What is Stock Psychology?

Stock Psychology refers to how emotions and sentiments have an impact on decision making in trading and investments. Stock Psychology explains the behavior of market participant when there is panic or sudden change in Market Directions.

Stock Psychology is important as it directly impact the decision making of participant and has impact on individual Finances.

Types of Psychological Trades

Psychological Loss Over-Coming Trades:- 

In Stock Market, Losses are part of the trade. As the participant trades psychologically, he want to trade as to recover the losses and inturn he will be landed in huge losses.

Psychological Over Confidence Trades:-

Many Market Participants believe themselves to be more skilled then other participants, which make them over confident and it results in Huge Losses as they will regret to book small losses.

Overconfidence trader feels his decision is always right and regrets to understand the dynamic Market.

Psychological Excitement Trades:-

When a Newcomer comes to Stock Market, he will trades in Excitement before understanding the Dynamics of the Market .Especially, Retail Traders trade in Excitement before understanding the market.

Fear of Missing Opportunity:-

Many Participants trade in view of missing an opportunity and land up in Losses. Many Participants trades on Market rumors which have a huge volatility.

Long term Perspection:-

Many Participants will invest in Stock Market for Long term Perception. Participants are not interested to change their View on Stock, even though their is Fundamental negativity in Stock, as they are psychologically attached to the Stock.

Importance of Psychology in Investing and Trading -:

• Psychologically, Emotions will affect the decision making of Participant.
• Discipline and Consistency will be affected, if the Participant is trading with weak Psychology.
• Risk has to be managed efficiently.
• Participants will not be interested to take small losses and end up in Capital Destruction.

Steps to overcome psychological trading -:

Stick to Your Strategy -:

Investor and Trader need to stick to their strategy rather then emotionally connecting to the trade.

Risk Management -:

Investor and trader need to mitigate their risk and should ready to take Losses or else ending up in Huge Losses.

Avoid tips and Unwanted Chaos -:

Investor and trader should avoid tips especially from unregistered portfolio managers, they should not relay on suspected News and Rumors.

Keep Learning -:

Depth of the Stock Market is like an Ocean, Investor and trader has to be updated and should be Learning on Constant Basis.

Avoid Emotional Trades -:

Investor and Trader should avoid emotional trades, especially Long term investors who will rarely alter the stocks even though there are Fundamental changes in the Stock.

Keep Trading Record -:

Investor and trader has to Maintain the trading Record, to learn from the Mistakes that have been done in Past. Especially, trader has to maintain the activity Log to overcome the Psychological and emotional Mistakes.

Conclusion-:

Trader and Investor should understand that Market is Dynamic in Nature and will not behave in Same manner all the time. Many factors are responsible for the Movement of market. Investor and trader cannot track all the factors, he need to understand that if his trade decision is wrong, he should be actively altering his position, rather sticking to the trade Emotionally and Psychologically.