Importance of Psychology in trading
Psychology
It is basically defined as a scientific study of the human brain and the way it functions. This is with respect to those functions of the mind, which affects the behavior of a person in any given context. It can also be defined as the metal characteristics like the attitude of a person towards something, the way they think, etc.
Psychology won’t just give us an understanding of how a person thinks consciously. It is also a study of the unconscious or subconscious phenomenon. Hence, it is an overall study of the mind, which is not just limited to basic thinking and beliefs of a person but also the beliefs and deep-rooted perceptions.
Importance of Psychology in trading
Trading is one of those fields where Psychology plays a very important role. We can say that the basic Psychology of the trader can decide his/her fate in this field. Psychology in trading refers to the way a trader perceives on what is happening in the financial markets and how these perceptions can be influenced by their attitude and emotions.
There is a general perception that the majority of the traders goes through the same set of emotions while they trade but that is definitely not true. If that is the case there won’t be a staggering difference between the traders who are making a lot of money and who are losing a lot of money.
A lot of traders believe that a reliable and tested trading system alone can lead them to success in financial markets. They spend almost all of their efforts, time and energy around figuring out these reliable, standard and proven techniques. So they hardly pay attention to their discretion ability and their emotional awareness.
These are the important factors that decide one's success in the market. Therefore, paying zero attention to overcome psychological barriers like emotional extremes and fear of failure will only lead them to failure. Almost always these emotional extremes are the factors that obstruct traders in properly analyzing the market.
The number of individuals failing in this industry is huge. People who force themselves in the world of Forex trading or Crypto trading eventually fail. This is because of their unrealistic expectations. They tend to believe that trading in the Crypto and Forex market for very few months will enable them to leave their full-time jobs.
They expect the money they invested to grow from $1000 to $100,000 in a matter of months. These unreal expectations construct a completely incorrect mindset, which results in running behind the thirst to make profits.
As this thirst builds up, a trader unavoidably becomes controlled entirely by their emotions, which is a sure shot way to go broke. It is this exact combination of wrongly defined trading objectives and the unrealistic expectations, which results in the utter failure of their trading career.
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