Psychotrading: what it is and what it is for in the investment world

The world of trading, or what is the same, the sale of shares is quite complicated. In addition to knowledge and experience, it is necessary to have a cool mind, be rational and avoid that our instincts and impulsiveness play tricks on us.

But, of course, we all want to make money and avoid losing it. That the price of a share goes up invites us to buy more, and if on the contrary it goes down, it prompts us to sell them before we lose money.

That is why the management of emotions is so necessary, understanding them through great emotional intelligence, aspect that studies psychotrading. Let's see it next.

• Related article: "Emotional management: 10 keys to master your emotions"

What is psychotrading?

Being a good investor is not easy. Not only does it require knowledge of economics and markets, but also to gain experience, manage the risk, knowing why you are investing, when to buy a share and what is its most profitable value, among others aspects. However, and despite having the necessary theoretical and practical knowledge, emotions can play a very tricky game.

Poor management of emotions in the field of stock trading can hurt us. For this reason there is psychotrading, a discipline that combines psychology, economics and the world of finances helping to understand how our emotional facet influences the buying and selling of stocks and other assets.

Psychotrading or trading psychology can be defined as control of emotions when operating in trading. Basically, it is the application of good emotional intelligence in the world of stock trading.

The emotions of investing

Psychotrading is a relatively recent discipline that is still developing its corpus of study. Try to study investments in the stock market and other markets, highlighting the relevance of emotions when carrying out stock transactions. It is difficult to take off the emotions of investments, but the truth is that it is possible, helping to make a decision decisions much more thoughtful and thoughtful and, consequently, taking fewer irrational risks and obtaining more Benefits.

The most experienced traders are very clear that the emotional factor influences a lot in the realization of investments. Therefore, those who have more experience, try to share this with beginning investors, highlighting the importance of knowing the great influence that emotions have on decision-making in the market. Thus, knowing this influence, it is possible to learn to control emotions and avoid mistakes that can make us lose a lot of money.

Robots are not commonly used in the investment world. Most of the decisions that are made in this world are made by people, people who have feelings. As is logical to think, these emotions influence the decision-making that is made with the budgets and donations of the investors, mediating in the purchase and sale of assets.

Although the range of emotions that we can experience in the world of finance is wide, the three main ones that we can highlight are euphoria, fear and greed. The first two are especially important, being expressed and lived in absolute terms, which is why which should be banished from decision-making with actions since they can make us err more ease.

Going a little deeper, let's understand how emotions influence trading:

1. Afraid

In this context, mainly it is fear of losing. It is normal that, seeing that the price of the shares is reduced, we get a little panic at the thought that we have bought some shares that are not going to generate income of any kind.

This generates anxiety and tension, fueling the phenomenon of FOMO (Fear Of Missing Out), making us sell shares before they reach a lower value than we bought them and have at least a minimum gain.

This, in the short term, can be positive as long as we have not lost, but what if the shares rise again? What if we have sold shares that are now worth 4 times more than what we got back in the day?

Fear makes us make decisions quickly, acting from the precautionary principle, but it can lead us to make the mistake of missing a very good opportunity.

2. Euphoria

Euphoria is an emotion that usually appears when the price of our shares skyrockets. Seeing that some stocks that we buy for little are now worth a lot gives us a real feeling of joy, even ecstasy.

The feeling of euphoria it can lead us to make uncontrolled decisions, for example, to buy many more shares investing our savings in a look and close of an eye.

For a given moment it may seem that the price is going up unlimitedly, but what happens if it stagnates? What if it goes down again? Wouldn't it be better to sell some stock rather than buy new ones?

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3. Avarice

Greed is said to break the bag and this is perfectly applicable to the world of trading. This emotion can lead to irrational decisions, such as buying and buying, confident that sooner or later the share price will skyrocket.

Before doing anything, we must think that we are not sure, we are not sure if this will go up or down, so buying a bunch of stocks like there's no tomorrow is a huge risk.

We must know when to stop, as much as we want more, by buying a few shares that we think could have some productivity and avoiding abusive buying of them.

How to manage these emotions?

Psychotrading It involves knowing the emotions that take center stage in the stock market. Knowing them is a great step to avoid their influence, which can be truly harmful because it prevents us from rationally deciding what to do. This is why managing these emotions is so important. For this, it is essential to have a good, consistent trading plan, and adhere to it rigorously from the first moment, avoiding that emotions, instincts and pressure cloud our judgment.

Any action that involves the use of money must be operated with discipline and reflexivity. It is logical to be a bit flexible, since there are many times when we are presented with opportunities that we cannot ignore, however, we cannot allow it to take the helm of our economic decisions what our heart tells us instead of having a cold and calm mind, thinking meticulously and thoughtfully what to do with our money.

Then We will see a series of practices to consider when buying and selling shares. It should be said, however, that the objective of this article is to inform, and that nothing that is explained here is a meticulous guide on how to invest in the stock market, but some aspects that could be of help to the trader.

1. Be humble

You have to be humble when dealing with money. Everyone can have a good streak in which after several days in a row the price of their shares has increased, however, sooner or later that can go down again. Thus, you should not build castles in the air thinking that you will earn a fortune or that it is no longer worth considering buying and selling other shares. There is nothing for sure in this life.

2. Disconnect

From time to time you should disconnect from everything related to trading. Money is something that can become an object of obsession and it is not healthy to be aware of the price of shares 24/7, how much or how little it rises and falls, how much money we have already earned... Obsessing will cause us to lose control, causing us to make risky and ill-considered decisions. For this reason, a period of peace and disconnection should be sought from time to time, keeping the mind occupied with other matters.

3. Routine and discipline

As we have commented before, routine, discipline and perseverance are the best allies to prevent the emotions that may arise from transactions cloud our judgment. Order and concentration, avoiding making decisions that are out of plan and exaggerated, will prevent us from having scares. Likewise, it is worth mentioning that some flexibility is necessary to take advantage of the opportunities that may arise, but you still have to maintain a method, a personal guide of what to do.