Psychotrading: What It Is And What It Is For In The World Of Investments
The world of trading, or in other words, the buying and selling of shares, is quite complicated. In addition to knowledge and experience, it is necessary to have a cool mind, be rational and prevent our instinct and impulsiveness from playing tricks on us.
But, of course, we all want to make money and avoid losing it. If the price of a stock rises, it encourages us to buy more, and if, on the contrary, it falls, it prompts us to sell them before we lose money.
This is why the management of emotions is so necessary, understanding them through great emotional intelligence, aspect that psychotrading studies Let’s see it below.
Being a good investor is not easy. Not only is knowledge of economics and markets required, but also acquiring experience, managing risk, knowing why you are investing, when to buy a stock and what its most profitable value is, among other aspects. However, and Despite having the necessary theoretical and practical knowledge, emotions can play a very bad trick
Poor management of emotions in the field of stock trading can harm us. For this reason, psychotrading exists, a discipline that combines psychology, economics and the world of finance, helping to understand how our emotional side influences the purchase and sale of shares and other assets.
Psychotrading or trading psychology can be defined as controlling emotions when trading Basically, it is the application of good emotional intelligence in the world of stock trading.
The emotions of investments
Psychotrading is a relatively recent discipline that is still developing its corpus of study. Try to study investments in the stock market and other markets, highlighting the relevance of emotions when carrying out stock market transactions. It is difficult to separate emotions from investments, but the truth is that it is possible, contributing to making much more thoughtful and reflective decisions and, consequently, assuming fewer irrational risks and obtaining more benefits.
The most experienced traders are very clear that The emotional factor greatly influences making investments For this reason, those who have more experience try to share this with beginner investors, highlighting the importance of knowing the great influence that emotions have on decision-making in the market. Thus, knowing this influence it is possible to learn to control emotions and avoid mistakes that can cause us to lose a lot of money.
It is not common for robots to be used in the world of investments. Most of the decisions made in this world are made by people, people who have feelings As it is logical to think, these emotions influence the decision-making that is made with the budgets and donations of investors, mediating the purchase and sale of assets.
Although the range of emotions that we can experience in the world of finance is wide, the three main ones that we can highlight are euphoria, fear and greed. The first two are especially important, being expressed and lived in absolute terms, which is why they must be banished from decision-making with actions since they can make us err more easily.
Going a little deeper, let’s understand how emotions influence trading:
1. Fear
In this context, mainly it’s fear of losing It is normal that, when we see that the price of the shares is reduced, we feel a little panic when we think that we have bought shares that are not going to provide us with any kind of income.
This generates anxiety and tension in us, fueling the phenomenon of FOMO (Fear Of Missing Out), making us sell the shares before they reach a lower value than we bought them and at least have a minimum profit.
This, in the short term, may be positive as we have not lost, but what if the shares rise again? What if we have sold shares that are now worth 4 times more than what we got at the time?
Fear makes us make decisions quickly, acting from the precautionary principle, but it can lead us to make the mistake of wasting a very good opportunity.
2. Euphoria
Euphoria is an emotion that usually appears when the price of our shares skyrockets. Seeing that shares we bought for little are now worth a lot gives us a real feeling of joy, even ecstasy.
The feeling of euphoria It can lead us to make uncontrolled decisions, such as buying many more shares investing our savings in the blink of an eye.
For a moment it may seem as if the price was going to rise unlimitedly, but what happens if it stagnates? What if it goes down again? Wouldn’t it be better to sell some shares rather than buy new ones?
3. Greed
It is said that greed breaks the bank and this is perfectly applicable to the world of trading. This emotion can lead to irrational decisions such as buying and buying trusting that sooner or later the price of the shares will skyrocket.
Before doing anything, we must think that we are not sure, we are not sure if this is going to go up or down, so buying a bunch of stocks as if there were no tomorrow poses a huge risk.
We must know when to stop, no matter how much we want more, buying a few stocks that we believe could have some productivity and avoiding abusive purchases of them.
How to manage these emotions?
Psychotrading It means knowing the emotions that take center stage in stock market actions Knowing them is a great step to avoid their influence, which can be truly harmful because it prevents us from rationally deciding what to do. That is why it is so important to manage these emotions. For this, it is essential to have a good, consistent trading plan, and stick to it rigorously from the first moment, preventing emotions, instincts and pressure from clouding our judgment.
Any action that involves the use of money must be operated with discipline and reflexivity. It is logical to be a little flexible, since there are many times in which we are presented with opportunities that we cannot ignore, however, we cannot allow what our heart tells us to take the helm of our economic decisions instead of having a cool and calm mind, thinking meticulously and thoughtfully about what to do with our money.
Next We will see a series of practices to take into consideration when buying and selling shares It should be said, however, that the objective of this article is to inform, and that nothing explained here is a meticulous guide on how to invest in the stock market world, but rather some aspects that could be helpful to the trader.
1. Be humble
You have to be humble when operating with money. Everyone can have a good streak in which after several days in a row the price of their shares has increased, however, sooner or later that can go down again. Thus, You should not build castles in the air thinking that you are going to make a fortune or that it is no longer worth considering the purchase and sale of other shares. There is nothing certain in this life.
2. Disconnect
From time to time you should disconnect from everything related to trading. Money is something that can become an object of obsession and it is not healthy to be aware 24/7 of the price of shares, of how much or little it goes up and down, of how much money we have already earned… Obsessing will cause us to lose control, causing us to make risky and poorly thought out decisions For this reason, you should look for a period of peace and disconnection from time to time, keeping your mind busy with other matters.
3. Routine and discipline
As we have mentioned before, routine, discipline and consistency are the best allies to prevent the emotions that may arise from transactions from clouding our judgment. Order and concentration, avoiding making decisions that are out of plan and exaggerated, will prevent us from having scares. Likewise, it is worth mentioning that Some flexibility is necessary to take advantage of opportunities that may arise, but it is also necessary to maintain a method a personal guide to what to do.
