Stock Indices Psychology: Emotions Fear and Greed
Greed
Most investors are not satisfied with 20 % - 40 % profit annually, what they want is double or triple their stock index trading account equity.
With right investment strategy, the stock index trading market can certainly be very profitable but greed is always a factor in any human endeavor, especially in investing. Greed in Stock Indices Trading leads to over trading. When an investor falls into this trap, there is a greater potential to risk too much. Greed can cloud your judgment quicker than anything else. This is where self-discipline can help you maintain your focus & your profits, to maintain discipline investors require to use the right psychology principles.
Stock Indices Trading psychology - teaches you how to fight your greed & set realistic goals. Greed is what makes most investors to lose. Profit is never enough. Everyone wants to earn more money. Well, some traders do succeed once or twice. That's called good luck. But short term profits mean nothing. If you focus on good risk management in the long term you'll keep winning.
A good principle is, not to use more than 5% of the margin, & not to risk more than 2% on any one single transaction.
Fear
Fear is another emotion in psychology that affects the stock index trading markets. Poor trading practices, such as taking on too much risk with excessive number of transactions can magnify the normal stresses of the stock indices market place. The best way to combat fear is to learn and understand how emotions affect the stock indices markets & learn how to avoid these emotions when trading the stock index trading market.
Identifying long term trends can improve trading results, identifying these trends can help you plan the best investment strategy so that you can maximize profits, while at the same time keeping emotion of fear at bay.
Sometimes, however, psychology problems have nothing to do with your stock indices strategy. They are the results of pre-existing problems that will not be solved by different strategies & methods. Your biggest enemy when trading is you. It is not the stock indices market or the brokers. It is you! If you do not have a professional Stock Indices mindset then you will make the wrong decisions and lose money on a consistent basis.
Stock Indices Trading psychology teaches courage. In Stock Indices Trading it takes a lot of courage, patience & experience to make huge profits.
Hope
Hope can cause investors to make mistakes when it comes to investment decisions, especially when it comes to staying with a losing position for too long. Exit points exist for a reason & losses should be kept to a minimum.
The market might be driven by emotions but it can also be predicted: because it has ALWAYS been driven by the same basic human emotions.
Stock Indices Trading psychology - is based upon how well you know yourself to be able to profit from your strong points, as well as control you weak ones, it has a lot to do with how successful you'll be when it comes to investing. When you truly know yourself, then you're aware of how you are going to react under certain circumstances & you as a trader can use protect yourself from self-damaging actions or decisions when it comes to managing a transaction.
The right mindset can be a tool that can help an investor control and predict their emotions so that they are able to make correct decisions based on facts. The lack of this psychology can be a hindrance to success since the movements of the stock index prices are pretty unpredictable.
The right psychological outlook can help investors face the issues and make sound decisions in the end. There should be a balance among all the different aspects of trading that determine whether an investor will be successful when transacting.
System Mindset
This is a part of the Stock Indices Plan about mindset
MINDSET/PSYCHOLOGY
- Invest without Emotions (greed, fear, anticipation, impulse, bias, overexcitement)
- I trade what my eyes see not what I feel.
- I will be patient.
My job isn't to be the trade system!
It is not to decide which signals looks promising.
That is the job of my stock indices system. My system has a set of rules which tells me this is what I follow. Do not get caught up in stock index price action and make rules as you go along.
MY JOB DESCRIPTION IS
To sit patiently and wait for my system to indicate that it is time to enter or it is time to exit. And then with great focus I execute my strategy as planned.
Taking trades not indicated by the system, second guessing system and not taking those given, hesitating & getting in late, anticipating and getting in early are all common place and boil down to lack of faith in system & not having a burning focus on accurate execution.
GOAL: To have 100% undivided focus on mastering my ability to execute my system accurately.
The more you develop the ability to step back from stock index price movement & watch stock indices market dispassionately, waiting for a signal, the easier it'll be to witness fluctuations of your emotions without getting sucked into them and allowing them to throw you off your game.
WEAKNESS
- I am greedy.
- I over-trade
- Make a list of all your weaknesses that are interfering with your stock indices strategy. This is the first step to help you overcome these weaknesses. Use psychology to help you overcome them.
Note: by writing down your weaknesses you'll start recognizing them as you progress, once you do this you'll start to avoid this mistakes & your results and profit will improve.
To learn how to write these guidelines on your Stock Indices Trading plan, read the Stock Indices Trading plan guide at the key concepts guide section.
