Investment Psychology

Over the years, i have done lots of research and studies, as well as my own experience, taught me that investment psychology is what separates the pros and newbies.

By natural all people are emotionally attached to their money. Here i would assume that the money we use to invest have already defined as nonessential to your well being. Thus, we must cultivate a habit of emotional detachment from the money we invested. (Well, i'm saying emotional detachment not indifference) Else each wrong investment will end up with stress, worry and fear.

Greed is the greatest barrier that we should overcome when we come to investment. Most of the time, it causes those who started up well to end up with huge loses. So in order to overcome greed or become emotional, we need to set our goals, i mean realistic goals! When we reach our goal, and if it is time to get out the market, just do it! No point risking yourself for that few more dollars that you think you could earn.

Besides greed, overconfidence is another emotional component that we should be aware of. One very profitable trade can induce us to become "gung-ho" and trade with bigger amount, or increase the number of trades that one could effectively manage. Overconfidence tends to breed avarice and eventually it leads to financial shakiness.

So how do we overcome it?
-trade with the money we can afford to lose.
-try to "listen" to the market instead of impose our will on the market.
-don't be too close to the market, if you are making a longterm investment.
-don't get too elated over a win or too depressed over a loss.
-do not panic but make adjustment to your trading strategy.
-treat investment as a business and not a hobby.
-golden rule to follow, buy low and sell high.