What are the various emotions in psychological trading?
It’s a positive attitude or emotion which makes a trader hold onto a losing trade due to irrational hope of prices moving back in the expected direction. Even when a trader’s common sense says it’s not possible.
When initial ideas and strategies about the market work for a while, traders may start thinking about success and neglect risk management. Overconfidence takes an upper hand in the trading process; sometimes as a result they could take high risks and do overtrade.
- False belief
This is a stage where a trader is surprised with his/her success and grows egoistic, thinking about himself/herself being so perfect and smart due to initial success. A Stage that seduces us to develop false beliefs and expectations.
The strongest positive emotion a trader feels after seeing profitable short-term results. It makes us think that making money in the market is so easy and we forget the risk factor altogether.
At this stage, traders start becoming a little nervous when some of their trades move against their expectations and beliefs. A few unrealized but consistent losses, which we never expected, make us a bit worried.
After a period of a losing streak, many traders start denying first and then acknowledging the fact, their actions might be wrong. False beliefs and expectations get challenged in this stage.
- Lack of confidence
Negative thinking and negative thoughts take over a trader’s mind completely. The trader might start thinking “nothing will work for me”. Due to a lack of confidence in their abilities, it’s pretty easy to fall prey to tip providers and advisories.
This is the stage when a trader is completely blank about what to do and he/she starts taking positions unconsciously just to reach the breakeven point. A trader’s mind is completely distracted without proper objectives or clarity.
At this stage, many traders will exit the market and never want to trade again, and they feel hopeless about their decision-making abilities and get disinterested in taking any further trades.