The mood of the person affects the result of the investment from top to bottom. In this article, we will examine how trading psychology influences the success of forex and stock market traders.
Although the dream of everyone who decides to invest is to make money, only successful investors can make it happen. However, to be a successful investor, it is necessary to have many qualities including psychology management skills.
There are certain rules that an investor must follow to be successful and to stick to them, they must first be in a good mood. This is also necessary for the investor to make rational decisions.
People who want to earn the amount they target must first prepare themselves psychologically for this. In this way, the chances of having a happy investment process increase. Now, let’s consider how important psychology is for the stock market and forex investors;
What is the Importance of Trading Psychology in Forex?
- What is the Importance of Trading Psychology in Forex?
- How Can Investors Control Their Emotions?
- Trading Psychology Affecting Loses in Investing
- What Does Affect Trading Psychology in Forex?
- How to Prepare for Loss in Trading Psychology?
- Tips for Being a Successful Investor
The desire of all investors, both in forex and in the stock market, is to make stable money in the long run by trading smoothly. However, with the start of the investment, most investors give up this desire. Few maintain their stable desire before starting investment transactions.
As we always say, there is always a risk when it comes to money. This is an indication that investors are in a stressful environment.
Successful investors generally consist of the mass that can maintain their stable stance. One of the reasons investors fail is to abstain. To be able to trade with a happy ending, there are great benefits to creating an investment plan.
Psychology has a very serious effect on the investor, especially during trading, and the only way to reduce this effect is to stick to this plan by making investment plans.
Particularly, instant price changes in the forex market create significant differences when combined with the leverage ratio. Investors see these differences as a high-income door for the moment. In this case, we can say that it was under the influence of investor sentiment.
As a result, psychology is of great importance in investment transactions, and especially new investors should pay attention to what kind of psychology they are in.
How Can Investors Control Their Emotions?
There is no room for emotion in the investment market. As a person trades in the market, he gains experience over time. Even if he succumbs to his feelings at first, he will act more rationally in the future.
To be a good investor, you need to put aside your emotions and momentary thoughts and stick to the investment plan that you have been working on for a long time and whose trading points are determined by the rules.
Forex transactions have a more dynamic and instantaneous structure than the stock market. In the stock market, this situation changes according to the effect of macroeconomic data on the country.
So, trading in the forex market requires much stronger psychology. Because sudden price changes on commodities, parities and instruments make you feel that you need to constantly change your investment strategy. This is one of the biggest mistakes traders make in forex and the underlying reason is the psychology of the person.
There are similar situations in the transactions made in the stock market. Especially those who follow the markets only from the media determine their investments according to the headlines of news sites. However, changing investment strategies by not sticking to the plan in sudden changes in the agenda causes serious losses.
Therefore, the investor should not act only according to market data and news, should not let his psychology be affected in sudden situations, and should be loyal to the plan he made at the beginning.
Trading Psychology Affecting Loses in Investing
You may think that everything is ready to invest in the stock market or forex. When it comes to choosing investment stools, investment amount, maturity, and gaining experience in virtual accounts, your current mood is very important for realizing them.
First of all, if you have an idea that you will gain from the transaction you make, you should stay away from it. This negatively affects your psychology.
After all this information, “What psychology will make me lose in investing?” We hear you ask. Sometimes the mistakes of the person, the market conditions and sometimes the current mood can turn all your dreams upside down.
We will examine the effects of psychological factors on the outcome of the investment. Every investor’s mood varies across different situations and is never fixed.
If there are people who have lost in the stock market or forex and you constantly hear their negative comments, this will discourage you and turn you away from investment. For this reason, you should not set up scenarios based on people’s own mistakes.
If you did not get the desired result from the investment, you should face your mistakes instead of avoiding self-criticism. Trying to understand where you went wrong before blaming the markets will be good practice for your next investments.
Putting the blame on external factors and convincing yourself that you are making a perfect investment is the wrong trading psychology. This will make you lose your mood.
Another misconception is that investors seek themselves as an accomplice. They convince themselves that they are not the only ones making the same mistake and tries to believe that they are not alone. Engaging in this trading psychology will make investors lose.
Some investors may be overconfident in themselves. Self-confidence is, of course, a must for investment, but it should not be overlooked.
Everyone can make mistakes, no matter how much knowledge and experience they have. Therefore, the investor’s self-confidence can have negative consequences.
It is necessary to be open to development and not to forget that risks always exist. In addition, prices in the market are shaped according to psychological factors.
In other words, prices increase or decrease according to the reactions of investors in any situation. Investor with sufficient knowledge and experience can control their reactions to events and act consciously.
What Does Affect Trading Psychology in Forex?
Many investors know how important psychology is, but don’t care about it. This is one of the common mistakes. There are even those who trade in the market without even knowing what might affect their psychology.
So, in which situations and how is investor psychology affected? Here is the answer to this question;
Loss of Investment
No investor wants to lose money at the end of their trading in the market. For many, it’s pretty scary to even think about it.
An investor who loses one or more times may have a decreased confidence in the markets and himself. He or she may retire from investing or have major regrets. Each of these affects psychology.
Being Too Willing or Too Unwilling to Invest
We often encounter setbacks when we are too eager to do something. The same is true when we are very reluctant.
Investors should be careful that the desire to make money does not turn into greed, and they should be able to strike a balance between excessive desire and unwillingness. Because when something is desired and does not happen, the only feeling is a disappointment.
Being Influenced by Momentary Emotional Changes
Acting with instinct is a method you should not use when trading on the stock market or forex. Because there is no room for emotions here.
When you are happy, sad, angry or emotional, you should not change your position in your investment.
Going the Way of the Majority
You should not forget that you are alone in the investment world. The decisions and strategies of others will not benefit or harm you.
Someone who cannot make their own decisions is not mature enough to be an investor. There may be people who win or lose in the stock market or forex around you. Investor psychology can be affected by such situations, which can lead to wrong decisions.
How to Prepare for Loss in Trading Psychology?
As you know, it is possible to lose. But there are very simple rules that you must follow in order not to sink.
As it is known, there is always risk in investment, and it is up to the person to reduce or increase it. An investor who is unaware of the existence of risks collapses psychologically at the slightest loss.
To avoid this situation, the investor should prepare himself to lose. Well, but how?
First of all, it is quite natural to lose money while investing. Every investor has lost money, more or less, one or more times.
No matter how risk-free the investment tool is, no matter how experienced the investor, the inevitable losses should be met by the investor quite calmly.
An investor who knows that anyone can lose, no matter how well the process is going, should prepare himself for bad results, suggest himself in the face of negative situations and keep his calm.
Although it is difficult at first, he will get used to this situation over time and prepare his psychology accordingly.
Tips for Being a Successful Investor
Although the wish of all investors is common, few people can get the result they want. Both the investment advice given by famous investors and the rules written in the books can open the doors of a successful investment.
Below, we have given some advice for you to move forward in the world of investment with sound psychology;
Create Your Investment Plan and Stick to the Plan
Before you start trading, writing down your decisions and trading rules in an organized and understandable way can be the first step in creating your investment plan. Sticking to this plan in your transactions will help you to make stable profits in the long run.
Remember that constantly earning in the stock market requires effort. However, psychology is a factor that should never be ignored.
Don’t Get Buried in Graphics
Technical analysis is very important for anyone who will invest in the stock market, forex and binary options markets. However, sometimes these analyzes are adhered to so much that all the factors that affect the investment are forgotten.
For this reason, the importance of analysis in investment transactions should be known. However, one should not act on blind faith in the results. It is very important to do good research and make a decision with calm psychology.
Be Honest with Yourself
This subject, which is one of the most important issues about human psychology, is also very important in financial investments. A person should be honest with himself in all areas of life and develop himself in this direction.
It is necessary not to be deceived by all kinds of hearings, instant data and news received in the investment market. If you pursue the truth and be honest with yourself, you will have a healthier process.
If you are at the point where you need to sell in your plan, but you continue to invest by listening to your inner voice and believe that it will increase; it means you are not being honest with yourself. Therefore, you should not make wrong decisions by being influenced by your mood.
Make it a habit to trade in the direction of the trend
Instead of following general trends, stock market investors look for ways to succeed where they think are more lucrative. This is a mistake that novice traders make when trading pairs, especially in forex and binary options.
Our advice to you is to stop swimming against the current and make a habit of constantly trading in the direction of general trends.
You should stay away from the desire to make a large amount of money quickly, and consider earning a little and concisely as the key to success. Increasing your earnings over time by trading frequently is one of the best ways for an investor to follow.
Determine Trading Volume and Manage Capital
From time to time, we witness that people who have not attained a certain experience use most of their capital in investment transactions.
When trading in a particular direction, you should not trade more than 10% of your capital. In addition, you should make it a habit to trade with a maximum of 5% of your principal. Unplanned trading affects your psychology negatively.
Take the Decision to Start Processing at the Right Time
Decision-making time, which is one of the issues that investors should pay attention to, is a very sensitive process. Observations show that most of the investors trade on a single signal.
No analysis, news, data, sensation can be accepted as true unless it contains a supporting signal. Therefore, if the analysis value is in line with the agenda events and the direction of the trend, you should decide to start trading.
After receiving signals supported by at least two or three points, you should start your investment and then focus decisively on your investment plan.
Stock trading is slightly slower than the forex market. This is directly due to the differences in the markets.
In global data-based markets such as binary options and forex; processes are much faster and results are sharper. For this reason, especially investors who make forex transactions should never forget the psychology factor and they should trade by adhering to the successful methods we have given above.
It should be noted that this situation, which seems to recover a little more in the stock market, can cause serious losses in the forex market.
Knowing that investing is not an easy task, it is very important to prepare your trading psychology for it and to remain strong in the face of all kinds of results. Those who give up quickly and are sensitive cannot be expected to make successful investments in the stock market or forex.
SEE MORE: Complete Guide to Forex Trading