Market Psychology in Trading

Market Psychology in TradingThere is a lot more than meets the eye that goes into reading analytical charts to help you get the information that you need to place your binary options trades. It’s not just numbers on paper that go into forming the charts and there subsequent analysis. For example, Fibonacci retracement use mathematical formulas and ratios, and Elliot Wave Theory uses market psychology forces. Let’s talk a little bit more about market psychology.

Market psychology simply put, is the dominant feeling or sentiment that the market is influenced by at a particular time. It is how the human side of trading impacts the market. It is based on such emotions as fear, exuberance, greed and sometimes unfounded expectations. But if enough people are experiencing the same emotions when trading, then it can have a profound effect on price movement.

So market psychology differs greatly from standard financial theory and failure to consider it in trading can sometimes be disastrous. Conventional theories have more to do with rational behavior of the market, whereas, market psychology is somewhat of a wild card. There is definitely an emotional aspect to trading that needs to be taken into consideration.

Many traders will look at trends and patterns to see if they can assess the psychological state of the current market in order to determine and predict whether an asset will be trending in an upward or downward direction.

So one of the keys to successful trading is to triumph over your own worst enemy and that worst enemy is sometime you and other trader’s emotions. The ability to be able to look at how trader’s emotions are affecting the market can be the deciding factor in how you place your trades.

So don’t be afraid to look at the market sometimes as an extension of human behavior and patterns. Just like price movement can be charted based on past history, somewhat can market psychology also if you know what to look for.

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References and Further Reading:

1. Particle Swarm Optimization (PSO) with Stochastic Data (C Jagannathan, R Bharathwaaj – 2015)

2. MARKET TRADING (DG Pena – 2015)

3. Text mining of news-headlines for FOREX market prediction: A Multi-layer Dimension Reduction Algorithm with semantics and sentiment (AK Nassirtoussi, S Aghabozorgi, TY Wah – 2015)

4. Building a Successful Trading Portfolio That Diversifies Between Stock and Currency Trading Systems (C Brown – 2014)

5. The string prediction models as invariants of time series in the forex market (R Pincak – 2013)

John Miller
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John Miller

John has worked in investment banking for 10 years and is the main author at 7 Binary Options. He holds a Master's degree in Economics.
John Miller
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