What is the psychology of trading?

To be successful in financial markets, a stockbroker must possess a wide range of skills: The ability to understand the internal workings of a company, its fundamentals and the ability to determine in which direction trends are moving are just some of the Necessary keys, although none is as important as knowing how to keep emotions at bay and maintain discipline.

The psychological aspect of stock trading is extremely important for a truly simple reason: A broker performs many different operations in a short space of time and this forces him to make quick decisions. For this, it is a priority to have a certain presence of mind. At the same time, by extension, you need discipline so as not to deviate from the previously established plans and know when to post losses and gains. In no way can you allow emotions to get in your way.

When a broker’s screen flashes red (sign that values ​​are low) and bad news arrives about some kind of market, it is not uncommon for fear to arise. When this happens, you may overreact and feel driven to liquidate your stocks and get cash, or refrain from taking any risk at all. However, by doing everything possible to avoid losses, profits can also be lost.

Brokers must understand that fear is only a natural reaction to a threat (in this case for its benefits or potential transactions). Pondering what they fear or why they fear it can have a positive effect when it comes to reacting correctly.

At the same time, by analyzing this topic in advance and knowing how it can react instinctively according to what events, a broker can isolate and identify those emotions that appear during a stock market session and thus focus on overcoming them. Of course, it may not be easy for you and may require practice, but it is vital for the good of your portfolio.

On the other hand, greed is also common in an investor and is not easy to overcome, since most of us have the instinct to improve, to always get a little more. A broker should recognize this instinct if it is present and develop stock plans based on rational decisions, not in quantities or in potentially dangerous emotional impulses, since the desire to “earn more” makes us irrational and can have catastrophic results in profits.

It would be advisable to set limits on the amount to be earned or lost in a day. This is a very useful practice for investors, since sometimes it is better to “take the money and run”, although the temptation to keep playing is very big.

Learning is vital. Brokers should learn as much as possible about their area of ​​interest. For example, if your operations are focused on telecommunications securities, it is logical that you specialize in this type of business. To do this, we must start by formulating a self-education plan. If possible, go to stock exchange seminars. Equally, it is very useful to plan and dedicate as much time as you can to the research process. That is to say: to study listings, to speak with managers, to read newspapers of stock exchange information, etc. Thus, when the sessions begin, you can save a lot of time. A broad knowledge can help you overcome fear, so it is a very useful tool.

It is also important that you consider experimenting with new ways of working from time to time. For example, use new options to mitigate risks or establish different points where to stop losses. One of the best ways to learn is by experimenting, but always within common sense. This experience can also help you reduce emotional influences.

Finally, a broker should periodically examine and assess his performance, if he is ready for the trading session, to what extent he is up to date with the markets and how he progresses in terms of continuous learning, among other things. This periodic exam can help you correct errors, which could have a positive effect on your benefits. It can also help maintain a correct attitude and be psychologically prepared for business.

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