The Importance of Psychology in Financial Trading

Oct 14, 2011, 10:29 ET from City Index

LONDON, October 14, 2011 /PRNewswire/ --

From European debt crises to the downgrade of American Treasury bonds, these are volatile times in which to be trading. For this reason, a trader's psychology is one of the most valuable tools available to them today.

Joshua Raymond, Chief Market Strategist at City Index (http://www.cityindex.co.uk/), states: "The psychology of a spread bettor is one of the most influential factors affecting whether they turn a profit or a loss. As spread bettors can literally watch on a live trading platform their profits and losses move rapidly with the underlying market, which can be hard on one's emotions. This is where trading psychology plays an important part and where some spread bettors can be prone to what I call 'impulse trades'."

As well as following a strict trading strategy, stop losses can be used to reduce risk by closing a losing position once a market passes a trigger value set by the trader, limiting the downside potential of a trade. There are two types of stop loss - standard and guaranteed. Standard stop losses will only close a trade at the best available price once the stop value has been triggered, and so can fall victim to market gapping. Guaranteed stop loss orders incur a small premium but guarantee to close the relevant trade at the precise trigger value set, regardless of underlying market volatility and gapping.

"Anecdotally, from what I have seen," explains Joshua Raymond, "spread bettors will place more winning bets than losing ones. The key is making sure the total profits outnumber the losses and when clients take profits too early and run their losses, they are already making life difficult for themselves. This is where sticking to predetermined trading targets is so important."

Learn more about trading with a free City Index seminar. Visit http://www.cityindex.co.uk/learn-to-trade/seminars.aspx for a full list of forthcoming workshops.

Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFD trading and, in the UK, spread betting.

We constantly look to improve the performance of our platforms and expand the range of services we provide. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer service and support. Visit http://www.cityindex.co.uk/ for more information.

SOURCE City Index