The popularization of speculative trading in the financial markets, partly due to the development of retail trading solutions offered online, has created a new population of traders in the market. Most of these traders are non-professionals who are attracted by the potential for quick returns.
Falsely created expectations
Many novice traders may find it very easy to make money, especially when they try to use an intermediary service using a free demo account.
However, if these traders manage to make a sudden substantial return, it may lead them to believe that trading is a simple activity. For an inexperienced trader, one good choice can lead to the idea that this is the key to success and wealth.
Unfortunately, when these inexperienced traders try to get out of the virtual environment and start trading real accounts and risking real money in the market, then their activities become much more difficult. In many cases, the first working days at the market begin to look terrible and painful, like old souvenirs. It is a stark initiation into the ruthless reality of financial markets.
Real Life vs. Practice
When new traders are about to take their first step from virtual accounts to trading with real money, they enter the most difficult phase on the way to joining trading: trading psychology.
In other words, it is easy to trade as long as there is no risk of losing your money. When a trader’s hard-earned money is thrown into the process, his or her attention becomes more attentive. Often, traders using virtual accounts will feel relatively comfortable even when the market moves against the position they are entering. This allows them to keep their attention on their price target and wait for the market to start moving in the right direction. Since there is a small consequence associated with “virtual money”, personal emotions do not interfere. Unfortunately, when a trader’s actions begin to affect the gain or loss of his or her personal assets, the chances that the trader will continue to behave in the same methodical way are reduced.
Emotions can drive trading
Emotions can be seen as a trader’s worst enemies; They often lead to misconceptions and losses.
Feelings lead to what psychologist Roland Barak calls “mindtraps” in his book, “Mindtraps: Unlocking the Key to Investment Success” (1988). Roland Barak provides a collection of 88 lessons explaining the pitfalls of fear and greed that keep many merchants from progressing.
Greed
Greed can keep a trader in position for too long, hoping for a higher price, even when it falls. This emotion has been the main reason for many professions that have gone from major conquests to great losses. To destroy this emotion, try to take an objective look at the rationale for your positions. When one of your positions has risen too high, ask yourself, are there still reasons for your initial investment? If not, then it may be time to close or reduce the position.
Fear
Fear can prevent a trader from trades and lead to the withdrawal of positions too early. If an investor is too concerned about the potential loss or risks that come with an investment, he or she can very often be dissuaded from a good opportunity. In addition, if a trader is more prone to fear, then he or she may sell his or her investment too early, based on the fear of losing his or her profits. In many cases, this can prevent the trader from getting much more benefits.
Paralysis in the analysis
Analysis paralysis is an interesting phenomenon in which traders are so immersed in analyzing everything about potential investments that they do not have time to trade. In this case, it often happens that the investor will constantly ask for all the small details found in the analysis, in an attempt to analyze the situation in detail. This is a truly unattainable task that can prevent a trader from accepting monetary benefits and from making progress in trading.
Also, a trader can manage a wide range of other emotions, therefore, first of all, for any market participant, you need to recognize these emotions.
Acknowledge your emotions
All traders are destined to experience at least one mindtrap, but the best traders learn to recognize, understand, and neutralize them. This process is the basis of any trader’s training. Therefore, if you want to become a successful trader, you must first spend some time getting to know yourself. A skilled trader always strives to master his emotions and prevent them from affecting his performance.
Trading nirvana
A trader is just a person and therefore there can be no perfection in trading. However, any trader can achieve profitable trading if they learn to manage their emotions. This can be learned by a certain person, but not all at once. Only by constantly developing your experience in the market can you achieve success. Therefore, before you start trading, you will have to take some risks and learn how to manage your emotions, which will help you earn (and sometimes lose) money.
Tagged with: The Psychology of Binary Options Trading
