Market psychology is a trading mantra to become successful in the stock market.

The trading mantra for success lies inside the minds of participants. Decoding those is called Market Psychology.

To become successful in the stock market, every trader and investor is to work hard to understand the market in its depth. Learning all the technical aspects, a trader mostly leaves behind the main trading mantra of success i.e. Market Psychology.

What is Market psychology?

The psychology of the trader while participating in the market is market psychology. You can simplify it as the psychology of the market, in which the market means the participants of the market.

A trader usually thinks that if I can forecast any move of stock or share, I can make a trade and earn money. Ain’t that easy.

How does Market psychology work?

Suppose a trader analyse that stock “NETFLIX” is going up move with a rally of 20%. First thing, an analysis is only an analysis. Not even a single person cracked a market, who can say that if he sees a rally then it should rally.

Now there an emotion starts playing. Once you are not confident about your move, you should place a stop loss. Let’s suppose a stop loss of 5% is there for the reward of 20%.

The problem occurs when the stock starts going up and it had reached a 7% rally, and now it is correcting itself for 4%. That is the point of trigger.

A trader is now expecting the stock to go up, but a stock can go back to its stop loss. This can lead to the vanish of the trader’s profit plus a little of its capital, while he was about to gain 7%. This is called the emotion of Fear. This emotion made him sell his trade when he was 7% up.

Second, the emotion of Greed made him ride to 20%.

Both emotions are disturbing the trader at every fluctuation. Not only this move but there are also several points of trigger come where a trader loses his consciousness and falls into his emotional trap.

The point of trigger comes at a point of entry and exit. If you are a trader, you do trades, then you must have felt those emotions.

The real trading mantra of the share market

A good trader never gets insane with the noise of the market. He is disciplined and strict in the action he had thought before the trade. Here are some factors a trader must follow to improve his market psychology.

1. Always decide your stop loss before placing an entry into the trade.

If you have entered the market without a figure that is below what price you will not be happy to stay in that trade, the market will let your mind flow with the price and it will also start fluctuating with the noise of the market. An unstable mind can never generate profit from the stock market. So, a stop loss is important and should be in your mind before entering the market.

2. Keep yourself disciplined while trade

Once you have admitted that this is my stop loss eg. Rs 90 and your entry is at Rs 100, make sure you will exit at 90 and not fall into the emotion of hope.

If you will adjust your stop loss after entering into a trade. most chances are that you adjusted your SL because you are being emotional about your trade. Remember, the market doesn’t respect your emotions and your thinking. Market respects your analysis and your discipline and she will reward you only for your discipline in your analysis.

3. Don’t get biased in the stock market

The stock market is not a platform for egoistic people. The price in the market makes patterns on every second basis. If a trader becomes egoistic then he has not the ability to turn with the price. The trading mantra in the stock market is to follow the trend.

Suppose a trader is expecting a bull run. The price after some time is indicating to you that there are fewer chances of a bull run now, but a trader is biased and trapped in his own ego. He is now expecting the market to show a bull run.

These moments are heartbreaking moments for a trader because a trader comes back into the consciousness not after entering into a false trade but when he took a good loss from the market.

The market doesn’t give you the time to be aware of the trade till the exit if you have not entered into the trade while entering.

Best books on Market psychology

A lot of books are there which can explore the depth of market psychology. Few I am writing down here. It will surely help you to understand the market in a better way.

The Disciplined Trader by Mark Douglas

The New Trading For A Living by Dr. Alexender Elder

Unholy Grail by Nick Radge

Keep Learning, Keep Trading.