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So much of our life depends so heavily on our finances that it's natural to let our emotions get in the way, but, when it comes to investments, emotions can equal chaos. Focusing on the fundamental and technical aspects of investing is undoubtedly important, but no other aspect of market trading is as important as trading psychology.
Fortunately, mastering trading psychology can be as simple as applying a few basic behavioral concepts.
Scared Money, Makes No Money
A great investment idea came to mind, or perhaps you found a good technical entry point – great!
You decide to place a trade, the market dips and it spooks you out, so you decide to sell. A few weeks later you check back and your investment is up considerably.
“What a bummer! I wish I would’ve held.” Welcome to the club mate, we’ve all been there.
Sights like these are all too common in the markets and can make even the most seasoned investors feel ashamed, but it doesn't have to be that way.
We can improve our odds of success by enhancing our trading psychology.
If you find yourself being spooked out of trades often, then the following tips may help you succeed:
- Lower the size of your trades to a point where they don’t trigger emotions
- Avoid trading on margin or borrowed money
- Evaluate if the reasons for entering the trade have changed
- Build confidence using a market trading simulator
- Find entry prices that are closer to your stop-loss level
- Check out the Rize blog and learn more about investment and trading to gain a greater degree of confidence
Your Ego Is Not Your Amigo
Fear is not the only psychological hurdle that investors have to get around; greed, impatience, resentment, and pride can be equally as dangerous.
During times of success, it’s always important to remain humble, being overconfident or greedy can quickly turn winning trades into losers.
If your emotions are getting the best of you, try doing the following:
- Take profits along the way
- Respect your take profit levels
- Take a break
- Consult with experts
- Be honest about your emotions
- Make sure you are using a reliable wealth management platform
Be a Turtle, Not a Rabbit
Like the turtle, long and steady wins the race. The probability of positive investment returns greatly increases the longer you hold your investment, dramatically reducing the risk of short-term volatility.
It's about long-term growth, not instant gratification.
If you’re considering a long-term market trading strategy, don’t sweat the short-term dips, zoom out and think in terms of weeks, months, and years – not minutes or hours, this will help you relieve anxiety and gain greater control of your investments.
Find Your Market Trading Strategy
Everyone's psychology is different, and so is our tolerance to risk. Discovering which strategies work best with our personality is a great way to avoid emotional investment decisions. Testing investment strategies in a trade simulator from a wealth management platform is a great way to gain confidence without risking capital.
Irrational decisions can also be avoided by laying out a plan for our preferred market trading strategy, writing down entry points, taking profit and setting stop-loss areas will ensure traders pre-plan their decision and come to terms with them prior to involving capital, which could distort their decision making.
Losing is OK — Don’t Sweat It
Losing is a part of the game that investors must be at peace with with if they want to succeed. After all, all strategies work sometimes, and not all strategies work every time.
Being overly emotional about capital may prompt investors not respect their stop-loss and hang on to losing trade longer than needed which could turn into a capital disaster. Not only can a losing trade hold you back but it can also create further psychological setbacks such as diminished confidence.
If you are experiencing a losing streak, make sure to check your vibe by asking yourself the following questions:
- Is my head in the right place?
- Am I following my market trading plan?
- Does my market trading strategy work under the current macro conditions?
- What emotions do I feel right now towards the market? And are they healthy and unbiased?
The faster you get over a loss, the quicker you will be ready to find your next big win!
Don’t sweat it, walk it off, clear your head, and get back in the game.
The Market Will Do What it Wants
The market is composed of millions of decisions made every second by both humans and algorithmic robots. It’s possible to make educated assumptions about the direction of a trade, but it’s impossible to control the market.
The market will always do what it wants, our job as investors is to identify and ride the waves as best we can, without falling off the board in the process.
Coming to terms with this concept will provide you with the ultimate form of acceptance, and enhance your trading psychology.
There are many variables at play, do as best you can with the information you have, and don’t be discouraged if it doesn’t always go your way.
Use a Wealth Management Platform
Conquering trading psychology can be challenging, but investing doesn’t have to be. The Rize app is a wealth management platform that makes investing simple, download Rizeapp today and discover how you can start investing with as little as 1 Euro today!
