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Trading psychology is the emotional component of an investor's decision-making process, which may help explain why some decisions appear more rational than others. Trading psychology is characterized primarily by the influence of both greed and fear. Greed drives decisions that might be too risky.

Trading Psychology

Understanding our emotions

  • Emotions

    Some of the most common emotions traders experience include fear, nervousness, conviction, excitement, greed and overconfidence. A common cause of fear is trading too big

  • Psychology

    Trading psychology can be associated with a few specific emotions and behaviors that are often catalysts for market trading. Conventional characterizations of emotionally driven behavior in markets ascribe most emotional trading to either greed or fear

  • Behavior

    Traders should reflect on their emotional tendencies, identify patterns of behavior, and acknowledge the impact of emotions on their decision-making.

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Some common emotions include euphoria (intense excitement or elation), which could lead to overconfidence and excessive risk-taking; fear, which could result in fixation on short-term losses, panic-driven sell-offs, or inaction due to uncertainty; and despondency (deep despair), which could cause traders to fixate on.