01 March 2023
As an online trader, it is essential to appreciate the importance of psychology in online trading. There is nothing wrong with feeling various emotions as you are trading; indeed, as an online trader, they can be helpful, but they must not rule your head. We will now look at the challenges of online trading in relation to psychology and how to remain in control.
As an online trader, dealing on the back of your ideas and in control of your destiny, you will go through many emotions. These will include fear, greed, overconfidence, underconfidence, and when things go your way, a feeling that everything you touch turns to gold. However, in the world of online trading, you can bet your bottom dollar that the next challenge is pretty close!
Online trading can be fast and furious; a split-second delay could mean you miss the price and the next potentially lucrative trade. Fear works in two ways for an online trader, the fear that they will miss out on a trade which prompts them to buy at the wrong price. Fear of losing a profit can also lead to an early sale and missing out on further significant upside.
In the words of Lord Rothschild, “The reason I am so wealthyis because I always sold too soon". Greed can force online traders to retain a holding too long, trying to squeeze every last drop of profit out of the position. The problem is if you hold until the very top of the trend, you will sell when everybody else is bailing out. If you miss the turn, your profit could disappear very quickly.
These are the two main challenges for online traders, fear and greed which are prevalent in areas of everyday life but especially in the world of online trading.
Discipline goes hand-in-hand with online trading, sticking to your strategy with potentially a small degree of flexibility. If you are a "10% investor", then take your profits when they hit 10% and don't look back. As an online trader, staying true to your principles and strengths is crucial. Set clear plans, stick to your trading strategy and avoid impulsive decisions on the buy or the sale side.
One way to stick to your discipline is by relying on the data, trends and price movements instead of emotional bias. Once you start to bring emotion into your online trading, you are treading on very thin ice. So keep it cold, calculated and simple!
Such is the speed that online trading markets move today; it is difficult not to get emotionally involved when investing. You could go from the highs of a relatively large profit to a loss in a split second. So how do you avoid letting emotion take over your online trading?
There are many actions you can take which will reduce the power of emotion and return you to a cold, calculated state of affairs:-
• Take regular breaks to clear your mind
While the journal may seem a step too far for many people, when you are in the middle of a highly emotionally charged online trading strategy, it isn't easy to see the woods for the trees. However, reading back over your diary out of market hours, when relaxed and chilled, you will see patterns and triggers you probably never realised existed. This will allow you to exert greater control over your online trading, maximising your profits and minimising your losses.
The public perception of online traders is very different from the world of online trading. Yes, you have to exude a degree of confidence, sometimes bordering on arrogance, but all online traders need to have control of their emotions at all times. Many people will never have even considered the idea of looking back over a trading journal to track emotions and behaviour. The potential benefits for an online trader could be huge going forward
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