Binary Options Trading Psychology. 3 Real Culprits of Trading Failure
Any trader can master his trading skills, become an expert in chart interpretation or develop excellent understanding of financial markets, but trading success or failure is not only a matter of knowledge, education and skills. When strong emotions come into picture, all meticulous planning and polished trading techniques seem to fade from existence until there is nothing left but disappointment and financial loss. Sooner or later every trader realizes that binary trading psychology has a great effect on the profits or losses and such emotions as greed, panic, elation, excitement, lack of confidence can force him to break his own trading plans and make mistakes. Trading success or failure is a direct consequence of traders’ choices, and if technical errors can be easily corrected by changing a trading strategy, emotional pitfalls can cause a long lasting damage and their identification and correction can be quite a battle. A trader who masters the psychological aspect of trading is on a right way, and all the rest is just a matter of practicing and education, before the desired outcome is attained.
Trading Psychology: Fear
One of the main culprits behind trading failure is fear of loss. This emotion is a part of natural defense mechanism in stressful situations. When it comes to trading, fear can manifest itself in many different shades such as fear to lose the money invested on a trading account, fear of missing out on potential profits, fear of failure, etc. Strong fear can cause several types of psychological response. Fear may have a “freezing” effect on a trader causing him to be too hesitant in his trading decisions and miss perfect trading opportunities. Aggravated fear can lead to irrational actions, when a trader gets so frustrated that unconsciously he starts doing everything to get out of this stressful situation. Wiping out an account by placing irrational trades or “suicidal” trading is an unconscious reaction to a stress factor, which is quite common.
Fear should be distinguished from cautious trading approach. A trader who trusts his own logic but avoids unnecessary risks has more chances to develop trading strategies which really work and grow more profitable and reliable over the time. Fear can tell a trader to stop and reevaluate his decision when the situation requires so. Fear can be quite difficult to overcome but it is possible with the right mindset and determination. Psychologists believe that the first step is recognition and awareness. And after that a progress can be achieved by a logical, calm approach to trading and planning. And do not forget, you should never invest in your trading more than you can afford to lose.
Trading Psychology: Greed
In many cases, greed can have a huge impact on traders’ behavior and cause unexpected loss in situations when the result should have been the opposite. Greed is a strong motivating factor, in some cases it is synonymous to drive or inspiration, the emotions which are quite helpful as long as they are not overpowering rational thinking and discipline. Greed becomes unhealthy when it starts directing trading decisions, when logic steps aside and responses become inadequate.
It is quite natural for people to be money oriented. Money is a driving force behind many aspects of human life, but in trading it is very important to see the fine line between healthy motivation and greed. The first step for avoiding negative effects of greed is ensuring planning, discipline and eliminating overexcitement from the decision making process. By sticking to a trading strategy from the beginning and throughout the whole trading process, greed driven actions can be replaced by rational decisions, based on analysis and study.
Trading Psychology: Euphoria
Euphoria can arise after a series of winning trades causing a burst of adrenalin and high hopes for unlimited wealth and prosperity. At this point of excitement traders need to remember that their trading success is determined by their rational trading decisions and solid trading plans. A streak of winning trades is not necessary indicative of future trading results, and traders should learn not to get carried away by euphoria of trading success.
The danger of euphoria in case of the novice trader who doesn’t possess enough expertise and skills is that a sequence of profitable trades can make him believe that his understanding of trading process is impeccable, set unrealistic targets and take unnecessary risks. To deal with euphoria and other problems associated with binary trading psychology, traders should learn to control their emotions and minimize the impact of impulsive decisions on their trading plans.