The Psychology of The Stock Market And You Should Know About It

The stock market fear, psychology that traders have to deal with.

By stuart Miles-freedigitalphoto.net

The stock market has caused many of us to be so fearful, it’s completely normal. Yet we think it’s one of the best ways to grow our money in a very short time.

The ability to make us a lot of money in a very short time make us forget about its draw downs’ ability. You may not acknowledge this side of this market on your wining days, but it’s there waiting for you to lose your money.

Frank Kollar who is the owner of Fib Timer has made it clear to us about how to overcome fear when trading. Because he knows we all will be feared at some point. Being feared trading is a factor of trading, our mental state is being involved.

We all feel fear at some level because we know of the risk that we are taking. But trading with fear can affect the way we address our trades.

For this reason, we ought to do our best not to let our fear dictates the way we go about our trades.

The psychology of the stock market

Trading does not only require knowledge, it also requires us to be mentally strong. If you’ve experienced taking a timed exam, you should have a pretty clear idea as of how important it is to have a good mental state. it’s the same way for trading, because you do feel the same pressure.

Penny stock’s prices change rapidly, many of us enable this rapid change in prices to affect us when deciding on our trades. We even let this put pressure on us to get involve in the market as soon as possible, although we may not really ready for the day. This is where a good mental state comes into play.

Fear of buying stocks after a loss

It’s not a good feeling to lose straight out of a previous loss. But this should not keep you away from trading; as a trader, day trader, to be more specific, you have to be able to handle losses. There’s no other ways around this, we all have to lose at some point.

It’s a part of trading that we don’t enjoy, but we can’t do nothing about it.

Heck, even Financial advisers lose money trading penny stocks. Jeff Rose, a Financial Adviser and owner of Good Financial Cents lost $5,000 from a penny stock due to his own mistake.

What he did was accepted a pump from one of his clients. I call it a pump because this client was definitely a stakeholder of this company from the way Jeff explained this story.

Although his client may have not done that consciously, it’s still a pump because it can yield the same result. Or it did actually yielded it, since we don’t know whether or not his client loss his money as well.

The client was telling me how this company had just signed some new deals and since it was a penny stock, otherwise known as an OTC or over-the-counter thinly traded security, there wasn’t a lot of news about it.  His theory was that this penny stock could soar pretty quickly.

Jeff knew everything that his client did not know, that’s exactly the reason why this client was seeing Jeff in the first place, to give him advice on his trades. Jeff admitted that he was getting advice from his client instead of it being the other way around.

But, this is all because of the mental temptation of this great news from his client. He did not think about the negative side of the outcome since the news was a positive one.

However, if you have read the article in this link, you can see that some positive news do not necessarily bring good results.

That’s exactly what happened here to Jeff, but the psychology associated with this news had the best of him, which caused him his money.

The moral to Jeff’s story is that anyone can lose money trading penny stocks. It does not matter if you’re a regular trader, a Financial Adviser, or even a guru you can still lose money in this market. No one is immunized when it comes to trading and losing

It is a part of the trading world, we have to find the best way to deal with it. However though, always try to keep your loss at a minimum. That’s your only way of managing that, try to lose less.

You’re in this market to win, though you can’t prevent losses, you can diminish them. Try to do that in order to make profits from your trades.

Time your trades correctly

According to Peter Leeds, Properly timing when to sell your shares is very important. If you’re not doing so it’s like trading without any strategy which is a method that drives you toward failure.

The same way you need an entry point, you do need an exit point as well. Don’t let your adrenaline get the best of you, you’re in charge of your portfolio and the way you go about your trades.

You do not want to look for a point of exit while your stock is in an upward trend, because it will be very difficult for you to accept the fact that you have to sell your shares while the price is going up.

But, if you had timed your trade and you knew where exactly you’re going to sell your shares, it’s going to be less difficult on you.

I say less difficult because some traders tend to change their plan as their going. I hope you’re not one of them, stay with the plan is most likely to be in your advantage than changing it.

Trading on hope

According to Deron Wagner, “Hope may be the most dangerous of all human emotions when it comes to trading.” This is straight gambling, if you tell me this is how you trade, you have to stop gambling.

When someone gambles, he’s hoping to win. Before he puts his money into the game there’s nothing that signals him that he might win.

We don’t do our trades through this method because we know better not to do so. But hoping while trading means that you’re gambling.

Before you enter some positions you have to be sure that the outcome may be in your advantage. I know there’s no way that you can be sure of that, but doing your research prior to invest your money could give you a better chance at wining than losing.

Conclusion

Trading penny stock can be very fearful, it can be even worse if you have a habit of losing. But with practice you can manage to handle your fear.

If you feel like you need more practice before you trade, I would suggest that you do so by doing paper trading. This is done by playing the stock market game.

Share with us how do you manage to cope with fear while trading penny stocks. Use the comment section to add your input.

Don’t forget to share this post with your friends if it was helpful to you.

  • Thanks for contributing your important time to post such an interesting & useful collection of knowledgeable resources, that are always of great need to everyone. Please keep continue sharing.

    • P.S.Traders

      I’m glad you like it Jennifer.
      I’m doing my best to keep the info coming.