Finance Psychology: How To Begin Thinking Like A Pro Trader (Workbook)

Finance Psychology: How To Begin Thinking Like A Professional Trader

Trading psychology is becoming more and more important for investors. Even the newcomers to this business increasingly understand that the psyche plays a very important role in order to be successful on the stock exchange. No wonder, since the constant ups and downs on the markets are largely caused by the emotions such as fear and greed of speculators themselves.

Professional traders assume that about 80 percent of trading success is determined by the psyche. Some even speak of 100 percent. Scientific studies on this topic also clearly prove: Above all emotions decide on victory or defeat, especially fears have a great effect. After all, they significantly influence the actions of the players. In addition, excessive expectations and illogical patterns of thought and behavior make the path to profitable trading more difficult.

At the beginning, trading seems to be a kind of Formula 1 race of money multiplication for many. If one takes a closer look at the wishes of the trading beginner on a psychological level, his all too human intention becomes clear: he wants fast, secure profits and usually completely ignores the risk of loss. Moreover, many people do not want to take responsibility for their trading decisions. Instead, they blame others for mistakes or losses.

Professionals behave differently. For them, trading is a professional business, which is mainly determined by risk. They see their task as managing it. To do so, they need certain previous knowledge and skills.

In the following chapters, you can read about the mental ways of thinking and acting that are necessary to be permanently profitable on the speculative capital market. But you will also learn how to expose typical mistakes and how to eliminate them effectively.

I hope you enjoy reading it.

Financial psychology - origin until today

Financial psychology is a relatively young branch of psychology. It investigates how people behave and experience when dealing with money or money-related products. This science focuses primarily on the perception and processing of information related to financial products.

In the financial sector, the research area of Behavorial Finance has stood out. This field of research emerged in the early eighties in the USA. It combines traditional economic research methods with expert knowledge of psychology. The research results of Behavioral Finance can help private investors and professionals to better understand their actual motives for investment decisions on the speculative capital market. They make it clear according to which patterns of thought and behaviour the players usually act.

Behavioral Finance assumes that investors act in an illogical way, mainly due to unconscious behavior. There is a well-known saying: If you want to be smarter than the market, you have already lost. If you are aware of your irrational behaviour, you have a chance.

The fact that stock market events do not result exclusively from rational behaviour was described by the eminent economic theorist John Maynard Keynes as early as 1936 in his major work The General Theory of Employment, Interest and Money.