You can have the best strategy in the world, but if you cannot control your emotions, you will likely fail. Trading psychology refers to the mental state and emotions that dictate the success or failure of trading decisions.
1. Fear of Missing Out (FOMO)
FOMO occurs when you see a price skyrocket and buy at the top because you "don't want to miss out." This usually leads to buying high and selling low. Markets always offer new opportunities; patience is a virtue.
2. Revenge Trading
After a significant loss, the natural human reaction is to try and win the money back immediately. This is called "Revenge Trading." It leads to irrational decisions, larger position sizes, and usually, bigger losses.
3. Overconfidence and Greed
Winning streaks can be dangerous. They can make a trader feel invincible, leading to abandoning risk management rules. Greed causes traders to hold onto positions too long, hoping for more profit, only to see the trend reverse.
4. Discipline and Routine
Successful traders follow a routine. They have a trading plan and stick to it, regardless of how they feel emotionally. If your plan says "sell," you sell, even if you feel lucky.
Disclaimer: Trading can be stressful. Ensure you are in a good mental state before engaging in financial markets.