- At the moment of entering the market.
Only hope for making a profit can prompt a person to do something in the financial market. - At the moment of losing money.
In this case, a trader is full of hope for the better.
Outcome depends on how trader’s mind can tame emotions and how a current situation is assessed. In the third stage, losses are critical. A trader gives up hope and he is overwhelmed by despair. In most cases, it can happen to inefficient traders and beginners. A lot of market participants including successful investors are familiar with this desolate feeling, when the whole world seems hostile to you. In fact, most traders are unaware that you work in the market. Therefore, traders exaggerate the market’s hostility. At the same time, we have to accept the fact that the major aim of any trader is to earn at the expense of another trader. A person who experienced the final stage of desperate hope can consider oneself a full-fledged trader. Perhaps, in further trading the experience gained in the third stage could reveal itself as fear of the market.
It is necessary to take responsibility for your trading decisions to avoid despair and fears. Remember that strong market players are eager to take advantage of your weakness. Trading is accompanied by the following risks.
- The human nature is often affected by the herd. As a result, a person takes a collective decision instead of individual.
- Herd decisions are mostly suggested by the silliest market participants.
- You should be suspicious of those analysts, who earn to a greater extent less than banks or large private investors.
The absolute majority of financial analysts release a great deal of articles about an ongoing trend at the moment of its serious correction or even completion.
It happens because most analysts are employed by financial institutions, which stick to the following principle in most cases, “A trend is the best friend of a trader.” On the other hand, traders are affected by misinformation when huge market players want to sell off a part of an excessive strong currency.
Logically, on the one hand, one should not oppose a crowd as it shapes an overall market trend. On the other hand, you should not follow blindly herd decisions as collective sentiment is likely to be wrong. Monitoring a crowd behavior, you should understand whether market participants act as winners or losers. You can recognize winners by a growing number of trades or rising ADX trend. Other technical indicators like MACD, RSI etc. make sharp one-way moves following a price. Losers reveal the opposite picture of the market behavior. Here is a rule of prime importance.
Taking part in speculative trading, you must betray losers and join winners.
While putting your detailed knowledge into practice, you will find out that sometimes your opinion is in conflict with other market participants and analysts. Such a difference is not caused by your false vision of developments. It is caused by psychological discomfort that other markets participants and analysts do not share your viewpoint, even though they are unaware if it. To avoid the feeling of embarrassment, do not be afraid to earn in the wrong way in the eyes of other analysts and traders.
Before we discuss psychoanalysis, please consider another important conclusion, which was made as a result of opinion polls among traders.
We tend to risk in grave danger, but we are afraid to risk when there is no threat.
Psychoanalysis is needed to understand our own weak points and get rid of them. Statistics shows that over 90% of retail traders complete their forex career in the very beginning with no results. In light of the law of probability, this figure is a bit overvalued. In principle, a number of unsuccessful traders cannot be more than 50%, even excluding those with zero results. Why do theoretical and practical figure differ so much? Most traders, who failed to achieve success on Forex, blame their problems on small deposits, lack of quality prompt information, evil intentions of brokers and dealers, high commissions, spreads etc. They are partly right. All these negatives do not contribute to good earnings. However, they should blame their losses mainly on themselves. They lack something important. Unfortunately, without the help of a professional psychoanalyst, it is possible to test your true qualities only in a tough market environment or other extreme situatisituation.
The wrong understanding of yourself is the major risk factor.
It might take years for a person to reveal one’s personality and true qualities under ordinary conditions. A private investor lacks time for that. Therefore, one can either consult a professional psychology or enter the market without understanding one’s own strong and weak points.
To define a type of your psyche, you should find out what kind of trader you are, active or passive.
All traders are equal before opening a position. Some of them are self-confident and ready to insist on their point. On the contrary, others prefer not to disclose their ideas. They listen to a different opinion, but act on their own.
After a trade is open, it becomes clear later whether it was the right or wrong decision. The right decision includes several aspects such as a long or short position, price, and time of opening. A trade can be closed three ways: at a profit, loss or zero result. Only the first outcome arouses positive emotions. Thus, in a short space of time, you can realize how you respond to positive or negative news: in a passive or aggressive way.
You can fill in the following table to visualize your response.
Trader’s response to events Passive Active(aggressive)
Winning trade
Losing trade
Zero result
Overall (dominating response)
An active response reveals itself in sharp gestures and a skittish opinion on a situation.
A passive response means inactivity and tranquility no matter what happens. After you fill in this table, you will see what response prevails.
Another thing is a reason for a particular response. So a trader can be driven by an instinct, intuition or intellect.
Driving forces of trader’s behavior Instinct Intellect Intuition
When opening position
When closing position
When holding position
Overall:
Now, let’s consider how a trader displays these traits.
Any initial move of a trader is viewed as a subconscious wish to satisfy material interests.
Of course, you understand that trading is work. Therefore, a trader reveals his instinct that he should work, but not just stare at a monitor.
A trader displays his intellect as the ability to explain logically events in the market and make the simplest and most beneficial decision based on his logic. Instinct is a subconscious driving force, so a person appeals to memory such as advice of teachers, common rules etc. On the contrary, he uses intellect to digest these advice and rules on his own, adjust them to his own outlook on life and a changeable environment. Intellect will help you find a way out of a deadlock, which you could get into when following old rules. Besides, intellect provides insight into the nature of financial markets. It will enable your successful trading.
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