Trading Psychology

Don’t let the crowd drag you down in trading

The cult of success and wealth is a fairly widespread theme in trading. We are bombarded with stories and statuses of successful traders from all sides, giving the impression that trading is the privilege of successful people. As a result, many traders get sucked into impulsive behaviour and end up with zero in their account instead of success. How can you avoid this?

Whether we want to or not, our environment is constantly influencing us, but it doesn't always have to be a positive influence. In today's information age, where we have an incredible amount of information at our disposal, the negative influence of society, and social media in particular, is a rather hot topic that should not be underestimated. In trading, this topic is even more relevant, as the pressure for quick and high profits is quite high in the trading community.

Media and social networks as a trap

Watching daily media reports about successful investors who have made billions of dollars or social media posts where young and successful traders present their luxurious lifestyle can be very tempting on the one hand, but also quite frustrating.

On the one hand, it can motivate us to be more diligent and disciplined in our efforts to improve. For most inexperienced traders, however, it has the opposite effect. Trying to keep up with the best can lead to unrealistic expectations, which then lead to unnecessary risk and subsequent frustration. Traders then underestimate the risks associated with trading in the pursuit of quick profits, trying to trade with the crowd instead of following their strategy, and are permanently at a loss. They often experience a phenomenon known as FOMO (fear of missing out), which in turn leads to unnecessary overtrading and further losses.

Information inflation

Information inflation is also a problem nowadays, which overwhelms traders with a disproportionate amount of information from various sources, such as various analyses, economic reports, blogs, discussion forums, etc. Thus, traders often receive conflicting information and forecasts that they are unable to process effectively, which then leads to distraction and an inability to focus on important information.

Traders are then unable to make informed decisions and hesitate when executing their trades because they lose confidence in their strategies. This then leads to unnecessary stress and anxiety or a loss of motivation on the one hand and impulsive behaviour that is not based on their strategy on the other.

How to counteract this?

The basis of success is self-reflection and recognition of the factors that negatively affect the trader and situations that make them act impulsively under pressure. At the same time, it is good to monitor your results and focus on personal growth, education and improving your trading skills.

Filtering the information a trader receives is very important. It is important to learn how to think critically, distinguish between relevant and irrelevant information and then focus on information that has a positive impact on the trader's thinking and trading strategy. This should be done by setting a time interval when the trader watches market news and analysis from the markets, and by setting firm boundaries between watching the markets and resting.

Of course, the development of a trading plan helps the trader to focus on his goals and to strictly follow it. It is important to set realistic goals and expectations so that the trader understands that losses are part of trading. Discipline and maintaining a trading journal are essential components of every trader's toolkit. These practices help traders track their results, stay focused on key objectives, and adhere to their strategy regardless of external influences.

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