Emotions & Psychology in Trading (Summarized):
In trading, emotions like fear, greed, overconfidence, and frustration can cloud judgment and lead to impulsive decisions. Psychology focuses on maintaining discipline, managing stress, and sticking to a trading plan. Successful traders develop emotional control, patience, and resilience to handle market volatility and avoid common pitfalls like chasing losses or overtrading.
Emotions can play a significant role in trading, causing traders to disregard their risk management plan and make impulsive decisions, leading to unwanted losses.
In this lesson, we will explain how to recognize behavior that causes unnecessary losses due to two basic emotions: fear and greed.
You will learn to make informed decisions and maintain your capital despite these emotions.
Fear of Loss
Meet Mr. Riskman, a trader who aims to minimize risks and secure a stable income.
Despite his limited experience, he is eager to learn and improve his trading skills.
Experiencing the fear of loss
Let’s watch a video where Mr. Riskman describes a trading challenge he faced.
Recommendations
Here are some recommendations for traders based on Mr. Riskman’s mistakes:
• Set a maximum loss per trade and close the order when you reach it.
• Don’t let emotions get in the way of your acceptable loss strategy.
Although trading losses are inevitable, maintaining discipline and following a plan will help you earn profits.
Overcoming the fear of loss
Mr Riskman didn’t panic or give up. He took training to overcome his fear of loss, topped up his account, and tried again.
Let’s see what he did next.
The trader didn’t give in to his emotions and stuck to his plan.
Greed
Experiencing greed
Let’s watch Mr. Riskman’s video about another trading challenge he encountered.
Recommendations
Here are some recommendations for traders based on Mr. Riskman’s mistakes:
• Plan your take profit in advance based on your analysis and strategy.
• avoid chasing profits under the influence of emotions.
Having a clear profit strategy and following it will bring you long-term profits.
Overcoming greed
After losing a profit opportunity due to his greed, Mr. Riskman refocused on his risk management strategy.
The trader spotted a market reversal and saw a new trading opportunity within his strategy. He opened another order in EURUSD with a 0.3 lot size and a fixed $90 take profit, aiming to profit from the price increase.
Following his plan to avoid further losses, Mr. Riskman closed this order when the price reached a predetermined take profit level.
Summary
1. To overcome the fear of loss, you need to understand that some losses are inevitable and set the stop loss in advance to close your orders by it.
2. To overcome greed, you need to set the take profit according to your strategy and close your positions by it, even if the market appears to allow you to earn more.
• By staying disciplined, you can overcome strong feelings and make better trading decisions.
In the next lesson, you will learn about risk tolerance styles and how they affect traders’ financial results.
