Human beings are emotional creatures, and it is through emotion that most of us base our day to day decision making processes.
The buying and selling of stocks and shares are driven by the demand of buyers and sellers, however it is believed that demand itself, is based off emotion. Any trader will be able to tell you that when starting out, it is easy to panic and make rash decisions, due to slight variances in market price; instead one should analyse, and look towards the long-term, as that is truly where long term profits are to be made.
In retrospect there are four base emotions that most traders go through at one point within their career and that in turn, drive markets on a daily basis.
Starting with boredom, Hollywood always make the markets look like a fast paced environment, filled with exciting endeavours and nail biting anticipation thereby failing to depict the true nature of what it really entails.
Whilst this is true, large trades only come once every so often, most of time you are just sitting there on a computer analysing Bloomberg and Google Finance.
The fear is, that if you get bored, you might start to make bad trades just for the sake of making trades. If you find yourself in this predicament, you might want to step away from your desk for a little fresh air, or just simply discuss your thoughts with your fellow co-workers.
In my humble opinion I believe that every trader should come to terms with the fact that they are, at the end of the day, human and therefore make mistakes. Failing to do so may lead to a form of depression. The market isn’t out to get you, the sun will still come up in the morning bringing with it lessons learnt.
From all the emotions that drive market decisions, the two that stand out are those of fear and greed; these essentially apply when traders are being too bullish or too bearish.
With fear, one may note it taking place when investors are worried over negative markets, which was and is the case over the past recent months. On the other hand with greed, investors would be pushed by grossly positive markets, resulting in a bubble effect.
Knowing this creates opportunity, as stated by Warren Buffet, one is to” be fearful when others are greedy, and greedy when others are fearful”.
These four emotions must be controlled by anyone wishing to make long term financial success in the markets, however you have to learn these skills by trading over solid strategy, and planning out your next move ahead of time.
Disclaimer: This article was issued by Steve Diacono, Intern at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.