Trading Psychology and Behavioural Finance and Why It Matters  Trading Psychology and Behavioural Finance and Why It Matters  Trading Psychology and Behavioural Finance and Why It Matters

Trading Psychology and Behavioural Finance and Why It Matters

Mind Over Money key principles

Saxo Group

Summary:  The stock market can get the better of our emotions, which is why learning about trading psychology and behavioural finance can help you understand (and control) your impulses, so you can invest with a clearer mind.


“The investor’s chief problem –  and even his worst enemy –  is likely to be himself,” said Benjamin Graham, the British-American economist. 

Investing can trigger a lot of emotions, no matter if you're an experienced trader or a first-time investor. Fear, anxiety, and stress about money can overwhelm even the calmest of individuals, especially when markets plunge.  

So how can you invest without letting emotions cloud your judgement? How do you mute the noise of a world that seems to be in constant crisis mode, and act with clarity and reason- – so you can reach your financial goals?  

Of course, there is no best strategy, but what if learning how to manage your emotions could help you become a more successful investor or trader?  

What is Behavioural Finance?

The study of the psychological aspects of investing and trading is often referred to as Behavioural Finance, or Trading Psychology. But what exactly does this mean? And why should you care?  

Behavioural Finance is the study of why and how people make financial decisions (both the irrational and rational). This academic focus was created with the hope that maybe if we can understand why we make decisions against our own interests, perhaps we can make better, less biased choices the next time around. 

Trading psychology refers to an investor’s emotional and mental state while making investments in the stock market or entering and exiting an investment platform. While every investor is different, the primary emotional catalysts associated with trading psychology include greed, fear, and regret. Also, positive emotions like confidence and pride can influence whether an investor secures a profit or sees heavy losses. 

Key Emotions

For example, feelings of greed can distract your judgement and rationality. This desire for wealth may trigger irrational investing, where you conduct high-risk investments or purchase shares without conducting proper fundamental and technical analysis.  

Likewise, fear is a powerful emotion that can cause you to exit markets too soon. Investors may also refrain from taking risks because of the fear of loss. Fear can sometimes turn into panic, which can cause us to make anxious, impulsive, irrational decisions. 

Positive emotions like confidence can also have negative implications when it is not balanced or reaches extreme levels. For example, one concept in behavioural finance is self-attribution. Self-attribution refers to an investor’s tendency to make decisions based on overconfidence in oneself, or a particular market, which may lead to heavy losses if investors wait too long, thinking the market will make a comeback. 

Get to Know Yourself

An important part of managing your emotions when investing and trading is understanding what triggers you psychologically when stocks become volatile. Once you understand why you feel what you feel, then we recommend learning some strategies to help you cope, so you don’t react impulsively next time the markets turn.  

Whether you are prone to anxiety, decision paralysis, fear, or even over-confidence, our series Mind Over Money was created to help you navigate the markets (more) mindfully during this unprecedented time in our world. 
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.