Falsely Created Expectations
Many novice traders may believe that it is very easy to make money, especially when they are trying a broker service using a free practice account.However, if these traders manage to generate a sudden substantial return, it can lead them to believe that trading is an easy occupation - one in which revenue can be quickly generated with little work by the trader. For the inexperienced, one good pick can make it seem like market speculation is the key to success and wealth.
Unfortunately, when these inexperienced speculators overtake this virtual investing environment and decide to start trading live accounts and risking real money on the market, the activity becomes much more complex. In many cases, the days of outstanding day-trading performance come to look suddenly and distressingly like old souvenirs - it is an abrupt initiation into the pitiless reality of the financial markets.
Real Life vs. Practice
When new traders take the leap from their virtual trading accounts to trading with real money, they enter into the most difficult step of their initiation to trading: trading psychology.In other words, while it may be easy to trade when the risk of loss does not exist, when the trader's hard-earned dollars are thrown into the mix, his or her focus and price objective can go out the window. Often, traders using virtual accounts will feel relatively comfortable even when the market moves against the positions they enter. This allows them to keep their focus on their price objective and wait for the market to get moving in the right direction. Because there is little consequence tied to "virtual money", personal emotion does not interfere. Unfortunately, when a trader's actions come to affect the gain or loss of his or her own personal assets, that trader is less likely to behave in such a methodical way.
Emotions Can Rule the Trade
Feelings generate what psychologist Roland Barach calls "mindtraps" in his book, "Mindtraps: Unlocking the Key to Investment Success" (1988). Roland Barach provides a collection of 88 lessons explaining the pitfalls, such as fear and greed, that hold many traders back.
Greed
Fear
Paralyze by Analyze
Paralyze by analyze is an interesting phenomenon in which traders get so caught up in analyzing everything about a potential investment, they never actually pull the trigger on the trade. In this case, what often happens is that the investor will constantly question all of the little details found in the analysis in an attempt to perfectly analyze a situation. This is a truly unachievable task, which can prevent a trader both from making monetary gains and from making experiential gains by getting into the trade.A wide range of other emotions can rule a trader, but the important thing for any market participant is to recognize these emotions.
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