Getting involved in stock trading is looked upon as quite a bold step as it involves lot of risks. Various experienced and successful traders have opined that when a trader starts losing, he begins to become a more or less a better trader while managing his dealings. Experts dealing with ‘Trading Psychology’ tell us that a good day for a trader can be described as a day which starts with extensive research and planned work accompanied by discipline and complete focus followed through the entire plan duration. A trader must not be jittered with the initial failures/ or losses but should focus on the areas that led to such failures and create a better plan for the next venture. This will create avenues for the investor to receive appreciation in the form of profitable ventures.
The stock market is very unpredictable and displays a temperamental behaviour on a daily basis. According to experts, it is important to concentrate on the factors that a trader can control rather than the reasons which cannot be controlled. The traders should abide by a realistic approach instead of achieving perfection in the trading business. There are three basic strategies, to stop losses, formulated by experts in this industry. These are:
- Price based
- Time based
- Indicator based
Price based strategies are applied when other two strategies haven’t worked. This strategy will best work when the investor has located a low point in the particular market. This is done so that the trader can set his/her trade entries near the located points, thus offering him/her the choice of limiting losses using the right approach and a detailed research and by drawing the correct hypothesis.
The time based strategies are deployed to make use of the investors’ time in an appropriate manner. This strategy refers to situations where the investors has allotted a specific amount of time to a particular stock trading, however has not made any profits during the estimated time period. In such a situation, he/she should stop dealing with that particular stock and move on with the trading venture but with a different stock this time.
With the indicator based strategies, the investor needs to identify the relevant market indicators. The indicators that the investor needs to concentrate on are volumes, advances, declines, and new highs and lows.
Perhaps in the entire trading community, the study reveals that there are predominantly two types of psychologies prevailing. These are: Individual Psychology and Group Psychology. An individual psychology is basically derives its inspiration from the behaviour of a single individual trader. On the other hand, if an investor is drawing conclusions from the actions and patterns exhibited by a group of traders, he is apparently referring to a trend followed in group psychology.
Apprehending the trend followed by a group in stock trading is quite important as most of the times people have tried to follow the direction at which a group is moving and on most of these occasions they’ve encountered losses. But if one has to derive conclusions from history, an astute investor can profit usually by doing quite the opposite of what seems logical. This leads to the estimation that a consensus indicator is not a precise indicator.
The bottom line is that trading contrary to the general opinion is effective. It is seen on a regular basis and which is also an often misunderstood proposition that whenever a herd follows a certain path, that path has usually already come to an end.