You can become a trader driven by greed. A difficult career is trading. Not everyone succeeds. You must research the markets and discover how to profit from their movement. This is not straightforward to do. The search for profitable trading methods never ends. You could discover a tactic that performs well initially, but as market conditions shift, the tactic loses its effectiveness. Making money in the aftermarket market is the challenge. Why even try? You won’t succeed if you aren’t motivated to succeed. You won’t keep trying. You won’t attempt to overcome one setback after another. Greed has a strong motivating effect.

If you’re like most people, your dream is to live forever in happiness.

People have long believed that they could solve all of their issues if they had unlimited wealth, but this belief is frequently untrue. Human minds have the capacity to deceive themselves into thinking that outlandish desires can come true. Money cannot purchase happiness, yet it may be wonderful to have enough riches to make your life more comfortable. However, the desire for wealth and the knowledge of how to acquire significant fortune through trading serves as a tremendous incentive. It can be beneficial at times to indulge in imagination and take pleasure in the drive for success. In times of adversity, it keeps us going. It provides us a goal to work for.

The Flexible Traders

The successful trader is adaptable. When it comes to carrying out a trade, flexible traders are unconcerned. They don’t second-guess their plan of action. They conduct their research, create a sound trading strategy, and when the right opportunity arises, they act without restraint. They do not challenge it. They don’t experience any self-criticism. Just like they do. They grab their winnings and go if the trade is profitable. In fact, even when they lose, they continue to trade.

They are aware that the ability to execute trade after trade with assurance and adaptability is essential for successful trading. The greater your degree of adaptability, the higher your chances of achieving and sustaining profitability.

A trader’s flexibility is influenced by both situational and personality factors. Although it can be challenging in some situations, cultivating an attitude of carelessness is important. For instance, you will never feel at rest if you are undercapitalized and have good reasons to worry losing the money you are trading. You’ll instinctively understand that you can’t afford to lose. You must trade with funds you can afford to lose and practise sound risk management. You may feel comfortable that everything will be okay in the long run if you know that you have very little to lose on any given deal and that, in the worst-case situation, you can still make a profit.

Loss is Feedback, Not Failure

Trading demands “thick skin,” just like any difficult activity. Criticism cannot readily injure a person. Being entirely open to criticism of any kind is necessary so that adjustments to one’s trading strategy can be addressed right away before losses accumulate. It takes the right mentality to be able to view criticism, which typically manifests as losses, from the appropriate angle. Instead of viewing criticism as a sign of personal failure, one must view it as unbiased input.

Most people start to establish their perspective on criticism at a young age. When kids are initially obliged to control their needs and impulses, such as when they are potty trained, according to Sigmund Freud, it may begin to develop.

However, other psychoanalysts contend that children’s ability to deal with the difficulties they face in school has a significant impact on how they learn to manage criticism.

Either a sense of superiority or inferiority develops in children. No matter when it occurs, there are huge variations in how people respond to criticism. Some people are particularly sensitive to criticism, whereas others like it.

Fear of Failure

1. Accepting Criticism.

The drive to be correct is a common trait among new traders. Because of how strong this innate human propensity is, inexperienced traders make poor trading decisions in an effort to avoid having to accept that they are mistaken. For example, they might continue holding onto a lost trade in order to record losses. In an effort to Accepting Criticism, avoid dealing with the repercussions of a poor trading concept, they could delay or postpone completing a trade. A compulsion to be correct can be oppressive in many ways. A trader who has to be right may hold back during crucial times in the middle of a trade rather than feeling free and innovative.

1.– Illusion of Control bias

Every stock market in the globe is very large. It has a large number of members who frequently buy and sell assets. None of the buyers or sellers has complete control over what happens in the market because there are so many of them and the money is divided among them. The reality is that probabilities form the foundation of the investment markets. Anyone who asserts they can anticipate the result of financial markets with 100 percent accuracy is unquestionably mentally biassed. An illusion of control bias is the name given to this bias. This essay will explain what this bias is and how it impacts a typical investor’s decision-making.

Illusion of Control Bias: What is it?

Investors sometimes have a tendency to think they have some degree of control over the results of the stock market, which is known as illusion of control bias. Some investors don’t think they have total control. Many of them do, however, think they have some sway on the market. Due to the size of the investment markets, where trillions of dollars are traded each week, this is typically not the case. Therefore, it’s possible that an individual investor or even a small to mid-sized organisation is mistaken in thinking that they have control over the market.

It’s possible that some of the investor’s short-term projections will come true.

On the other hand, it can just be a coincidence and not ultimately prove anything. Because they use strategies like limit orders, etc., to purchase and sell shares, investors frequently feel in control of their portfolios. However, because prices fluctuate within a certain range, it frequently only results in pointless buying and selling. The perception of overconfidence is directly related to the delusion of control bias.

How Can Investor Illusion of Control Hurt Them?

The portfolio of investors may suffer significantly from a mistaken sense of control. The following are some examples:

Investors buy penny stocks due to the illusion of control. This is due to the fact that they think that because the company is small, they can use their wealth to buy a sizable interest in it, giving them power over the outcome. However, because to the nature of their respective industries, many of these penny stocks are inherently dangerous. Investors only lose more money as a result of this control illusion!

Investors that have a sense of control frequently think of themselves as industry gurus. As a result, they focus the majority of their portfolio on just one particular area or business. Given that the portfolio is not diversified, here is where the issue first arises. If a negative event occurs, an undiversified portfolio is likely to see significant value swings.

Investors who have a false sense of control miss opportunities when they present themselves. They might have missed advantageous entry and exit points in a specific stock as a result of a delusion of control.

How might this illusion be avoided?

Since we’ve established that this kind of illusion is terrible for investors, it’s important to learn how to identify it and eliminate it from our thinking in order to make wise judgments.

Realizing there is no assurance when it comes to investing is the first and most important step. The return on investment serves as compensation for taking on risk. So, ideally, there wouldn’t be a need for a reward either if there was no danger!

Investors need to be aware that all forms of investment include the use of probability, thus a variety of outcomes are possible but impossible to control. Investors should strive to compile a list of all the variables that might affect a stock’s price in order to fully drill home this concept. They would discover that there are factors at the level of the government, of the competitors, of the macroeconomy, of the market, and so forth. It is nearly hard to govern this complex system because of the large number of different factors at play.

1.– Gambler’s fallacy

Let’s assume you Position sizing, are looking at the nifty chart. Let us just assume that these are some valid points for now.

1. Nifty is reached its highest point ever at 10K.
2. Given that it is a psychological level, many market participants may book profits at this moment.
3. All-time high suggests there are no points of resistance
4. Over the past few weeks, Nifty has been on a strong rising trend.
5. Maybe around these levels, Nifty might consolidate.
6. Maybe a 2% to 3% correction before the rally keeps going?

Indicates that taking a short position or perhaps buying puts is appropriate. You may do an analysis that is as basic as this or as complex as reviewing time series data and modelling it using cutting-edge statistical or machine learning methods.

Whatever you do, there is no assurance in the markets. You cannot predict the outcome with a single strategy. It’s suggests that the draws in question are reasonably random. Your chances of winning can certainly increase depending on how insightful your analysis is, but there is no guarantee and you must accept that markets are indeed random.

Imagine that you have performed a cutting-edge analysis and that you have just placed a bet on Nifty when the stop loss triggers. You persist and place another transaction, only to be stopped out once more to your dismay. Say the next four deals are repeated in this cycle.

You are confident in the accuracy of your analysis, yet your stop-loss is consistently being hit. What should you do given that you still have funds in your account to place bets, are adamant that your analysis is accurate and the markets will turn around, and still have a healthy appetite for risk?

Which option are you likely to take?

Traders frequently think that when they enter the “next” trade, long streaks will terminate. For instance, although the trader in this instance has suffered 6 losses in a row, his confidence that the 7th deal will be profitable is now very strong. This is referred to as the “Gambler’s fallacy.”

When dealing with random drawings, the likelihood of losing on the seventh transaction is actually the same as it was when you first placed your wager. The likelihood that you will succeed on your subsequent trade does not increase just because you have a string of losses.

Due to the “Gamblers Fallacy,” traders frequently increase their bet quantities without fully understanding the chances. In actuality, the gamblers fallacy destroys your position sizing philosophy and is the main cause of trading account erasure.

Also, this functions on the other side. Imagine being given the opportunity to see six or ten straight wins. Regardless of what you bet, the exchange is in your favour.

Which of the following are you most likely to do now that you are on your eleventh trade?

1. If you had enough money to stop trading, would you do so?
2. Would you take a similar amount of risk again?
3. Would you increase the amount you bet?
4. Will you play it safe, perhaps safeguard your winnings, and thus place a smaller wager?

1. It’s likely that you’ll select the fourth choice. You obviously want to keep your gains and avoid giving up everything you have made in the markets, but you would also want to make a trade given your impressive winning streak.

Another instance of the “gamblers fallacy.” You are essentially reducing your position size for the eleventh trade because the results of the first ten trades have such a significant impact on you. In actuality, the chances of this new trade winning or losing are the same as those of the prior 10 wagers.

This may explain why some traders end up generating very little money, despite entering winning trading cycles.

Position sizing is the cure for the “Gambler’s Fallacy.“

2. Overcoming trauma

The money we bring to the table is the raw material in the trading industry. How can you make money if you don’t have enough money to trade with? Therefore, in addition to protecting our cash, we must also preserve the earnings we make.

By extending this idea, we may say that if you put too much money at risk on a single deal, you run the risk of losing it all and being left with very little money.

Now, if you are trading with a small amount of capital, each trade you make will seem to be overly risky.

The climb back to where you started will be Herculean task (in terms of capital).

Lets look at this table.

What do you then? You typically take higher risks in the hopes of earning bigger gains, and if the transaction fails, you effectively succumb to the “recovery trauma” phenomenon.

The precise reason you shouldn’t put too much money at risk in any one deal, especially if you have little capital. Remember that if you can manage to stay in the game for a longer period of time, your chances of making good money in the markets increase. In order to stay for a longer period of time, you need to have enough capital, and in order to have enough capital, you need to risk the right amount of money on each trade.

It ultimately comes down to trying to achieve longer-term “consistency” in the markets, and in order to achieve consistency, you must position sizing your trades really effectively.

Our location

2.1 – Acclimating to risk

A trader must also lose every rupee for every rupee they make in profits.

This leads us to the conclusion that there must be another group of traders that constantly lose money. What is Risk Management If one group of traders continuously makes money.

As opposed to the group of traders that consistently lose money, this group of traders making money is typically small.

Their approaches to money management and their perceptions of risk distinguish these two groups. According to Mark Douglas’ book, “The Disciplined Trader,” money management and strategy account for 80% of a trader’s performance. 

Similarly, Risk assessment plays a big part in money management and related areas. So in this way, understanding risk and its many forms become vital at this stage. For this reason, let’s simplify risk to its most basic level in order to comprehend it better.

The likelihood of losing money is the typical layperson definition of risk in the context of the stock market. You run the risk of losing money when you trade in the markets, so be aware of this. For instance, whether you like it or not, when you purchase a company’s shares, you are taking a risk. Additionally, risk can be divided into two categories at a very high level: systemic risk and unsystematic risk.

Why do you stand to lose money, if you think about it? Or otherwise, what may cause the stock price to decline? There are a lot of reasons, as you can imagine, but here are a few:

1. Declining business outlook
2. decreasing profit margins
3. management incompetence
4. Margin reduction due to competition

Each of these has some level of risk. In fact, there may be a number of additional, related reasons, and the list is endless. You’ll notice that each of these hazards has one thing in common: they are all risks that are particular to the company.

The simple fact is that the events involving the corporation are solely to blame for the decline in stock price. The price decline is unaffected by any further outside causes. The decline in stock price at that time can only be attributed to internal or company-specific issues, which is a better way to phrase it. Unsystematic risk is the word used frequently to describe the danger of financial loss brought on by company-specific (or internal) factors.

You can diversify unsystematic risk by investing in a few different businesses rather than putting all of your money in one (preferably from different sectors). This is referred to as “diversification.” Investment diversification significantly lowers unsystematic risk.

1.1 – An exceptional possibility

We are eager to explore two significant and connected market subjects.What to expect in stock market psychology, “Risk Management and Trading Psychology.” Risk management may appear simple, but “psychology” may be uninteresting. I assure you that both of these subjects have the potential to expand trade opportunities. For instance, risk management goes beyond the typical subjects of position sizing, stop loss, and leverage.

It is not what you are thinking. While trading psychology is a mirror of your activities in the markets, it also enables you to evaluate and determine why and how you made a specific trade or investment profitable or unsuccessful.

What to expect?

We can give you a basic overview of What to expect in stock market psychology, but as we go through, I reserve the right to make minor, if any, changes to the learning technique.

Consequently, we are focusing on two primary issues here:

1. Risk management
2. Trading psychology

The methods you use to control risk depend on where you stand in the market. When you have a single position in the market, for instance, your risk management strategy is quite different from that of numerous positions, which is again very different from that of a portfolio, which is different still.

I shall discuss the following subjects as I try to explain the aforementioned:

1. Risk and all of its guises
2. Position sizing: I suppose this one must be covered.
3. individual position risk
4. Hedging and multiple position risk
5. Using options to hedging
6. Portfolio characteristics and risk assessment
7. Worth at Risk
8. The effect of asset allocation on risk (and returns)
9. The portfolio equity curve’s insights