السبت، 10 مايو، 2008

Psychological aspects of investing


Psychological aspects of investing

One of the most important factors for success on the FOREX, commodities and equity markets is investor’s psychological ability to take the financial risk and act under pressure. All the traders operating on OTC derivatives markets should have a selective thinking ability, capability of accepting the loss and avoiding market pressure.

Ability of selective thinking - the separation of the trader's own considerations and market forecasts from currently possessed market position. Thinking about market through currently owned position is most often wishful thinking and has nothing to do with actual market situation. Most often traders that do not have any real position achieve very good results, however when real money is considered, they are not capable of achieving analogical results.
Second problem of OTC derivatives traders is a lack of acceptance for a certain level of loss. Most often traders. while they close the position, satisfy themselves with small profits, however when a position generates a loss, they find it difficult to close it, as they imagine that soon the situation will change for the better. This behavior may lead to unlimited risk and exposure and excessive financial losses, that could have been otherwise avoided. It is the trader's psychology that tells him to believe up to the end in a positive transaction conclusion, ignoring basic money management principles.
Ability to avoid market setting’s pressure relies on the skill to make trading decisions without consideration for the market environment. Traders should be able to select from the surrounding information ‘noise’ only the essential news and not give in to pressure from the environment.

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