The psychological aspect of trading is the biggest differentiator between winners and the not so lucky ones. How you feel about and react to situations forms major part of the trading process. While luck in layman’s life depends on various situations, in trading it is the ability to see through things, maintain discipline, contain emotions but at the same time take calculated risks, assess situations, follow rules, understand patterns and get a pulse of the markets to succeed.
Psychology is the most important aspect of trading as many a times decisions have to be made on the spur of the moment, trends to be understood at a glance and act instantlyas per the market momentum. To accomplish success there should be a sound strategy, understanding of trends, varied portfolios, investment timing and above all a clear head. Fear and Greed are the most important and tricky words to be understood and overcome in order to be a good Investor.
In the most trying circumstances, discipline, clarity of thought and a keen understanding is what is required to make the best of the situation. Theoretically, investors should enter deals to make the best of gains and contain losses however investors are most often clouded by emotions without sound logic and irrational expectations. This leads to incorrect decisions and far from rational results.
There are a lot of emotions which are very common in investors, traders, investing companies etc. Some of them are as follows:
Hope, fear, anxiety, greed, stress, joy, over ambition, under estimation, over confidence, thrill, excitement, helplessness, desperation, success, unable to overcome past mistakes, lies, denial etc.
The reason to understand these emotions is that by mastering them we can actually get better results most of the time. We need to understand what we can control and what is beyond our sphere of influence. Now risk, cost, time, behaviour and emotions should be well within our control. Success, returns and market fluctuations are out of our control.
Broad indices like Sensex, Nifty and BSE are comprised of decisions of millions of shareholders and hence understanding the emotional pattern at a given point of time can give us a better hold on our investment decisions. This tells us a brief idea of the market sentiment/swing.
However if we inculcateEmotional mastery, right strategies, sound trading mindset, calm and an evaluating approachwe can surely find success.This is precisely why Psychology is so important.