It has been proven time and time again that human behavior is directly influenced by emotional dynamics and human unconsciousness. The psychological phenomenon applies to financial markets and trading as well.
In stock market trading, market behavior is largely driven by trading psychology or the emotions of the people trading the market. Therefore, it is critical to know how traders might behave when trading the stock market. The behavior of the people trading the stock market is driven by their emotions. These emotions include envy, shame, pride, contempt, depression, love, anxiety, anger, fear, disgust, sadness, and surprise.
For example, when a trader feels pride, they start to think they’re invincible. They get greedy and increase their position size. They start to believe that they are the best trader in the world, and this leads them to take risks that 9 out of 10 times would result in a loss.
The Problem with Emotional Trading and Why You need to Step Away from It
No emotional investing—this should be your motto when trading the stock market. Often, people trading the stock market are confused about whether to react to a market trend or stick to their long-term plan for trading. For many, it can be difficult to curb their emotions and stick to plan. While you may think that you have nerves of steel and are immune to any kind of emotional buying or selling, you are human after all and can easily give into your emotions.
According to the experts in neuroscience and the behavioral economy, biases are an inherent part of the human brain and personality. Since we are driven by our emotions, some traders will be overconfident in trading the stock market and will take ‘too many’ risks. Others will be different and will look to minimize losses at the first indication of trouble. Also, as humans, we are biologically programmed to find patterns in information that is not related to the stock market.
While we can try, it is virtually impossible for us humans to completely erase how we have been wired. Additionally, more and more people are realizing that managing behavioral biases rather than ignoring or suppressing them is the way to go. When it comes to stock market investments, most of the decisions are influenced by emotions. It is important to find out how this happens exactly. Mike Ervolini—the CEO of Cabot Investment Technology—provides some clues by pointing to the discovery made by neuroscience that says it’s impossible to make a choice without emotions.
In addition to gaining an understanding of how our emotions influence our decision in stock market trading, we need to leverage AI software to analyze historical trading patterns and returns to determine if traders have been trading based on their emotions.
Emotional trading is proven to be more counter-productive than productive. It is seen that when investors traded based on their emotions, they got about only half of the market’s return. This is because they were buying and selling based on greed or fear. The good news is that this problem is solved by automated investing or AI investing software of iFlip.
The AI investing software from iFlip doesn’t operate on greed. Instead, it takes your best interest into account. The best part is that you don’t have to look at anything. Just let it go. iFlip has found that the investors who allow automated investing to do its job get the best returns. Those who make manual modifications see fewer returns.
Believe us, no emotional investing is the way to go in stock market trading. We, at iFlip, can help you with this by providing the best AI investing or automated investing / trading software.
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