Psychological Share Trading. by strudy1

The title sounds very outlandish and somewhat unnerving. But in reality it is about one of the most common and basic traits in our nature that in reality make us what we are, and only too often this will dictate how and why we trade the way we do, Often to our own detriment and financial hardship.

They are your own every day emotions. These emotions can be found hard at work every day in the stock market, not only when the trading floor is open but also after hours as well, for they will dictate what happens in tomorrow’s trading and how the market will then behave.
The first one is FEAR. There is a good acronym that is very apt here .False Expectations Appearing Real.

Fear can and does assume many forms. The fear of missing the boat will cause you to abandon your preset price and chase the share price upwards. Therefore you end up paying more than you originally planned for.

It is exactly that same fear that will make you hang onto a falling stock in the hope that its share price will rebound at a later date. Or a sudden large sell off in a stock is sometimes enough to trigger a panic feared sell off, which feeds upon itself causing the share prices to drop across the board, often in other unrelated stocks or sectors.

The fear of the unknown is another classic example. The Oil price rises recently have been typically affected by this. A whiff of a cyclone somewhere in the Caribbean is enough to send oil prices spiralling upwards or the possibility of lower oil stock reserves in the future is another catalyst that can and does affect the oil price.

GREED is another prevalent emotion. For example: - Having made a profit, greed makes you want to hang on for still more. Not being content with a reasonable profit we hang on till sometimes it is too late, often to see the share price recede quickly and we end up with a smaller profit than we already had in the first place.

ANGER is a dangerous emotion usually directed at the stock which is not performing as we would like it too. And we will punish the stock by selling it off. There that showed it! Now I feel better we tell ourselves.

Irrational when you look at it in the right perspective. But we do it every day.
WISHING AND HOPING is always to be found in abundance in the stock market. We are forever looking for that elusive pot of gold at the end of the rainbow.

LUCK. We believe is either good or bad depending on our current ATTITUDE.
Attitude, I will not cover today as volumes could be written on as to how attitudes can also govern your daily trading.

Another good acronym here for LUCK is: - Labouring Under Correct Knowledge.

I firmly believe that you can make some of your own luck by sticking to a preset criteria or trading plan that firmly puts the odds in your favour. Anything else that happens is a bonus.
IMPATIENCE is yet another emotion that effects our trading. We get tired of waiting for the right stock to come along which fits our trading criteria. So we bend the rules a bit rather than miss out.

We fool ourselves that we MUST be trading otherwise we will miss out on the action, rather than being patient and waiting for the right stock to come along, Which they will always do eventually, quite often when you have just tied up your funds elsewhere.

It is also impatience which makes us sell off a stock because it is not behaving the way we expect it to, or the profit level does not meet with our preconceived expectations
Does any of these occurrences sound familiar?

Is there a cure? Yes there is, but it involves detaching from and facing your emotions. This can be one of the hardest things that you will ever have to do.
It is only when you can sit back and honestly look at why and how your trading is being effected by your everyday emotions that can you gain an insight as to how the stock market is working and reacting on a daily basis.

Being aware of your emotions and the role they play is one of the first steps to successfully detaching yourself from the herd.

Secondly, is seeing in yourself the Triggers that set your emotions off that makes you react and trade the way you do.

Most importantly if you cannot be honest with yourself, then who are you kidding?

With this insider knowledge you have gained, trading patterns will begin to emerge in the trading habits of others, the reasons why the Stock market is acting like it does becomes more readily understood and predictable.

This results into a keener insight as to what is happening currently in the market place every day, everywhere.

The end result is that you have become more aware of the reigning emotions running rampant in the market and are more readily equipped to use these same forces to your financial advantage.
But it all takes honesty, work and effort. That I will leave up to you. For it is a personal quest that only you can undertake.

For me it is still an ongoing battle, but the odds are now more in my favor than they were.
The worst part of it all is that by knowing why the Emotions can and still do effect my trading, does tend to strip away a lot of my excuses I used to use when things did not work like I had planned.

Here’s to your profitable, unemotional trading


Strudy is a successful share trader on the Australian Stock Market Visit his weblog
http://www.asxnewbie.com/for more free articles and useful information

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