What Is Psychotrading? What Does Psychology Have To Do With Trading?
Analyzing and studying the financial markets is essential in trading to be successful. But emotional management is also of the utmost importance to achieve this goal. Psychotrading therefore plays a fundamental role in the financial sector. Find out more about this topic today.
What is psychotrading?
The term psychotrading cannot be found in academic dictionaries. It is a concept that was developed in the financial market, specifically in the area of trading, which is about speculating with financial instruments in order to make as much profit as possible.
Various trading strategies are used to achieve this. Psychology also plays an important role, as it is about the study of the processes, perceptions and sensations that influence behavior in trading.
Psychotrading for emotional control
Psychotrading has a lot to do with emotional control, because traders, like everyone else, sometimes behave irrationally, especially in critical situations. In order to be able to better control unpredictable aspects, it is important to strengthen the logical and analytical cognitive skills. Psychotrading is used for this purpose.
The three pillars of trading
Industry experts know that psychological training is a necessary pillar to be successful in the financial markets. But what other prerequisites are necessary? Experts name three key factors:
- A trading system that has been tested and adapted to your own needs.
- Appropriate money management in order to survive in phases of loss.
- Adequate psychological prerequisites to successfully manage two elements: the financial markets and yourself.
As you can see, the third point is psychotrading. The first two points can be adjusted and implemented with the help of statistics and probability theory, which provide objective indices.
Psychotrading: Key Psychological Factors
Experts assure that proper emotional management (which includes good emotional control ) is a prerequisite for trading successfully. Various factors play a particularly important role in order to be successful.
It is well known that trading requires analysis of the financial markets in order to generate economic benefits. Therefore, the following psychological elements are essential:
- patience
- Resilience
- Self-confidence
- Self control
Which properties do not lead to the goal?
If the necessary psychological prerequisites are not met, the path to success is extremely difficult. A lack of psychological control can also affect financial analysis.
An example of this is anger, which can lead to feelings of revenge but which do not serve the purpose. On the other hand, failure to follow the trading plan or specific behavior can also lead to financial losses. Other obstacles are:
- Fear : It can mean that you do not use the best possible time to trade. In this context, the phenomenon “FOMO” (fear of missing out) should also be mentioned. It’s about the fear of missing out on something, which can lead to severe psychological distress.
- Greed : It can pose a particular threat to traders as they may carry out irrational operations that do not conform to the original plan.
- Euphoria : This emotion can also lead to risky operations. You shouldn’t let her guide you, as this could have serious consequences.
Psychotrading: control is everything!
In order not to be guided by risky or negative feelings, emotional control is required. Psychotrading and other strategies are therefore very helpful:
- You have to be able to lose.
- Stick to the original trading plan as much as possible.
- Control all risks and conduct extensive market research. Don’t forget that capital management is fundamental.
- Continuously improve yourself by reading, listening, interacting with other traders, etc.
- Take breaks and take time out.
Do you already have experience with psychotrading? Psychological aspects are essential in the professional world, because emotions determine our behavior and our decisions. This is why emotional control is particularly important in trading.
