding Fear

When a trader receives bad news regarding a certain stock or the general market, it’s not uncommon for the trader to get scared. It’s possible for them to overreact and feel forced to liquidate their holdings and go to cash or to refrain from taking on any amount of risks. If they decide to do that, they may be able to avoid certain losses, but they will also miss out of huge gains.

Traders need to understand Wibest Broker News what exactly fear is: it is a natural reaction to what is perceived as a threat to their profit or money-making potential. Quantifying that fear is a great idea, and traders should also contemplate about what they are afraid of and why exactly they are afraid of it.

By considering this matter ahead of time and knowing how they may instinctively react to or perceive certain things, a trader can hope to isolate and identify those feelings during a trading session, and then try to focus on moving past the emotional response.

Obviously, this is not easy and may take enormous amounts of practice, but it’s necessary and crucial for the health of your investment portfolio.

Dissecting Greed

“Pigs get slaughtered.” That’s an old saying on Wall Street that refers to greedy investors hanging on to winning positions too long, trying to get the very last tick. Greed can be extremely devastating to returns since you will always run the risk of getting whipsawed or blown out of a position.

Overcoming greed is also easier said than done. It’s usually based on an instinct to try to do better, to try to get just a little more. A trader should learn to recognize this instinct and come up with a trading plan based upon rational business decisions, and not on emotional whims or potentially harmful instincts.

Trading Rules and Plans

In order for traders to get their heads straightened up and to avoid emotional fits, they need to create trading rules. They should lay out the guidelines based on their risk-reward tolerance for when they will enter a trade and exit it – whether through a take profit order or a stop loss – to take emotions out of the equation.

Also, a trader might say if certain news like positive or negative earnings or macroeconomic news comes out, then he or she will buy or sell a security.

It would also be a great idea to set limits on the amounts they are willing to win or lose in a day. If the profit target is reached, they can take the money and exit, and if the trades hit the losing limit, they can pack up and leave, preventing further losses.

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