The trade4trade logo symbolizing global trade

Trading instincts

Trading psychology tells us a variety of psychological factors may impact the financial decisions that people make.

The concept further purports that these factors can result in behaviours like biased thinking, irrational choices, or subpar knee jerk actions. Trading psychology also highlights the significance of self-awareness, effective risk management, emotional regulation, and a balanced mindset to navigate the stress that trading evokes and make rational decisions.

Trading instincts are a key component of an individual’s trading psychology. They refer to those gut feelings or intuition that a trader often develops over time or through trading experience. They’re usually acquired through ongoing learning and practice, and require staying informed about market news and events, and economic indicators.

The ability to trust your trading instincts means having self-awareness. You must be able to make the distinction between a decision based on rational, informed data from one driven by emotions and feelings. It’s understanding that the line between objectivity and subjectivity can become easily distorted and finding the ways to separate the two is critical for successful decision making.

Trading instincts are typically impacted by 3 psychological phenomena. Let’s explore these in more detail.

Sensory-derived bias

Sensory bias is derived from the notion that we form an opinion using information that may be biased. We constantly gather data from multiple sources all around us. This action is what allows us to operate day to day.

 

It also helps us to learn. However, not everything we hear is necessarily unbiased fact, even if we think it is. This often stands true if we are exposed to one viewpoint on a particular topic or event repeatedly. Without anything to counter that viewpoint, an opinion is likely to be formed based on “one side of a story”, likely turning “fact” into bias.

Avoiding the vague

This concept refers to fear of the unknown. It is an action whereby we avoid something we don’t know, something unfamiliar, something that may (or may not) occur. In the world of trading, this type of behaviour may lead to a very low tolerance for risk, and thus unprofitable financial outcomes.

There are a variety of reasons that avoiding the vague comes about. Losing money may be one reason. Another lesser known reason is the fear of making money. This is because the trader may become scared that their gains will be lost, either through tax obligations or by other means, like aggressive market fluctuations.

Tangibility of anticipation

Tangibility of anticipation usually occurs when the feeling of anticipation becomes the focus, instead of attaining what you anticipated at the offset.


That feeling of anticipation can become so all-consuming, almost addictive, that the trader loses sight of achieving what they anticipated. Notably, anticipation is influenced not only by objective analysis but also by the collective psychology of market participants.

Youtube Icon on T4Trade Site: Connect, Share, and Explore Financial Insights with our Social Media Presence.
T4Trade Live TV

Thank you for visiting T4Trade

This website is not directed at EU residents and falls outside the European and MiFID II regulatory framework.

Please click below if you wish to continue to T4Trade anyway.

Thank you for visiting T4Trade

This website is not directed at UK residents and falls outside the European and MiFID II regulatory framework, as well as the rules, guidance and protections set out in the UK Financial Conduct Authority Handbook.

Please click below if you wish to continue to T4Trade anyway.