Author: Emilia Szmajda
Date of Publication: 12/08/2022
Nowadays, anyone can learn how to earn money through investments and trading. This involves studying both technical and fundamental analysis. As well as emotions play a key role in investments. Controlling your emotions will allow you to succeed and avoid failure.
For example, many people after bad investigation decisions have depression or suicidal minds. That is why in investigation people have to take care of thoughts and emotions. So, here are some common emotional traps that occur when trading. Take a look at some examples of how to deal with them.
Emotions Involved in Investments
1. Hope
Every trader hopes that their trades will be profitable and that they have read the market correctly. However, hope can be wrong, especially when prices begin to move in the wrong direction. Keep this in mind and stick to your strategy at all times. When quotes deviate from the target, shows that the motives behind the opening of the trade are wrong. Therefore, it will be necessary to look for an opportunity to exit the position at the best possible price. There is always a chance that the deal will eventually reverse, but usually, the best solution is to nip losses in the bud. After all, you can open a position again when there are additional signals confirming the original idea.
2. Fear
Feeling fear when placing an order is quite common, especially among beginners. This is mainly due to the fear of suffering a financial loss. As well as it is important to realize that it is an integral part of trading. So fear shouldn’t block your ability to make decisions. If you are afraid of investing, you should consider looking at higher time frames. Remember that trading is a game of probability.
Moreover, when you analyze the market you are looking for a potential investment opportunity that brings profit rather than loss. So when you find an opportunity, why do you listen to negative emotions? We need to prepare the right risk and position management techniques, adding stop loss levels. Thanks for that we are able to limit losses while maintaining a very high level of control.
3. Greed
For some traders, this is undeniably one of the most destructive emotions. Greed can result in a desire to chase the market, withstand losses, and open excessive amounts of positions. However, the worst of all is to fail to follow the prescribed strategy.
Everyone who starts an investment should mark the maximum and minimum price before. For example, if you buy an action for $50 and the price goes to $100, you will sell it. You have to stick to the plan. Take your profit and run. Many people started thinking that prices will rise more and more.
Ups and downs:
Markets, although respecting historical levels, don’t have to move according to defined patterns. As a result, being a trader is a continuous learning process. There are periods of transition from one market cycle to another, also it is necessary to identify and learn about new investment opportunities.
An important goal is to survive this period by managing your risk properly, reducing your position size and having the right level of self-denial. In this way, you don't give up too quickly. A great indicator of those who are material for long-term traders is the ability to prepare for the leaner times that follow a period of satisfying returns. Investment decisions are based on psychological conditions studied by behavioral finance.
An example of an ideal investor is a rational investor who bases his decisions on reliable sources. In addition, they shouldn’t succumb to emotions and maximize their profits. In fact, the existence of such an investor is impossible because it is susceptible to external factors. Such factors are time pressure or the complexity of the information received. Therefore, it is important to control your emotions also in panic and euphoria moments.
Investment spreading
This method is appropriate in the same way as for subsequent investments. Investors often panic when they suddenly start plummeting. It is rare that all sectors that they activate have free effects. In addition diversification will allow you to reduce losses and stress.
Change perspective
As everyone knows, in school that is bad if you make many mistakes. This behavior has an impact on our thinking. Furthermore, we need to learn from our mistakes. Thanks to it we can learn new things and draw conclusions. I heard that every good trader has gone bankrupt at least once.
Well-being
To make good decisions, people need to be relaxed and full. Being overwhelmed allows for quick frustration. It is better to take care of well-being, health and minds more than trading in bad conditions. Lack of investigation is also an investigation.
Conclusion
People need to take care of awareness, follow emotions and behavior.
You need to be open to failures and learn from them. Moreover, thanks for mistakes we gain new experiences and lessons for the future.