The psychology behind trading is the force that makes the moves in the market. There are four psychological kinds of emotions that drive most individual decision making in any market in the world: Greed, Fear, Hope and Regret.
- Greed could be defined as a trader’s desire to trade in order to provide an unrealistic profit. Greedy traders focus only on how much money they could have made. This emotion frequently leads to ignoring proper money management and often prevents a trader from taking profits on a winning trade.
- Fear is a survival response and probably the most powerful of all human emotions. When afraid, a trader will sell a position regardless of the price. Fear usually leads to panic, which again causes poor decision making.
- Hope is what keeps a trader in a losing trade after it has hit the invalidation level. It may be the most dangerous of all human emotions when it comes to trading.
- Regret is defined as a feeling of sadness or disappointment over something that has happened, especially when it involves a loss or a missed opportunity.
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