Do you really need good trading psychology to profit consistently?

Many stock market newcomers have a success story in mind, in which they have assigned the hero role to themselves. Unfortunately, the reality is different. People leave the stock market with a lot of disappointment after incurring big losses. Some believe that holding on to their investments for a long period of time will result in high returns. After all, everyone expects large profits from their investments.

Most exchange participants are yet unaware that this strategy can result in losses.  Only a small percentage of traders research their investments before making a decision. Moreover, only a minority of investors, therefore, devote the necessary attention to their investments and bring necessary professionalism to them.  Over the years, we’ve noticed that not only private investors, but also professional managers behave in this manner. Some believe that their knowledge is uniquely important for their success in the stock market. Often, traders incurring losses attribute this to lack of preparation and overlook the most common factor: psychology. Trading psychology is a trader’s mental state of mind that determines his or her ability to succeed in the market. Successful traders understand trading psychology, but new traders often do not.

Greedy Behaviour in Trading

Traders who are eager to get rich quickly tend to overtrade or increase capital commitments in profitable trades. Additionally, they impulsively enter big positions, use too much leverage, or enter positions too early. It is no myth that these actions harm their trading accounts. Additionally, greed often causes cognitive bias. The desire to profit from the market makes individuals look for information that proves their opinions and positions. The actions resulting from greed are comparable to excessive hope. Even though hope might seem less alarming compared to greed, it is as harmful to trading practices. Traders filled with hope are often blinded. They don’t realize the risks trading entails and have a false sense of confidence. In the broader sense, when market participants are greedy, overreactions can take place and distort prices. Greedy behavior in the market makes prices inflate well beyond their fundamentals. This also contributes to the formation of asset bubbles.

Fear and other emotions in trading

Fear is the second most common emotion in the stock market. All forms of fear can push individuals to make irrational decisions. These include closing a winning trade, panic-selling, or holding onto losing positions for a long period of time. It can also result in the inability to trade, sell, or buy, effectively freezing all trading activity. When markets crash, fear generally arises. In this scenario, traders frequently decide not to enter a trade out of fear of the market falling further and missing out on the upswing. While greed causes market bubbles to form, fear causes them to burst.

Behavioral scientists suggest that relative wealth satisfies most people rather than absolute wealth. This is reinforced when assets experience an upward trend instilling “fear of missing out”. For instance, “Why am I not making money on this?”; “What am I missing out on?”; “Is it too late to invest now?” are a few of the questions that individuals have when they are experiencing fear of missing out (“FOMO”).  This psychological error can lead to irrational investment decisions. For instance, buying at the wrong time or overbuying, almost always results in losses.

Another common emotion for both experienced and inexperienced traders is anger. It manifests itself in a variety of ways depending on the circumstances. It’s natural for traders to be irritated when the market moves unexpectedly against them. For instance when their stop-loss is hit, or the market does not move in their desired direction. This also leads to impulsive reactions, without considering the consequences.

Dealing with trading stress

Trading psychology is thus one of the most important pillars of success in the stock market. Humans are emotional beings, with psychological and cognitive errors influencing financial decision-making. Emotional investing can impede decision-making. It can cloud judgment and lead to actions based on gut instinct rather than reasoned foundations or analysis. Eliminating emotions in trading is impossible, and it should not be the goal in the first place. Traders should understand that certain emotions are biased and will therefore influence their trading practices. They should thus use this knowledge to their advantage. Every trader is unique. There is no one-size-fits-all rulebook that everyone should adhere to. The ability of a person to handle and overcome stressful situations is critical in determining a trader’s success. Most people are not prepared to deal with the stress that comes with trading, which can lead to poor execution of strategies and losses.

Manage stress and become a successful trader with One Signal

One Signal aims to identify and use extreme situations and reactions (e.g., exaggerated fear or excessive optimism) in all market phases. Thus, the system recognizes sentiment trends (as indicated by sentiment indicators), in other words, investor mood. Anyone who can interpret the market atmosphere also knows in which way the market is going. If fear begins to dominate the market, participants will sell their assets. If greed and optimism reign supreme among investors, prices will rise. One Signal decrypts the emotional situation of the market on a daily basis and goes along with it until an exaggeration phase is identified.

Trading is a complex process. Determining what works best for each investor can take some time. However, with One Signal, newcomers can avoid these common trading mistakes. While it is critical for traders to recognize their own biases, it is also critical for them to control these emotions. We assist both new and experienced traders in avoiding these costly mistakes. How? Every day, they will be guided in their decision-making by receiving our daily signals. All they need to do is enter the trade and begin generating effortless returns without experiencing any emotional stress. One Signal is the ideal tool for a simple and easy trading procedure. It allows traders to set aside their emotions and generate returns consistently.