When speaking about exchange trading you cannot miss such an important component as emotions. Traders often mistakenly believe that charts and trading strategies are of the most importance. However practice shows that it is quite the contrary. According to experts, a strategy accounts for 10% in terms of the payout of a binary options trader. It follows that you don’t need to have a super intellect in mathematics to trade successfully. Factors such as trading psychology and capital management account for 60% and 30% respectively. We have already discussed capital management in details. As for trading psychology, it is time to learn more about the subject which is very important for every trader.
If you do not follow your trading strategy to the full extent then it does not matter how good your trading strategy is. Experience shows that it is not an easy task for every trader. If you make trades against your trading strategy which you have selected for yourself then you will most likely not be able to win but will also learn nothing from it.
What kinds of feelings and emotions have the most negative impact on a trader and prevent him from winning?
Fear is one of the strongest emotions. From a trader’s point of view it is primarily a fear of losing. Nevertheless a fear of losing means losses for a trader more often than not. For example, when your trading strategy signals you to make a trade but you have a fear that it will turn out to be unprofitable and you reject the trade without good reason or reduce value of the options substantially to minimize your losses. However it is the quickest way to making little profits. Therefore the emotion of fear is one of the most destructive for a strategy.
These emotions are even more evident when you lose one or two trades and don’t wish to make any new ones. It also means that you deviated from a trading strategy because no one strategy will guarantee absolute profitability. That’s why a trader must not lose his enthusiasm in the case of a loss because continuous progress is the only key to future winnings.
These emotions have an opposite impact on traders but in fact they have the same or, maybe, even more destructive effects. For example, if you make a trade which can cause you to lose more funds on your deposit than you’re allowed to and lose your funds; it can be called greed because you are trying to earn a large sum of money instantly. By doing this you will lose a lot of money since the losses incurred in one trade will exceed most of your previous profits.
Another kind of greed is buying an option which has no chance to expire in-the-money. Some traders will buy it anyway because when they are very greedy they hold onto any signals even weak ones and don’t follow strategy to make profit. It is clear that it will also end badly.
These emotions are easy to determine because they are the strongest ones. In particular, when a trader loses his enthusiasm after a loss, he expresses both his fear of further losses and ego. In other words he considers mistakes made by the trading strategy as his own. As we know, the strategy allows a certain number of losses, and it is not worrisome but if a trader personalizes the loss it will continue as source of uncertainty until he abandons trading entirely.
Another popular scenario when
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