Emotions: fear and greed
understanding your mental states can help you to take control of your emotions. That minimizes the effect that successes and failures can have on your future trades. But how can you master trading psychology? .There’s a saying among traders that the markets are driven by two emotions fear and greed.
Whether you’re a novice or a professional everyone feels fear at some point. But too much could make you act irrationally either by influencing you to close a position prematurely. Or by preventing you from entering a trade. At all the key to controlling fear is understanding where it comes from and whether it’s imagined or real. Fear would be reasonable during a market crash where all of your analysis tells you that there’s a crisis. But in ordinary circumstances, a fear of losing money or a fear of missing out on profit could be detrimental to your trading. If an asset is rising in price, for example, it might be tempting to jump into a trade without proper analysis. But this fear of missing out could put you at risk of losing capital.
Now let’s take a look at greed the desire to acquire as much capital as possible. This get-rich-quick mentality is dangerous because trading strategies require thought and patience.
The internet boom is a good example for much of the 1990s buying any Comstock was seen as a surefire way of making money. But invested cause the stocks to become overvalued. The bubble burst and market participants lost money greed can cause blindness to the potential downsides of a trade.
So it’s important to consider the risks attached to the position. And how much you stand to lose if the market goes against you. In conclusion, remember knowing when to exit a trade is just as important as knowing when to enter one. So stick to your trading plan manage your risks with stops and limits.