Stock market and Psychology – #2 by MarginCaller – General – Trading Q&A by Zerodha

Psychology mainly refers to the mental or behavioral characteristics of an individual or a group. Stock market psychology refers to the ability to identify and manage emotions and behaviors that may arise while trading.

As it is also evident, the price of a stock is primarily dependent on the demand of the stock in the market. There are skills required to trade and invest successfully in the markets which include evaluating a company’s fundamentals, studying the trends, waiting for the right time, developing and following your strategies and be disciplined. Apart from this, what is also important and plays a key role in increasing one’s success rate is how one behaves after entering or exiting a particular trade/investment. You may follow the metrics of technicals and fundamentals, but having your emotions in place is also an important metric to be in the market for a longer duration.

Psychology is a big part of the stock market investment and if well understood, can help prevent financial setbacks.

A good trader is the one who knows when to exit and book their profits or accept losses rationally and has a practical approach and is not emotional. The “Hope” that a particular stock will move in a certain way once you enter the trade will not really work unless you have luck favoring you. Get in the game with a strong mental capacity of acceptance if the outcome is against you and get out when you know it’s the time. Stick to your trading plan.

Human beings sometimes do not have control over their emotions, the one who understands this well, may use it against the one who does not and end up winning in the market or cutting down on losses. A person’s mindset is as much as important as the other attributes and systems of a trade.

The emotions such as greed and fear often lead to irrational investment decisions. However, crowd psychology also contributes to a huge movement of stock prices but with many of them entering without any evaluations of their own.


The Fear of Missing Out is probably a new trend that is leading many to enter into trades without strong research and exiting it because that is what the majority of them seem to be doing. This somewhere also relates to the herd mentality which in long term does not really help an individual as it creates dependency and makes a person reluctant to develop his own trading system and strategies. Emotions such as greed, fear, jealousy, excitement, etc drive the FOMO in an individual making him/her act upon it.

In the current scenario, while millennials entering the markets, FOMO has turned out to be a major reason for many entering into the trade.

Here I am not against a FOMO trader, however, I believe that one must have a proper background on his trades and be a disciplined trader to have a long-term vision rather than letting one’s emotions control his/her trades. This is how winners condition their mindset and stand out.

Finally, as Victor Sperandeo rightly said, “The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.

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