Market Psychology – Dealing with Proper Entries
May 11, 2020 By: Gaurav Taneja, Financial Trainer, Venteskraft
Most of the times, traders are frozen at the screen waiting for the perfect entry to come. And the other traders, they just imagine a perfect entry forming in front of them and they straight away jump into the trade. Both of them are completely opposite of each other and the funny thing is both of them are wrong. Trading is not a scenario where extreme behaviour helps, you always have to keep a balance between every aspect. And in trading dealing with proper entries is most important.
I will explain you the reason, why I told both of them are wrong. Let’s take the first case where the trader is not executing the order. Majority of the time the trader was waiting and the perfect entry came, the trader did not enter and the perfect entry went away. What was the result? Nothing, the trader couldn’t utilise his knowledge and couldn’t enter on the trade. In the second case the trader got excited and assumed that the movement in front of him is the ideal one, and he entered but in this case the perfect entry never existed. And what was the result? Loss, the trader who hurried into the trade made a loss.
Now after analysing both the cases we can come to this conclusion that neither they are good nor they are bad. Because after making a loss, at least the trader could learn something. But the trader in case one could not learn. In case one, the trader did not make any loss, he was where he started. But in the second case the trader made a loss and went into negative. Which we would discuss that affects us in a negative way as well.
This was the shallow reason to the main story, but when we dig a little deeper, we will find something more. Actually there is an important aspect, that is, perceiving the profit/loss (which has not yet happened) but might happen if taken a trade. The trader sometimes gets overconfident about the trade and start imagining the profits he might earn if he takes the trade. And that feeling pushes him in executing a wrong trade. And the other trader he keeps on thinking about the loss that he might incur if taken the trade. So in both the cases the traders are focusing more on the result than the process itself.
So to those traders who get super excited before the trade, they should think that there is proportionately a risk attached to the trade. Only then they will stop before taking the trade and think the negative outcomes (if any) of the trade. During excitement the loss seems to be less, which makes it less risky and they wouldn’t be affected if the trade gives them a loss. They should give both the outcomes of the trade the same importance.
And in case of the other trader he should be focusing less on losing the money. Because every time he thinks about losing the money he just gets even doubtful about his trade. Ultimately nothing is earned from the duration of trade, neither the money nor the learning.
In the coming blogs of the Market Psychology series, we will ponder over the feelings and emotions
which govern our trade during the trade, and sometimes even after the trade is over.
