Trading Psychology

 

Just as markets go through cycles, so do the emotions of a binary options trader. Regardless of how well traders try to control their emotions during trading, it is impossible to push them aside completely. What many do not realize is that the emotions associated with trading often cycle through, repeating themselves over and over again. Before a cycle can be broken, it must first be recognized.

The following stages and cycle tend to be most common in trading. Consider each and what it will mean in terms of trading activity.

Optimism

Nearly all trades are initiated with a feeling of optimism serving as the driving force. This makes perfect sense, as no experienced trader would make an investment based on a feeling of negativity.

Excitement

This feeling will be generated when the trade goes live. It can be further enhanced by the asset price moving in the predicted direction.

Thrill

Should the asset price continue to move along with the prediction and the expiry time period ending draw near, thrill will be the next emotion.

Euphoria

The point at which maximum risks amounts to maximum reward. Profits may seem to be coming easily, telling our brain that any investment we make will surely be a good one.

Anxiety

The feeling that comes when the binary options trader realizes that not every investment will be profitable, regardless of recent successes. The feeling of anxiety may still not be strong enough to halt investing temporarily, as the euphoric feeling continues to linger.

Denial

At this point traders simply do not want to accept that there was some flaw in the binary options strategy used. Surely, there is a problem with the system and not the trader, right?

Fear

Reality hits hard in the form of realizing that unwise investments have been made. Some will close trades and retain some profit when feeling fear. Others may linger in confusion and continue to accumulate losses for a period of time.

Desperation

With the gains gone, desperation may cause the trader to begin considering any number of investments which may restore some of the profits which have been lost.

Panic

A powerful feeling associated with the brain telling the trader that they have absolutely no control over the market and therefore cannot control losses. This is of course an irrational line of thinking.

Capitulation

This will be the breaking point that comes just after panic. This emotion may prompt the trader to close trades early or take any other action to avoid larger loss amounts.

Despondency

A feeling that binary options trading is simply not a good idea and should be avoided at all costs. Oddly enough, those who reach this phase rarely realize that it presents real financial opportunity.

Depression

A time for reflection, looking back upon the trading mistakes that were made and led us to this point. Many will try to pinpoint the exact moment where things went wrong. This emotion can actually be a valuable learning tool.

Hope

With depression waning, hope of being able to actually profit from binary options trading will re-emerge. With mistakes in the past, most will realize than a few adjustments can make a world of difference.

Relief

The feeling that comes from seeing that all is not lost, and yes, you do have the skills required to profit from binary options trading.

Being able to recognize these stages and emotions for what they are can allow a higher level of control over them. It may even be possible to skip past the emotion stages which are least beneficial. Much focus is placed on learning the mechanics of trading. By placing at least some focus on the emotional aspects, traders will be less likely to make costly mistakes.