Shah Saud

Introduction to Psychology in Trade Trading in the financial markets is a highly technical activity. To become successful as a trader, you need good understanding of the financial markets and how they work, you need a good understanding of the companies you trade in, you need the technical expertise to analyze market trends, as well as a great understanding of the factors that move the market. Still, even with all these technical skills, it is impossible to become a successful trader if you lack one key attribute – the trading psychology. The trading psychology is basically the right mindset and the ability to think on your feet, remain disciplined and exercise control over your emotions even when the market is going against your expectations. Psychology is the scientific study of the mind and behavior. Psychology is a multifaceted discipline and includes many sub-fields of study such areas as human development, sports, health, clinical, social behavior and cognitive processes. Psychology is really a very new science, with most advances happening over the past 150 years or so.  However, its origins can be traced back to ancient Greece, 400 – 500 years BC.  The emphasis was a philosophical one, with great thinkers such as Socrates (470 BC – 399 BC) influencing Plato (428/427 BC – 348/347 BC), who in turn influenced Aristotle (384 BC - 322 BC). Philosophers used to discuss many topics now studied by modern psychology, such as memory, free will versus determinism, nature versus nurture, attraction etc. The Beginnings of Psychology as a Discipline In the early days of psychology there were two dominant theoretical perspectives regarding how the brain worked, structuralism and functionalism. Structuralism was the name given to the approach pioneered by Wilhelm Wundt -), which focused on breaking down mental processes intro the most basic components. The term originated from Edward Titchener, an American psychologist who had been trained by Wundt. Wundt was important because he separated psychology from philosophy by analyzing the workings of the mind in a more structured way, with the emphasis being on objective measurement and control. Structuralism relied on trained introspection, a research method whereby subjects related what was going on in their minds while performing a certain task. However, introspection proved to be an unreliable method because there was too much individual variation in the experiences and reports of research subjects. Despite the failure of introspection Wundt is an important figure in the history of psychology as he opened the first laboratory dedicated to psychology in 1879, and its opening is usually thought of as the beginning of modern experimental psychology. An American psychologist named William James -) developed an approach which came to be known as functionalism that disagreed with the focus of Structuralism. James argued that the mind is constantly changing and it is pointless to look for the structure of conscious experience. Rather, he proposed the focus should be on how and why an organism does something, i.e. the functions or purpose of the brain. James suggested that psychologists should look for the underlying cause of behavior and the mental processes involved. This emphasis on the causes and consequences of behavior has influenced contemporary psychology. The Perspectives of Psychology Structuralism and functionalism have since been replaced by several dominant and influential approaches to psychology, each one underpinned by a shared set of assumptions of what people are like, what is important to study and how to study it. Psychoanalysis, founded by Sigmund Freud -) was the dominant paradigm in psychology during the early twentieth century. Freud believed that people could be cured by making conscious their unconscious thoughts and motivations, thus gaining insight. Freud’s psychoanalysis was the original psychodynamic theory, but the psychodynamic approach as a whole includes all theories that were based on his ideas, e.g., Jung (1964), Adler (1927) and Erikson (1950). The classic contemporary perspectives in psychology to adopt scientific strategies were the behaviorists, who were renowned for their reliance on controlled laboratory experiments and rejection of any unseen or unconscious forces as causes of behavior. Later, the humanistic approach became the 'third force' in psychology and proposed the importance of subjective experience and personal growth. During the 1960s and 1970s, psychology began a cognitive revolution, adopting a rigorous, scientific, lab-based scientific approach with application to memory, perception, cognitive development, mental illness, and much more. The Goals of Psychology The four main goals of psychology are to describe, explain, predict and change the behavior and mental processes of others. These are as given in the following lines. To Describe Describing a behavior or cognition is the first goal of psychology. This can enable researchers to develop general laws of human behavior. For example, through describing the response of dogs to various stimuli, Ivan Pavlov helped develop laws of learning known as classical conditioning theory. To Explain Once researchers have described general laws behavior, the next step is to explain how or why this trend occurs. Psychologists will propose theories which can explain a behavior. To Predict Psychology aims to be able to predict future behavior from the findings of empirical research. If a prediction is not confirmed, then the explanation it is based on might need to be revised. For example, classical conditioning predicts that if a person associates a negative outcome with stimuli they may develop a phobia or aversion of the stimuli. To Change Once psychology has described, explained and made predictions about behavior, changing or controlling a behavior can be attempted. For example, interventions based on classical conditioning, such as systematic desensitization, have been used to treat people with anxiety disorders including phobias. Critical Evaluation Kuhn (1962) argues that a field of study can only legitimately be regarded as a science if most of its followers subscribe to a common perspective or paradigm. Kuhn believes that psychology is still pre-paradigmatic, while others believe it’s already experienced scientific revolutions (Wundt’s structuralism being replaced by Watson’s behaviorism, in turn, replaced by the information-processing approach). The crucial point here is: can psychology be considered a science if psychologists disagree about what to study and how to study it? Trading Psychology: Beyond the Basics The psychology of trading is often overlooked but forms a crucial part of a professional trader’s skill set. The fundamental psychological factors of a trader’s personality often come to the foreground when trading activities start to generate significant profits and losses, since many people experience strong feelings when making and losing money. Trading psychology has been studied extensively by many researchers, typically to determine what type of trading mindset and personality type are most successful in terms of generating consistent trading profits. Several of these researchers have written important books on the subject that traders can read to gain insights into their own activities and whether or not they are psychologically suitable to become a successful trader. What is Trading Psychology? Trading psychology is a broad term that includes all the emotions and feelings that a typical trader will encounter when trading. Some of these emotions are helpful and should be embraced while others like fear, greed, nervousness and anxiety should be contained. The psychology of trading is complex and takes time to fully master. In reality, many traders experience the negative effects of trading psychology more than the positive aspects. Instances of this can appear in the form of closing losing trades prematurely, as the fear of loss gets too much, or simply doubling down on losing positions when the fear of realizing a loss turns to greed. One of the most treacherous emotions prevalent in financial markets is the fear of missing out, or FOMO as it is known. Parabolic rises entice traders to buy after the move has peaked, leading to huge emotional stress when the market reverses and moves in the opposite direction. Traders that manage to benefit from the positive aspects of psychology, while managing the bad aspects, are better placed to handle the volatility of the financial markets and become a better trader. The Challenge of Trading Active trading as a profession presents many challenges to an individual entering the marketplace for the first time. Statistics are not encouraging, with most empirical evidence suggesting that an individual's trading career will be brief and expensive. Longevity in the marketplace among new traders is predominantly fleeting. Academic studies focused upon the length of time new traders remain active show that nearly 40% last one month in the market and only 7% remain active after five years. In addition to the short trading career, a novice trader's entrance into the financial markets can also prove expensive. The amount of monetary loss sustained by a new trader during his or her introduction into the marketplace can vary wildly, and is ultimately dependent upon how much capital is at the trader's disposal. In addition, reckless implementation of leverage by an inexperienced trader can rapidly turn a manageable drawdown into catastrophe. While it's true that active trading produces many more losers than winners, the possibility of success does exist. Personal anecdotes of financial gain, the impressive track records of famous investors and profiles of day traders who took small amounts of venture capital and subsequently built fast fortunes are easily found through some basic research of the trading industry. Perhaps the most compelling evidence that trading success is possible are the statistics surrounding the trading practices of profitable traders. Studies have shown that the 1-2% of traders who achieve long-term profitability account for 12% of all day-trading activity. This relationship illustrates that successful traders have found a method of conducting trade that creates an "edge" that can be applied repeatedly to the marketplace. Through consistent and calculated action, these traders are able to regularly prosper. Trading Mistakes and Remedies There are several common mistakes made repeatedly by new traders. Each one acts in opposition to the achievement of success and profitability. However, given the proper time and attention, each fault can be remedied. Listed below are a few common mistakes made by new (and some veteran) traders: Lack of a comprehensive trading plan: The marketplace is a dynamic arena with nearly limitless possibilities facing an active trader. Without a clearly defined trading plan to use as a point of reference, a trader will operate within the market from a reactionary posture and struggle to stay on the market's "lead lap." No defined money management strategy: Money management may be the most important facet of trading. If fundamental principles of money management aren't employed, undue risk may jeopardize the solvency of the trading account. Acting on "tips" or "advice": Making trading decisions on a "hot tip" or "inside information" is often a product of emotional trading. Odds are that the hot tip is a rumor, hearsay or worse. Even if true, there is a strong possibility that the tip has been widely circulated and is already priced into the market. Satisfying the desire to be "right" instead of making money: The main goal of actively trading financial securities is to make a profit. At the end of the day, the market is always right, and traders are often wrong. The realization that one can be wrong about many things and still make money is a difficult idea to accept, but one that is a key part of a healthy trading mindset. Each of the aforementioned mistakes acts as a potential barrier to a trader's success and profitability. However, through dedicating adequate time and effort, the frequency of these mistakes can be reduced or eliminated. Let’s through some light on the following psychological topics: Adaptive Behaviors Adaptive behaviors can describe two different concepts. In evolutionary psychology it can describe actions or behaviors that aid or ensure an organism's basic survival and likelihood of reproduction. Examples are survival instincts, mate selection, aggression towards threats, and helping genetically related organisms (family) over non-related organisms (ensuring genes will pass on). Adaptive behavior can also describe actions, skills, and behaviors that humans develop and use in order to perform basic skills, be able to cope with novel situations. Social, conceptual (time, money, numbers), and practical skills are considered adaptive behaviors. The Diagnostic Adaptive Behaviors Scale (DABS) measures adaptive behavior proficiency in these areas. Adaptive Skills Adaptive skills (or behavior) refer to the skills and behaviors that make it possible for a person to get along in their environment and successfully meet the challenges of life. For example, skills such as making conversation with strangers, learning to be on-time for school or appointments, getting along with other people, etc. The efficacy of the adaptive efficiency of market functions in improving economic performance is proposed to be measured by the economization of transaction costs. This measure is considered appropriate given that transaction costs are the costs of running the economic system, and the central problems of the economic system and organization are considered to be adaptation and the coordination of knowledge, respectively. The decomposition of the market into the allocative, discovery and creative functions and linking the concept of adaptive efficiency enables an analysis of the independent and interrelated effects of these functions and provides a more complete understanding of entrepreneurial activities and the efficient allocation of resources in the context of dynamic institutional change. Understanding the functions of the market in the context of the dynamics of institutional change first requires a perspective that recognizes the cumulative and persistent effects of history on the present, as well as the indeterminacy and unknowability of a future that “is in construction, a construction that is going on in all existing activities”. Second, incorporates the concept of uncertainty introduced by Frank Knight and recognizes the deficiency of the assumptions of the neoclassical model when applied to a complex and uncertain reality. Third, this perspective must also identify the mechanisms that efficiently communicate knowledge among individuals who possess incomplete and imperfect information and motivate the creative, innovative, and imaginative capacity of individuals. The generality of the current definition of adaptive efficiency limits its scope and application. This book proposes that the extension of North's definition to incorporate the three market functions as detailed by Buchanan and Vanberg and Friedrich Hayek provides the basic principles of a new perspective that attempts to address the problems associated with the coordination of knowledge, adaptation of the economic system, and the economizing of transaction costs. Therefore, adaptive efficiency is redefined as an ongoing condition of innovation and modification in which the market, through the allocative , discovery and creative functions , responds to the incentive structures that confront choice‐makers , utilizes localized information , and exploits the creative potential of man to provide solutions to problems and novel situations as they arise . Just as Koopmans advised that the profit maximization postulate should “be made conditional on the factors that influence the efficacy of the process of natural selection”; it is also the case that the adaptive efficiency of the market functions is conditional on the institutional framework and its mechanisms, and the efficacy of the selection process is conditional on a society's institutional elements. To be more precise, adaptive efficiency would be expected to be most effective when the completeness of the market system is such that all three functions can operate freely within a robust, flexible institutional framework characterized by a decentralized decision‐making process underpinned by morality and social norms. This redefinition of adaptive efficiency and its conditions has a number of implications on individual choice and entrepreneurial activity. The first is that the formal rules, informal constraints, and enforcement mechanisms of an adaptively efficient economy are such that individuals can efficiently allocate their scarce cognitive resources to entrepreneurial activity, allowing the entrepreneur to maximize the number of trials undertaken. Second, the incentive structure embodied in the institutional framework guides the learning process and facilitates the dissemination of knowledge improving the efficiency of the market functions, and lastly, that institutional rules eliminate failed economic and political organizations. In this context, the market has the capacity to be an adaptively efficient institution, and as an adaptively efficient institution that facilitates technological advancement it can be argued that the market is a key determinant of the performance of an economy. Ambiguity Ambiguity is the property of words, terms, notations and concepts (within a particular context) as being undefined, indefinable, or without an obvious definition and thus having an unclear meaning. A word, phrase, sentence, or other communication is called “ambiguous” if it can be interpreted in more than one way. Ambiguity is distinct from vagueness, which arises when the boundaries of meaning are indistinct. Ambiguity is in contrast with definition, and typically refers to an unclear choice between standard definitions, as given by a dictionary, or else understood as common knowledge. Modern decision theory uses the term ambiguity to describe uncertainty about a data generating process. The decision-maker believes that the data comes from an unknown member of a set of possible models. Knight (1921) and Ellsberg (1961) intuitively argue that concern about this uncertainty induces a decision-maker to want decision rules that work robustly across the set of models believed to be possible. The argument is formalized in pioneering contributions by Schmeidler (1989) and Gilboa and Schmeidler (1989) followed by a body of subsequent work including robust control theory (Hansen and Sargent (2008)) and the theory of smooth ambiguity aversion (Klibanoff et al. (2005)). Behavioral Economics Behavioral Economics is the study of psychology as it relates to the economic decision-making processes of individuals and institutions. The two most important questions in this field are: 1. Are economists' assumptions of utility or profit maximization good approximations of real people's behavior? 2. Do individuals maximize subjective expected utility? Behavioral economics is often related with normative economics. Behavioral Economics: Discussed a little more In an ideal world, people would always make optimal decisions that provide them with the greatest benefit and satisfaction. In economics, rational choice theory states that when humans are presented with various options under the conditions of scarcity, they would choose the option that maximizes their individual satisfaction. This theory assumes that people, given their preferences and constraints, are capable of making rational decisions by effectively weighing the costs and benefits of each option available to them. The final decision made will be the best choice for the individual. The rational person has self-control and is unmoved by emotions and external factors and, hence, knows what is best for himself. Alas behavioral economics explains that humans are not rational and are incapable of making good decisions. Behavioral economics draws on psychology and economics to explore why people sometimes make irrational decisions, and why and how their behavior does not follow the predictions of economic models. Decisions such as how much to pay for a cup of coffee, whether to go to graduate school, whether to pursue a healthy lifestyle, how much to contribute towards retirement, etc. are the sorts of decisions that most people make at some point in their lives. Behavioral economics seeks to explain why an individual decided to go for choice A, instead of choice B. Because humans are emotional and easily distracted beings, they make decisions that are not in their self-interest. For example, according to the rational choice theory, if Charles wants to lose weight and is equipped with information about the number of calories available in each edible product, he will opt only for the food products with minimal calories. Behavioral economics states that even if Charles wants to lose weight and sets his mind on eating healthy food going forward, his end behavior will be subject to cognitive bias, emotions, and social influences. If an advertisement advertises a brand of ice cream at an attractive price and quotes that all human beings need 2,000 calories a day to function effectively after all, the mouth-watering ice cream image, price, and seemingly valid statistics may lead Charles to fall into the sweet temptation and fall out of the weight loss bandwagon, showing his lack of self-control. Behavioral economics incorporates the study of psychology into the analysis of the decision-making behind an economic outcome, such as the factors leading up to a consumer buying one product instead of another. Unlike the field of classical economics, in which decision-making is entirely based on cold-headed logic, behavioral economics allows for irrational behavior and attempts to understand why this may be the case. The concept can be applied in miniature to individual situations, or more broadly to encompass the wider actions of a society or trends in financial markets. The theory is particularly useful for companies and marketers looking to increase sales by encouraging changes in behavior by consumers. It can also be used for the purposes of setting public policy. What is Behavioral Finance? Behavioral finance is the study of the influence of psychology on the behavior of investors or financial analysts. It also includes the subsequent effects on the markets. It focuses on the fact that investors are not always rational, have limits to their self-control, and are influenced by their own biases. Behavioral finance, a sub-field of behavioral economics, proposes that psychological influences and biases affect the financial behaviors of investors and financial practitioners. Moreover, influences and biases can be the source for explanation of all types of market anomalies and specifically market anomalies in the stock market, such as severe rises or falls in stock price. Understanding Behavioral Finance Behavioral finance can be analyzed from a variety of perspectives. Stock market returns are one area of finance where psychological behaviors are often assumed to influence market outcomes and returns but there are also many different angles for observation. The purpose of classification of behavioral finance is to help understand why people make certain financial choices and how those choices can affect markets. Within behavioral finance, it is assumed that financial participants are not perfectly rational and self-controlled but rather psychologically influential with somewhat normal and self-controlling tendencies. One of the key aspects of behavioral finance studies is the influence of biases. Biases can occur for a variety of reasons. Biases can usually be classified into one of five key concepts. Understanding and classifying different types of behavioral finance biases can be very important when narrowing in on the study or analysis of industry or sector outcomes and results. Key Takeaways Behavioral finance is an area of study focused on how psychological influences can affect market outcomes. Behavioral finance can be analyzed to understand different outcomes across a variety of sectors and industries. One of the key aspects of behavioral finance studies is the influence of psychological biases. Behavioral Finance Concepts Behavioral finance typically encompasses five main concepts: Mental accounting: Mental accounting refers to the propensity for people to allocate money for specific purposes. Herd behavior: Herd behavior states that people tend to mimic the financial behaviors of the majority of the herd. Herding is notorious in the stock market as the cause behind dramatic rallies and sell-offs. Emotional gap: The emotional gap refers to decision making based on extreme emotions or emotional strains such as anxiety, anger, fear, or excitement. Oftentimes, emotions are a key reason why people do not make rational choices. Anchoring: Anchoring refers to attaching a spending level to a certain reference. Examples may include spending consistently based on a budget level or rationalizing spending based on different satisfaction utilities.  Self-attribution: Self-attribution refers to a tendency to make choices based on a confidence in self-based knowledge. Self-attribution usually stems from intrinsic confidence of a particular area. Within this category, individuals tend to rank their knowledge higher than others. Biases Studied in Behavioral Finance Breaking down biases further, many individual biases and tendencies have been identified for behavioral finance analysis, including: Disposition Bias Disposition bias refers to when investors sell their winners and hang onto their losers. Investors' thinking is that they want to realize gains quickly. However, when an investment is losing money, they'll hold onto it because they want to get back to even or their initial price. Investors tend to admit their correct about an investment quickly (when there's a gain). However, investors are reluctant to admit when they made an investment mistake (when there's a loss). The flaw in disposition bias is that the performance of the investment is often tied to the entry price for the investor. In other words, investors gauge the performance of their investment based on their individual entry price disregarding fundamentals or attributes of the investment that may have changed. Confirmation Bias Confirmation bias is when investors have a bias toward accepting information that confirms their already-held belief in an investment. If information surfaces, investors accept it readily to confirm that they're correct about their investment decision—even if the information is flawed. Experiential Bias An experiential bias occurs when investors' memory of recent events makes them biased or leads them to believe that the event is far more likely to occur again. For example, the financial crisis in 2008 and 2009 led many investors to exit the stock market. Many had a dismal view of the markets and likely expected more economic hardship in the coming years. The experience of having gone through such a negative event increased their bias or likelihood that the event could reoccur. In reality, the economy recovered, and the market bounced back in the years to follow. Loss Aversion Loss aversion occurs when investors place a greater weighting on the concern for losses than the pleasure from market gains. In other words, they're far more likely to try to assign a higher priority on avoiding losses than making investment gains. As a result, some investors might want a higher payout to compensate for losses. If the high payout isn't likely, they might try to avoid losses altogether even if the investment's risk is acceptable from a rational standpoint. Familiarity Bias The familiarity bias is when investors tend to invest in what they know, such as domestic companies or locally owned investments. As a result, investors are not diversified across multiple sectors and types of investments, which can reduce risk. Investors tend to go with investments that they have a history with or have familiarity. Behavioral Finance in the Stock Market The efficient market hypothesis (EMH) says that at any given time in a highly liquid market, stock prices are efficiently valued to reflect all the available information. However, many studies have documented long-term historical phenomena in securities markets that contradict the efficient market hypothesis and cannot be captured plausibly in models based on perfect investor rationality. The EMH is generally based on the belief that market participants view stock prices rationally based on all current and future intrinsic and external factors. When studying the stock market, behavioral finance takes the view that markets are not fully efficient. This allows for observation of how psychological factors can influence the buying and selling of stocks. The understanding and usage of behavioral finance biases is applied to stock and other trading market movements on a daily basis. Broadly, behavioral finance theories have also been used to provide clearer explanations of substantial market anomalies like bubbles and deep recessions. While not a part of EMH, investors and portfolio managers have a vested interest in understanding behavioral finance trends. These trends can be used to help analyze market price levels and fluctuations for speculation as well as decision-making purposes.  Concept of Belief Belief is introduced as the cognitive act or state in which a proposition is taken to be true, and the psychological theory of belief is reviewed under the headings: belief as a propositional attitude, belief as subjective probability, belief as inference, and belief as association. Apart from its importance as a separate area of cognitive theory, the study of belief is of considerable meta theoretic importance for cognitive theory generally, since belief is an essential part of the definition of cognition. It is argued here that cognitive theories must admit, at least in principle, of a distinction between forms of arousal which imply that a proposition is believed and others which do not. Otherwise it is impossible to model the element of rational judgment, which is a feature of belief and hence of cognition also. Among the many definitions proposed by philosophers for cognitive acts, the definition of knowledge (or cognition) as justified true belief seems to have been particularly successful. According to the definition, 5 knows X if and only if (a) 5 believes X, (b) 5 has good reasons for believing X, and (c) X is true. The definition sets down the usage of the verb knows parsimoniously, and in addition it provides a convenient partition of questions concerning the nature of cognition. The topic of belief isolates the elementary mental act or state of accepting some proposition as true; justification coincides with inference; and truth covers semantics and the theory of reference. However, when cognitive psychology is looked at under the headings of belief, justification, and truth, a surprising fact emerges. Although belief is the primary concept insofar as it refers to cognition "in the raw," that is, prior to the imposition of logical and epistemological constraints, it is the topic on which cognitive psychology has least to say. The inferential and semantic structure of the belief system has been extensively researched, but there are comparatively few studies that deal with the acceptance of propositions as true, the nature of this acceptance, and the factors that determine its strength. This is easily enough explained. Cognitive psychology must deal for the most part with beliefs that are justified and true, and accordingly it poses problems for the cognitive subject that are as explicit as possible on the matters of justification and truth. As a result, everything important about the outcome can be said by reporting whether the subject was right or wrong, and belief can be taken for granted, except for the unusual case of insincere response. Nonetheless, it is important to review the concept of belief in cognitive theory not merely as a topic in its own right but also as one with considerable metatheoretical importance. The question of what exactly is model led by cognitive theory has become central since the rise of computer simulation. Ortony (1978) noted that the same model is sometimes offered for cognitive processes, such as comprehension and memory, which are quite different. More to the point of the present review, Woods (1975) argued that we do not really know what directed graphs and other network models refer to in the cognitive domain if we cannot recover in them the distinction between a proposition that is believed and one that is merely supposed. If it is not clear whether retrieval or activation refers to the acceptance of a proposition as true, neither will it be clear that we are talking about cognition in any ordinary sense. The problem has been taken up by Maida and Shapiro (1982), who attempt to provide a general theory of propositions or intensions which will bring computer models back into line with the definition of cognition that prevails in logic, epistemology, philosophy of mind, and commonsense mentalism. In any such undertaking the concept of belief must play a central role. Concept of Trade Ego tends to get a bad rap, which is slightly unfair. There are positive aspects to ego. For one, it drives you forward and motivates you to succeed. However, balance is vital; this is where most people get into trouble. Excessive ego blinds you to reality. If you have ever thought ‘I am right, and the market is wrong’, as a trade flies spectacularly in your face, that is your ego screwing with you. An attitude of ‘It’s OK to fail’ is a reminder to balance and contain your ego. The quote’s aims to ground you. There are few things which are more guaranteed to undermine your ability to succeed in trading, than losing touch with reality. HOW TO CONTROL EMOTIONS WHILE TRADING: TOP TIPS AND STRATEGIES Planning out your approach is a key if you want to keep negative emotions out of your trading. The old adage ‘Failing to plan is planning to fail,’ can really hold true in financial markets. As traders, there isn’t just one way of being profitable. There are many strategies and approaches that can help traders accomplish their goals. But whatever is going to work for that person is often going to be a defined and systematic approach; rather than one based on ‘hunches.’ Here are five ways to feel more in control of your emotions while trading. 1. Create Personal Rules Setting your own rules to follow when you trade can help you control your emotions. Your rules might include setting risk/reward tolerance levels for entering and exiting trades, through profit targets and/or stop losses. 2. Trade the Right Market Conditions Staying away from market conditions which aren’t ideal is also prudent. Not trading when you aren’t ‘feeling it’ is a good idea. Don’t look to the market to make you feel better; if you aren’t up to trading the simple solution may just be to step away. 3. Lower Your Trade Size One of the easiest ways to decrease the emotional effect of your trades is to lower your trade size. Here’s an example. Imagine a trader opens an account with $10,000. Our trader first places a trade for a $10,000 lot on EUR/USD. As the trade moves at $1 a pip, the trader sees moderate fluctuations in the account. An amount of $320 was put up for margin, and our trader watches their usable margin of $9,680 fluctuate by $1 per pip. Now imagine that same trader places a trade for $300,000 in the same currency pair. Now our trader has to put up $9,600 for margin – leaving them with only $400 in usable margin – and now the trade is moving at $30 per pip. After the trade moves against our trader only 14 pips, the usable margin is exhausted, and the trade is closed automatically as a margin call. The trader is forced to take a loss; they don’t even have the chance of seeing price come back and pull the trade into profitable territory. In this case, the new trader has simply put themselves in a position in which the odds of success were simply not in their favor. Lowering the leverage can greatly help diminish the risk of such events happening in the future. 4. Establish a Trading Plan and Trading Journal In terms of fundamental factors, planning for various outcomes in the runup to key news events may also be a strategy to bear in mind. The results between new traders using a trading plan, and those who don’t can be substantial. Compiling a trading plan is the first step to attack the emotions of trading, but unfortunately the trading plan will not completely obviate the effects of these emotions. Keeping forex trading journals may also be helpful. 5. Relax! If you're relaxed and enjoy your trading, you will be better equipped to respond rationally in all market conditions. Mind The mind criterion now seems like the obvious choice for designating the presence of our unique identities. On this view, regardless of what happens to my body, my real identity is infused into my mind. Unfortunately, the issue is not that easily settled. A first problem is finding the specific mental qualities that carry my identity through life's ever-changing situations. How about my memories: are not they very much my own? It is true that some people may share many of my experiences – as when I attend a concert along with 10,000 other spectators. Even so, my memory of the concert will be from my perspective with my personal reactions. But there is still a difficulty with locating identity within our memories. Suppose that a scientist hooked me up to a memory-extracting machine that was able to suck the memories directly out of me and inject them into someone else. I would still be me and the other guy would still be himself, regardless of where my memories went.              Ok, maybe it is not my memories that define my identity. What about my dispositions, such as my set of desires, hopes and fears. These uniquely reflect my experiences, such as my hope that science will someday cure cancer, or my fear of heights. Further, dispositions are long-term, and so they can endure any changes imposed on my body or my memory. For example, I've always been afraid of heights, and probably always will be. However, while some dispositions may indeed be long-term, many are by no means permanent. In fact, as I moved from my early years to adulthood, it is possible that most of my dispositions will change, especially the most important ones. This is exactly the point that Sirhan Sirhan was making before his parole hearing: while he might have been an angry and violent person in his youth, time mellowed him to the point that he became a responsible and gentle person. Dispositions, then, are not the principal designators of my identity. As we hunt for other possible mental qualities that house our identities, we will be equally disappointed.              A second problem with the mind criterion is that it is difficult for me to perceive any unified conception of myself at all. Scottish philosopher David Hume -) presents this problem. He says that when he tries to hunt down his identity by introspectively reflecting on his mental operations, he cannot find any “I” or “self” within his mind. All that he detects is a series of separate experiences: the sound of a dog barking, the visual image of a bird flying, a memory of an event from childhood. The mind, he says, is like a theatrical stage where things appear, move across, and then disappear. There is no unified self that we perceive through these successive experiences. This does not necessarily mean that we have no unified self; it just means that we cannot discover it by introspecting on our own minds.              So, the mind and body criteria both have serious problems. Does this force us to abandon the whole idea of personal identity? Not necessarily. Part of the problem stems from the assumption that we must find a one-size-fits-all criterion of personal identity, one that works in every situation in which the idea of personal identity arises. But if we look at the different contexts in which we use the notion of personal identity, we see that we are very often looking for entirely different things. In criminal cases, the body criterion is what matters most. Investigators do not care whether someone like Sirhan has psychologically changed a thousand times over. What matters is whether they have the correct human body locked behind bars. By contrast, when I am talking to a friend who is an identical twin, it does not matter that he has the same bodily structure as his brother. What matters is his mind, and whether I can pick up the thread of a conversation that I was having with him the day before. Further still, when I reflect on what connects me now with who I was as a child, I am specifically interested in the question of how change impacts my identity, which is a question which is not relevant in the first two examples. In this case, my bodily structure and memories are both relevant, and so I draw on elements of both the body and mind criteria to work out a conception of my identity. There is, then, no single simple criterion of personal identity, and the context of our situation will dictate the relevance of either the body or mind criteria. Body The body criterion holds that a person's identity is determined by physical features of the body. In our daily lives we identify people by physical characteristics, such as their facial features and the sounds of their voices. Crime investigators rely on more technical physical features like finger prints, voice patterns, retinal scans, and DNA, which are physical attributes that we carry with us through life. These help law enforcement officials to know whether they have got the right person in their custody. The body criterion is also helpful in determining identity when a person’s mental features are radically altered. Suppose, for example, that you had a head injury which caused you to lose all of your memory and go through a complete personality change. Or, suppose that you have multiple personalities and every few hours you take on an entirely different persona. In each of these cases, your body designates your identity, and not your mind.              The body criterion does not assume that your identity rests within your specific material substance, such as the specific atoms that make up your body at this exact moment. Most of the physical components within your body will in fact be replaced over time such as when you regularly shed skin. What is important, though, is the underlying physical structure of your body that remains the same. As the atoms within your body come and go, your body retains a consistent structural form that is central to your identity.              As compelling as the body criterion at first seems, it is quickly undermined by two counterexamples. The first involves identical twins: they are clearly different people, yet share much of the same physical structure. Their DNA is exactly the same, which means that their bodily composition, facial features and voice may be virtually indistinguishable. A common hoax that identical twins play is assuming the identity of the other, fooling even the closest friends and family members. Human cloning, which is essentially creating identical twins through genetic technology, presents us with the same problem. That is, we have two uniquely different people with parallel physical structure. It seems, then, that physical structure alone is insufficient for establishing one's personal identity over time.              The second counterexample is the brain-swap scenario. Suppose that, while in prison, Sirhan secretly had an operation in which his brain was swapped with an unsuspecting guard named Bob. Thus, Sirhan's brain is in Bob's body, and Bob's brain is in Sirhan's body. The Warden discovers what happened, and now he has to decide which one of the two men stays locked in the prison cell, and which one gets to go home at the end of the day. Commonsense tells us that Sirhan's personal identity is with his brain, not with the rest of his physical body, and that we lock up whatever person has Sirhan's brain. The assumption here is that the brain houses the human mind, and the brain-swap scenario tells us that what is truly important about personal identity is the mind, and not the physical body. This reflects how we normally view our bodies: I think of myself as having a body, and not simply being a body. With both of these counterexamples, then, it seems that physical structure alone is insufficient for establishing one's personal identity over time. Fear Fear is probably the most significant emotion for traders. Many traders struggle with this emotion and fear can demobilize you from applying your hard learned technical skills.  Significant trading losses often lead to emotional distress and turmoil. Unless addressed, the trader may re-experience those painful memories in future trades. Following anguishing losses, a trader may become paralyzed and unable to enter the trade or act in other fear-based ways. After all, traders are human and naturally fear that which causes pain. Although the desire to trade may be strong, the mental response to fear can be stronger. Anticipated pain is sidestepped by not pulling the trigger. This is not a sign of weakness. It is merely the mind’s attempt at self-protection, though it causes much frustration and distress, and works against our interests as traders. When suffering from fear, you may Cut winners short in fear of giving profits back Hesitate in pulling the trigger because you fear the prospects of a loss Hang on to losing trades because you fear taking the loss Jump into unplanned trades because you fear leaving money on the table Groupthink Groupthink is a phenomenon that occurs when a group of individuals reaches a consensus without critical reasoning or evaluation of the consequences or alternatives. Groupthink is based on a common desire not to upset the balance of a group of people. This desire creates a dynamic within a group whereby creativity and individuality tend to be stifled in order to avoid conflict. In a business setting, groupthink can cause employees and supervisors to overlook potential problems in the pursuit of consensus thinking. Because individual critical thinking is de-emphasized or frowned upon, employees may self-censor and not suggest alternatives for fear of upsetting the status quo. Habits Success as a trader means being consistently profitable over the long term, and that requires developing a good trading plan and, most importantly, sticking to it. One of the most destructive habits a trader can have is ignoring the rules of their own trading plan about when to enter and exit a trade. Breaking this bad habit means critically examining how you view the success or failure of any single trade. To break bad trading habits, it is vital that traders judge the success or failure of each trade on whether they stick to their trading plan—not whether the trade resulted in a profit or a loss. If you make an undisciplined trade, one not dictated by your plan, you must view that as a failed trade. You can't reinforce poor discipline by congratulating yourself. On the other hand, if you execute your trade according to plan but still lose money, you must view that as a successful trade because you followed your plan. Every good trading plan accounts for losing trades. If you beat yourself up over a losing trade that was made according to plan, you will be much less likely to follow that plan in the future. That will result in impulsive trading that can wipe out trading accounts over time. Confidence Confidence the degree to which you think and feel your actions will achieve positive results. Be clear that confidence and self-esteem are not the same. Self-esteem refers to general feelings about yourself; confidence refers to your belief and feels in that you can perform a task successfully. I have good self-esteem but no confidence that I can land a plane or return a serve by Federer. The better you feel about yourself, though, the easier it becomes to build confidence for a specific task. We all know that being confident gives you an edge of life. The catalyst to bring the function of confidence to life is the realization that your actions influence your results. In other words, "it's up to you." If you do not believe in this fully, you will not make efforts to do your best since the outcome is out of your control. Why study for a test if your studying makes no difference. Accepting that you can influence the outcome creates a sense of control and that initiates confidence. If you met a 30-year-old confident individual, what type of experiences do you think he or she had to be who they are today. In other words, “How did they become confident? When we look at the tons of research that identify "confident attributes" and use an “evolutionary-clinical lens,” we can make very accurate deductions about the type of experiences and behaviors that individuals who exhibit confidence must have experienced. Here they are and as you review the list, think about the degree to which experiences have been prominent or lacking in your life. Development Developmental psychology is a scientific approach which aims to explain growth, change and consistency though the lifespan. Developmental psychology looks at how thinking, feeling, and behavior change throughout a person’s life. A significant proportion of theories within this discipline focus upon development during childhood, as this is the period during an individual's lifespan when the most change occurs. Developmental psychologists study a wide range of theoretical areas, such as biological, social, emotion, and cognitive processes. Empirical research in this area tends to be dominated by psychologists from Western cultures such as North American and Europe, although during the 1980s Japanese researchers began making a valid contribution to the field. Discomfort Think about this for a moment, and be completely honest: Trading makes you feel uncomfortable the majority of the time. Your response to the discomfort, your reaction (the decision and behavior you take) in response to the discomfort defines you as a trader. This includes your reaction to losing and making money and to missing out. It affects every trader regardless of account size or sophistication. There is the obvious discomfort we experience around a loss, or the pressure we feel when we miss a move. The pressure of waiting for the right entry is also commonly very uncomfortable. Many traders experience the pressure of putting on a trade and freezing up. And, of course, there's the discomfort of holding onto a trade that is working, the anxiety of holding it and wondering if it will continue to move in your favor. There is an inherent dilemma involved in winning a trade. When we hold it we risk giving back profits or when we take profits we risk leaving money on the table. When you think about it, winning trades have the potential to make you feel lousy most of the time. The point I'm trying to make is how you respond to the various types of discomfort in trading will define you as a trader. Trading will always involve discomfort. Traders who learn how to tolerate discomfort will make better decisions and control their actions and will perform much better over time. Trading 'In the zone' is nice, and there are ways to increase the time you are in the zone, but most of the time 'the zone' is elusive. And that's okay, as long as you also learn how to control your actions to tolerate discomfort. Impulsive Actions The notion of impulsive action is often used but rarely specified. It refers to an action that is elicited by the appraisal of a perceived or thought-of object, event, or state of the world as pleasant or unpleasant, or as beneficial or harmful, and which action is apt to influence that object, event, or state of the world. The appraisal first gives rise to a state of readiness to establish, modify, sustain, or terminate the agent’s relation to the object, event, or state of the world concerned. That readiness then may induce an action that can implement the readiness’ aim. Actions are considered “impulsive” when and because they are not preceded by deliberation or the conscious representation of some action goal. An impulsive action is thus defined as a non-deliberate action that serves the purpose of rendering one’s relation to the object, event, or state of the world more pleasant or less unpleasant. This definition answers the problem how an action can be purposive without being planned or premeditated. It is the appraisal that imparts the purpose by giving rise to a state of action readiness to change one’s relation to its object. It enhances interaction with what is appraised as beneficial or attracting. It decreases interaction with what is appraised as aversive or harmful, under the current situational conditions. How appraisal may impart purpose and elicit action readiness will be discussed in later sections on action readiness elicitation and on the neural bases of impulsive action. Impulsive actions not only have a purpose or aim. They also have a certain strength or urgency. They generally possess some “impetus” – an inclination to do something. They owe that strength or urgency to being set for the forthcoming action, and its continuation until a particular end state has been reached, and resumption of actions in spite of interruptions and obstacles. “Impulsion” and “impetus” are terms dating from the middle ages and may seem old-fashioned, but we have a need for a concept that allows us to refer to the dynamic aspects of impulsive actions, and the energetic required producing them. The role of real intuition in trading After we have shown you what intuition is not and why having a wrong idea of intuition can significantly contribute to trading failure, we can now take a look at what real intuition is and what its role is in trading. In our experience, and by listening to other experienced traders, they all describe that intuition plays an important role in their trading. But, it is also very obvious that intuition only comes with years of experience. Thus, intuition can be seen as a form of subconscious pattern recognition. After a trader has spent hundreds and thousands of hours in front of his charts, being exposed to tens of thousands of market moves and patterns, it has become a part of him. What he then identifies as intuition is nothing but a subconscious recognition of a market pattern he has seen so many times before. Loss and Trade Psychology As Chinese military general Sun Tzu's famously said: "Every battle is won before it is fought." This phrase implies that planning and strategy—not the battles—win wars. Similarly, successful traders commonly quote the phrase: "Plan the trade and trade the plan." Just like in war, planning ahead can often mean the difference between success and failure. Stop-loss (S/L) and take-profit (T/P) points represent two key ways in which traders can plan ahead when trading. Successful traders know what price they are willing to pay and at what price they are willing to sell. They can then measure the resulting returns against the probability of the stock hitting their goals. If the adjusted return is high enough, they execute the trade. Money Management Money management is the process of budgeting, saving, investing, spending or otherwise overseeing the capital usage of an individual or group. Maximum gains, not the number of wins Eckhardt explains that human nature does not operate to maximize gain but rather the chance of a  gain. The problem with this is that it implies a lack of focus on the magnitudes of gains (and losses) – a flaw that leads to non-optimal performance results. Pull out Partial profits Pull a portion of winnings out of the market to prevent trading discipline from deteriorating into complacency. It is far too easy to rationalize overtrading ad procrastination in liquidating losing trades by saying, “Its only profits.” Profits withdrawn from an account are much more likely to be viewed as real money. Risk control Minervini believes that one of the common mistakes made by novices is that they “spend too much time trying to discover great entry strategies and not enough time on money management”. Strictly follow the below mentioned steps – 1. Stop-loss points 2. Reducing the position 3. Selecting low-risk positions 4. Limiting the initial position size 5. Diversification 6. Short selling 7. Hedged strategies Always remember that “you must be willing to accept a certain level of risk, or else you will never pull the trigger”. Risk/Reward ratio It is most often used as a measure for trading individual stocks. The optimal ratio differs widely among trading strategies. Normally, some trial and error are usually required to determine which ratio is best for a given trading strategy. Empirical study suggests that market strategists consider 1:3 to be the ideal risk/reward ratio Traders can manage it directly through the use of stop-loss orders and derivatives. Neuroscience Neuroscience (and more specifically neuroeconomics) can not only enhance our understanding of the decision making processes as we see them through the lenses of the classical economic theoretical framework, but can, at the same time, also challenge the same framework. Neuroeconomics supplies an empirically directed, computationally thorough fabric for theorizing addiction as an instance of biased reward returning, and uses the parameterized choice models of conventional and behavioral economics. Neuroeconomics aims to employ the supplementary input gained from brain investigations, associated with the decision maker’s selection, with the purpose of better grasping the cogitation process and to utilize the outcomes to enhance economic patterns. Neuroeconomics’ proposal may be constructive in two manners: (i) once individuals have augmented economic patterns of bounded rationality, procedures should not be devised without precise knowledge but to apply patterns contingent on their insight of the mind (consistent neuroeconomics data may be useful by supplying individuals with information regarding how pervasive the employment is of a certain decision-making practice); and (ii) brain investigations may assist in categorizing kinds of people who share types of conduct for a broad series of choice scenarios: individuals would be stimulated to build up patterns in which the allocation of kinds is a primitive of the pattern. Employing such patterns individuals may obtain more convincing analytical outcomes. Neuroeconomics associates imaging techniques with economic pattern to explain how individuals decide on a strategy taking into account various possible choices (it attempts to grasp the physiological and neural processes determining decision making). The intrinsic mechanisms of assessment is a reward-seeking brain whose role is to harmonize environmental input with personal values to reach a choice that complements one’s estimated separate likelihood. Objectivity in Trade The most important thing in trading/investing is the ability to stay cool in uncertain and stressful situations, as there will be many of those. Unfortunately, human nature is not built this way. As soon as money is committed to a trade, so too is emotion. That is when the problems start to accumulate because of the biases we develop. They (biases) are actually greatly magnified once we are committed to a trade. Therefore, it is mandatory that we develop a way to measure objectively where the market is staying in relation to our position. We as traders are constantly bombarded by external stimuli and we need to learn how to control them if we want to be objective and therefore successful as traders. News, gossips and sharp moves caused by technical reasons can cause traders’ emotions to shift quickly between emotions of greed and fear. You should be on the watch out and make sure that you are in control of the situation and don’t let external/internal forces influence your objectivity. In the end, prices of financial markets are determined by the “actions” of investors to emerging economic and financial environment, rather than by the environment itself. This means that the wild price swings (and not only them) are caused by the emotions of traders like hope, fear and general expectations. That is where you should emphasize more- you need to be better able to ignore those market gyrations around you as much as possible and concentrate on the important factors. That is another reason why Price Action is a great tool for trading- the best in my opinion. It really eliminates the element of guessing and as long as you trade what you see and stick to the rules, you should be doing extremely well in the end. The markets themselves are driven by crowd emotions. They have been around longer than us. That is what has been driving them around year-on-year since they came into existence. You cannot change the way markets behave; you should take for granted that trying to outsmart Mr. Market could be detrimental for your trading account. Patience is a virtue for Traders Patience is a virtue that is vital to success in trading. A large amount of patience is required in order to go through the learning curve. You need patience to wait for a trade where all the variables from your system align. And then patience is needed when in a position, in order to maximize profits. The Perception Perception can be defined as our recognition and interpretation of sensory information. Perception also includes how we respond to the information. We can think of perception as a process where we take in sensory information from our environment and use that information in order to interact with our environment. Perception allows us to take the sensory information in and make it into something meaningful. A common perception exists that trading the financial markets is time consuming, expensive to learn and generally very complicated.  We are here to say that it does not have to be that way, in fact, our whole approach to trading the financial markets is based around being able to address these misconceptions. We are striving to become the most comprehensive and affordable live trading mentorship package on the market.  Plus as traders we prefer to simplify things as much as possible, elsewhere the added jargon often confuses people and often simply justifies the extortionate education fees that other educators charge. Perfectionism Perfectionism is a trait that makes life an endless report card on accomplishments or looks. When healthy, it can be self-motivating and drive you to overcome adversity and achieve success. When unhealthy, it can be a fast and enduring track to unhappiness. Perfectionists share a belief that perfection is required in order to be accepted by others. The reality is that acceptance cannot be gained through performance or other external factors like money or social approval. Instead, self-acceptance is at the root of happiness. The biggest obstacle to overcome that I have faced is fear of failure. If you have a perfectionist mentality when trading, you are really setting yourself up for failure, because it is a given that you will experience losses along the way in trading. You have to think of trading as a probability game. You can’t be a perfectionist and expect to be a great trader. Your losses (that you hope will return to breakeven) will kill you. If you cannot take a loss when it is small because of the need to be perfect, then the loss will often times grow to a much larger loss, causing further pain for the perfectionist trader? Personality Trading style often correlates with the personality of the trader. It is important to reflect internally on personality and lifestyle before choosing a trading strategy and creating a trading plan. This is because using a trading style contrary to your personality will lead to difficulties down the road in sticking to your trading plan.When a trader finds the trading style that suits them best; the style generally endures long term. A trader who isn’t comfortable with a trading style or has not found a home in a specific trading style is the one who most often makes the most common trading mistakes. Position Sizing in Trade Position sizing refers to the size of a position within a particular portfolio, or the dollar amount that an investor is going to trade. Investors use position sizing to help determine how many units of security they can purchase, which helps them to control risk and maximize returns. Prediction in Trade The prediction of financial market indicators is a topic of considerable practical interest and, if successful, may involve substantial pecuniary rewards. Neural networks have been used for several years in the selection of investments because of their ability to identify patterns of behavior that are not readily observable. Prediction markets are markets that bet on the occurrence of events in the future. They are used to bet on a variety of instances and circumstances, from the outcome of presidential elections to the results of a sporting event to the possibility of a policy proposal being passed by legislature. Prediction markets depend on scale; the more individuals participate in the market, the more data there is, and the more effective they become. Probability Probability is a measure of the likelihood of an event to occur. Many events cannot be predicted with total certainty. We can predict only the chance of an event to occur i.e. how likely they are to happen, using it. Probability can range in between 0 to 1, where 0 means the event to be an impossible one and 1 indicates a certain event. Most traders are familiar with considering risk and reward as part of their trading system and indeed these aspects are very important, however just as important is the likelihood of a trade being successful, i.e. Probability of a successful trade given market conditions. This is the vital third part of a successful trader’s equation. Science has proven that the mind plays funny games with us in terms of assessing probability of successful trades. Prior to placing a trade we tend to be more objective in terms of the likelihood of winning. Once committed to a trade our mind tricks us into believing that we have a better probability of winning than is in fact reality. Psychology Psychology is the scientific discipline that studies mental states and processes and behavior in humans and other animals. Regret Regret theory states that people anticipate regret if they make the wrong choice, and they consider this anticipation when making decisions. Fear of regret can play a significant role in dissuading someone from taking action or motivating a person to take action. Responsibility What does it mean to be financially responsible? It's a complex question with a complex answer, but at its core is a simple truth: To be financially responsible, you need to live within your means. And to live within your means, you must spend less than you make. Risk Risk refers to the degree of uncertainty and/or potential financial loss inherent in an investment decision. In dealing with the psychology of risk, it is important to understand how psychological pressures can affect your trading. It is thus imperative to have proper money management.  Trading is already hard enough so no need to add undue pressures.  Self Esteem Self-esteem (also known as self-worth) refers to the extent to which we like, accept or approve of ourselves, or how much we value ourselves. Self-esteem always involves a degree of evaluation and we may have either a positive or a negative view of ourselves. Self Knowledge or Self awareness Financial self-awareness (FSA) is the number one predictor of financial success. Identify your blind spots, understand the needs of others, and leverage your resources to create maximum impact. Social Social finance is an approach to managing investments that generate financial returns while including measurable positive social and environmental impact. Social finance includes a full range of investment strategies and solutions across asset classes that can provide an array of risk-adjusted returns tailored to investor intent. From understanding the role of Environmental & Social Governance (ESG) factors in managing investor risk to creating innovative blended finance and pay-for-performance approaches that crowd-in new investments into underserved markets. Statistics Statistics is a term that is derived from the Latin word “status,” which means a group of figures that are used to represent information about a human interest. It refers to the technique that is developed for the purpose of collecting, reviewing, analyzing, and drawing conclusions from quantified data. The data obtained is then used in the decision-making process. Financial Analysts use statistical methods to analyze, evaluate, and summarize large volumes of data into a mathematical form that is useful. Statistics is applied in numerous disciplines such as business, social sciences, manufacturing, psychology, etc. Strength Financial strength is vital for a business to be successful. It is a key component necessary for a business to sustain, grow and ultimately return capital to owners. At its most basic level, financial strength is the ability to generate profits and sufficient cash flow to pay bills and repay debt or investors. Most business owners are focused on generating sales to increase profitability, however, sales alone do not build financial strength. Below are three ways to create more financial strength for your business. Stress Stress is a physical, mental, or emotional factor that causes bodily or mental tension. Financial stress can stem from being in debt, not earning enough money, the expense of raising kids or even being married to someone who isn't good with money.  If you can reduce your financial worry, you will be able to focus on other important areas of your life and relax, knowing you have a plan to handle your financial situation. Here are a few things you can do now to relieve your financial stress and make it easier to function each day. Subconscious The subconscious mind is a data-bank for everything, which is not in your conscious mind. It stores your beliefs, your previous experience, your memories, your skills. Everything that you have seen, done or thought is also there. Decisions we don’t like to make, or ones that are painful, tend to be pushed into our subconscious. When buying a stock, for example, investors enter unwittingly into a relationship with an asset that can either let them down or provide a great thrill. Investors often deal with such conflicting feelings of pleasure and pain by repressing them. Such biases affect all phases of the investment process. Although investors may consider buying a stock, they often (perhaps unknowingly) hope that its price doesn’t go up. But as soon as they buy the stock, these same investors turn optimistic and yearn for price gains. Investors also tend to hold on to losing stocks far longer than they should, paralysed by a hope that the stock will rebound. Over-optimistic fantasies help explain the high frequency of asset bubbles and why investors are irrationally prone to buying “lottery”-type stocks with high volatility and high skewness. Success Less is more. More is less. Financial success is all about balance, perspective, knowledge, values, and how you define what is most important to your happiness. Trade Trade is a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties. Trade can take place within an economy between producers and consumers. Trauma Financial Trauma can be described as something that happens when a family or person go through a significant loss in their financial circumstances; this can be through the loss of a job and/or getting into debt; it can be influenced by circumstances and environmental factors. As with any trauma, it can provoke anxiety, stress and worries, and can have a huge impact on your quality of life. Uncertainty Uncertainty" in accounting refers to the difficulty of predicting outcomes because of limited or inexact knowledge. Financial statements often contain estimates and other information based on uncontrollable events that can impact future financial reporting and transactions. Generally accepted accounting standards provide processes by which uncertainty is factored into financial statements. Accountants recognize some uncertainties as inherent in certain financial transactions. The challenge is to recognize uncertainty and apply the information in ways that reflect a more realistic financial picture of a company. Weakness The state of or condition of being weak is called weakness. A company weakness is any resource or process that your business lacks, but needs to succeed. Weaknesses limit your company's ability to reach its full potential. Companies often analyze their weaknesses as part of a strategic planning process known as SWOT which stands for Strengths, Weaknesses, Opportunities and Threats. The End