A Project Report on: -

"Understanding the Influence of Emotions on Trading Behaviour: A

Psychological Perspective"

Submitted in Partial Fulfilment of the

Requirements for Award of the Degree of
Master of Administration
by
SHUBHAM DEWANGAN, SHRUTI ARORA, SHRADDHA SHARMA
Roll No: M23MBAG0050, M23MBAG0215, M23MBAG0134

under the supervision of

Dr Sangeeta Shukla
Professor, School of Management

Bennett University
Greater Noida, Uttar Pradesh, India

Month (March) YEAR (2024)

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 Declaration

We hereby declare that except where specific reference is made to the work of others, the
contents of this Project are original and have not been submitted in whole or in part for
consideration for any other degree or any other university. This Project is our work and does not
contain any outcome of work done in collaboration with others, except as specified in the text
and acknowledgements.

Bennett University, Shubham Dewangan, Shraddha Sharma, Shruti Arora

Greater Noida Roll no: - M23MBAG0050, M23MBAG0134
10/03/2024 M23MBAG0215

ii
 Acknowledgement

We would like to thank Dear Dr Sangeeta Shukla for their invaluable assistant and support during the
course of this project We wish to extend our heartfelt gratitude for your unwavering support and
guidance throughout the completion of my thesis your thoughtful feedback and consent
encouragement have not only owned my scale but also enriched the quality of these thesis.
We also like to acknowledge the contribution of our fellow researchers and the resources provided by
our institution. Their collaborative efforts and the wealth of research materials and opportunities
available have significantly influenced the outcome of these thesis.
This acknowledgement extends to our families and friends whose belief in our ability and
encouragement have provided the emotional substance needed to complete this challenging task.
Their unwavering support have been our motivation.

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 Table of Content

Sr. Particulars Page No

1. Executive Summary 5

2. Introduction 6

3. Literature Review 7

4. Chapter 1: Trading Psychology 8

5. Chapter 2: Market Structure 14

6. Research Methodology 18

7. Limitation of Study 19

8. Conclusion 20

9. Appendix 21

10. References and Bibliography 22

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 Executive Summary

The effect of trading psychology on stock market investments is investigated in this report. It
aims to offer an in-depth investigation on the ways in which psychological factors influence
market results and investing decisions.
The report involves various methods to study the impact of psychological factors on investment
decisions.
• Review of an existing literature on trading psychology and behavioural finance.
• Analysis of historical market data to identify correlations between emotional states and
trading behaviour.
• Conducted interviews to understand their psychological motivations.

The Analysis reveals that trading psychology plays a significant role like how emotions like
fear, greed, and overconfidence influence investment decisions and increase market volatility.
However, investors can lessen the impact of these biases and choose more logically if they are
aware of it.

The report would emphasize the importance of trading psychology is crucial for successful
investing. Additionally, educating investors about psychological biases and providing them
with strategies can enhance investment outcomes.

It is recommended that investors undergo training in trading psychology in order to enhance

decision making ability. Financial institutions should also provide resources to assist investors
in recognizing and reducing psychological biases.

The study has several limitations such as:

• Dependence on investors self-reported data, which could be biased.
• It does not adequately account for how trading psychology affects institutional
investors.
• Market studies are costly and time-consuming, with historical data limitations and
limited sample sizes can affect accuracy.
• Historical data in market research may not always predict future trends accurately.

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 Introduction
Researchers have investigated the fascinating correlation between emotions and trading
activity, revealing some unexpected discoveries. According to one study, those with lower
emotional intelligence have a tendency to trade stocks more frequently, suggesting a
relationship between emotional intelligence and investment practices. An additional
investigation illuminated the ways in which distinct emotions may give rise to diverse
behavioural biases that impact investors' decision-making procedures.
It acknowledges that traders are not always logical actors and that their trading results can be
greatly impacted by emotions like fear, greed, hope, and remorse. It is essential for traders to
comprehend trading psychology in order to make deliberate, consistent, and disciplined
judgements that will ultimately lead to an improvement in their overall performance.
Human behaviour can have an impact on trading in a number of ways, including emotional
bias, overconfidence, loss aversion, Discipline, Hear Mentality, Cognitive Dissonance,
Confirmation Bais, etc.

A trader can attempt to lessen the negative effects of these psychological factors by being
aware of them. This could entail learning mindfulness practices to control emotions, putting
together and adhering to a sound trading plan, tracking decisions and results in a trading
log, and being conscious of one's own biases when making choices.
Thompson, C. (2023, June 26). Trading Psychology: What it is and Importance. Investopedia.
https://www.investopedia.com/articles/trading/02/110502.asp

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 Literature Review
by Eugene Fama (1970) Standard finance theories, which were based on the ideas of investor
rationality and market efficiency—that is, the idea that all participants in financial markets are
reasonable—existed in the economy. As a result, investors manage their finances and attempt to
optimise their wealth. Put differently, markets are sufficiently efficient to meet their needs, and any
externality—positive or negative—has no bearing on the choice-making process. These presumptions
implied that returns, trading volumes, and other aspects of the financial markets would be less erratic.
These theories also presupposed that investors would have access to limitless arbitrage opportunities to
counteract any mispricing in the asset markets.

M. Baker & J. Wurgler (2007) employed a "top down" methodology that measured the impact of
overall investor sentiment and how it affects stock market results. The two primary ideas of the article
are investor sentiment and arbitrage limitations. The purpose of the study is to demonstrate how
sensitive investors are to the stocks of growth companies, startups, and organisations with less
capitalization as well as enterprises experiencing financial difficulties. Put another way, investors'
sentiment has a greater impact on stocks that are hard to value or arbitrage. As a result, the proxies that
they employ in their work to gauge moods include dividend premiums, equity-debt ratios, turnover
ratios, closed-end fund discounts, and IPO first-day returns.

Saumya Dash & Jitendra Mahakud (2012) attempted to find a causal relationship between the
sentiment index created utilising implicit market proxies and stock market indices such as the BSE
Sensex and NSE Nifty. Twelve distinct proxies were employed to investigate the causal relationship
between the two. ADR, dividend premium, fund flows, NIPOs, put-call ratio, price to earnings high-
low differential, and so on are examples of proxies. The study came to the conclusion that investor
mood is primarily a short-term phenomenon and that its potentially dangerous effects can be reduced
when making long-term investment decisions.

Jaya M. Prosad (2014), carried out primary and secondary analysis to find biases such as home bias,
herding, representativeness, and overconfidence, as well as their effects. The following proxies can be
used for secondary analysis: daily closing prices, daily high and low prices, daily transaction volumes,
and daily total returns.

Pramod K. Naik & Puja Padhi (2016) Try utilising NSE monthly data from July 2001 to December
2013 to investigate the relationship between investor sentiment and stock return volatility. Seven market
indicators—Advance Declining Ratios, NIPO, Put-Call Ratio, PE Ratio, Mutual Fund Net Flow,
Turnover Rates, and Trading Volumes—were used to develop the sentiment index with the use of PC
analysis. The results showed that the excess return volatility is asymmetrically impacted by both
positive and negative feelings. They also looked into the relationship between the surplus returns and
the feelings. The Granger causality test revealed that the causal relationship was bidirectional.

Divya Aggarwal (2017) investigated, utilising a novel and unique method, the relationship
between stock markets and investor sentiments. In her study, she used the VIX (Volatility
Index) and MMI (Market Mood Index) to try and quantify investor optimism and pessimism.
According to her research, there is a statistically substantial correlation between investor
sentiment and stock market results. Furthermore, compared to changes in VIX, changes in
MMI have less explanatory potential to explain changes in contemporaneous market returns.
On the other hand, a long-term relationship has been found between stock returns and MMI.
https://www.proquest.com/openview/bf8c01e6761ace25f9cc66fb1a29fc76/1?pq-origsite=gscholar&cbl=38744

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 Chapter No. 1
1.1 Trading psychology
It’s the way you approach, think about, and more importantly how you feel about the
market and your trades. Your psychology affects your behaviour in the market, which in
turn affect your performance. [The Trading psychology playbook]

1.1.1 Types of psychological level in trading

In trading, a psychological level is a price point in a financial market that holds
significant psychological significance due to its round number (whole numbers that
are multiples of 5, 10, 100, etc.) or key numeric value (price levels with market
importance due to historical, technical, or trading activity reason).

Round numbers

Round numbers are psychologically significant because they are easy for traders to
understand mentally. These levels often act as magnets for price movement due to
the collective attention they receive. When a stock nears a round umber like $100,
traders might anticipate increased trading activity, leading to potential price
reversals or breakouts. This can create both support and resistance zones, where
traders expect purchasing interest to emerge just a round number and exiting an
asset pressure just above.
However, Traders should be cautious when using round numbers, as they can create support and
resistance zones. False breakouts can occur, and traders should additional technical analysis to
avoid these risks. A well-rounded approach is essential to avoid losses.

https://litefinance.com.ng/psychological-levels-round-numbers-in-forex-trading/

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Moving average
Moving average are trend following indicators that help smooth out price fluctuations,
making them invaluable for identifying the underlying market direction. Commonly used
periods include the 50-day and 200-day moving averages. When prices approach a moving
average, trader assess whether the price is likely to bounce off or break through, using these
levels as potential entry or exit points. The crossover of different moving averages can signal
shifts in trend momentum.
However, Traders should be aware of potential risks when using moving averages in choppy
markets, as they can generate false signals and lead to losses. To mitigage these risks, traders
should use other indicators or analysis methods.

https://forextraininggroup.com/anatomy-of-popular-moving-averages-in-forex

Double level
When two psychological levels are close to each other, they form a zone of heightened
importance in traders’ strategies. This convergence amplifies market sentiment, often leading
to increased trading activity and a greater impact on price movement. It results in various
outcomes, including price consolidations as traders evaluate their positions, breakouts if the
price breaches these levels, or reversals if the price fails to surpass them. The proximity of
these levels reinforces traders’ perception of a critical price zone, influencing their decisions
as they assess the potential outcomes tied to this combination of psychological levels.

https://www.dailyfx.com/education/support-and-resistance/psychological-levels-and-round-numbers.html

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Full Level
Full level in trading refer to price points without any decimal values, often expressed as
whole numbers. These levels are significant in trading psychology due to their clear and
straightforward representation.
Mid-Level
Mid-level represents price points halfway between major round numbers, such as $75 between $50
and $100. These intermediate levels carry significance due to their positioning with in
broader price ranges
Traders pay attention to mid-levels as they signify a potential equilibrium between opposing market
forces- the bullish momentum pushing prices higher and the bearish pressure pulling them lower.

https://www.tradingview.com/chart/EURCHF/yCVRSVNr-PSYCHOLOGICAL-LEVELS-simple-effective-way-to-find-key-levels/

Fibonacci level
These traders often use Fibonacci retracement levels, drawn from key price points, as potential
support or resistance. These levels can trigger herd behaviour, anxiety, and greed, acting as
psychological barriers, causing hesitancy and impacting market activity
[Clay, B., & Clay, B. (2023, October 6). What are Psychological Levels? – Blueberry Markets.]

https://www.mql5.com/en/blogs/post/725362

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1.1.2 Why trading psychology is important?
Trading psychology is important because is significantly influences decision-making
and financial market success. Cognitive and emotional biases, such as confirmation
bias, illusion of control, loss aversion, and overconfidence, can lead to suboptimal
outcomes. Overcoming these biases requires education, objective research, and seeking
support.

1.2 Managing and Understanding Risk in trading

1.2.1 Types of Risks Involved

Market Risk: Market risk is a type of risk that arises from market conditions like
price fluctuations, interest rate changes, or geopolitical events, affecting all market
participants.
Operational Risk: Operational risk encompasses internal factors like technology
failures, human errors, fraud, and legal issues within a trading system, crucial for
maintaining stability and integrity.
Liquidity Risk: Liquidity risk refers to the risk of trading in less liquid markets or
during market stress, causing difficulties in executing trades or exiting positions at
desired prices.
Credit Risk: Credit risk occurs when counterparties fail to fulfil their obligations,
leading to financial loss, making it crucial to evaluate their creditworthiness before
trading.

1.2.2 Risk management Strategies:

• Diversification
Diversification across different asset classes, sectors, and geographies can help
mitigate risk and minimize adverse events' impact on the overall portfolio.

• Position Sizing
Position sizing techniques like fixed-dollar amount or percentage risk help manage
risk by ensuring individual trades don't significantly impact the overall portfolio.

• Stop Loss Orders

Stop loss orders are a risk management technique that automatically close a
position when the price reaches a predetermined level, limiting potential losses in
trades against expectations.

• Risk Reward Ratio:

Identifying trades with a positive risk-reward ratio is crucial for traders to increase
the probability of profitable trades.

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1.2.3 How to manage common Triggers of fear in Trading
Fear is a fundamental part of trading, affecting traders of all levels. The weight of a
trade increases its fear, leading to mistakes and errors. Even experienced traders can
fall victim to emotional-charged reactions, costing them thousands. Understanding
these fears is the first step towards conquering them. Here are the four most common
fears in trading, and how can you overcome them:

• The fear of profits Becoming losses

Trading 101 advises cutting losses short and allowing profits to run. However, some
traders quickly pick up profits and let losses run wild due to anxious traders' tendency
to prioritize "wins" over the actual value of their trades. To avoid this, traders should
overcome anxiety and let healthy trades continue to run, allowing profits to grow.

• FOMO (Fear of missing out)

It occurs when a runaway boom seems out of control, leading to impulsive buying.
However, following a trend for FOMO is irresponsible trading. Investing in
knowledgeable assets is better.

• The fear of mistakes

Analysis paralysis occurs when we become paralyzed in analysing the market, fearing
we may miss something. This can lead to mistakes in our strategies, as we fail to act on
our research and confidence, potentially causing failure.
• The Fear of being wrong
The fear of being wrong in trading is similar to the fear of mistakes, but it values
rightness over monetary success. After trading successes, an ego can led to irrational
decisions, influencing trade choices. Experienced traders may prioritize protecting
their ego over making the most money, but unrestrained fear can lead to financial
loss.

1.2.4 How to Become a Trading Psychologist and Hack Your Brain to

Bigger Profits!
Trading psychology is so crucial to trading, it’s little wonder 95% of traders fail in the
markets! Taming your emotions, and putting yourself on the right path takes time. But
the psychology of mastering yourself is something you can learn. As I’ve shown you in
this report, arming yourself with the right knowledge, techniques and methods is half
the battle, and a great step in the right direction. The rest is up to you. You can’t remove
your emotions, or trading demons as I like to call them. That’s the trick. They’ll always
be there. It’s about mastering them. That’s why the psychology of trading success lies
with mastering yourself, and not mastering the market. It’s about “mind over me”, not
“mind over market”. The sooner you can keep your emotions under control, the sooner
you’ll start seeing the type of trading performance and profits you crave. Until then,
here's to profitable trading.

[Trading Psychology 2.0: From Best Practices to Best Processes Book by Brett N. Steenbarger]

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1.3 Developing discipline and patience in trading

1.3.1 Understanding the importance of discipline and patience in trading: Discipline

and patience are crucial for successful trading, enabling traders to maintain
consistency, manage emotions, mitigate risks, and increase profitability.
The Limits of Trader discipline
• Creating and sticking to a trading plan
• Setting specific trading goals and objectives
• Following predefined entry and exit strategies
• Practicing self-control to minimize emotional trading decisions
• Evolution and learning from both successful and unsuccessful trading
• Market cycles, trends, technical indicators, avoiding overtrading, delayed
gratification, and mindfulness techniques are essential for traders to
understand and navigate the market is important.

1.3.2 Benefits of discipline and patience in trading

Developing discipline and patience in trading can significantly improve
performance and overall success, with key benefits to emphasize
• Effective Risk Management
• Consistent decision Making
• Increased profitability
• Improved mental well-being
• Long term sustainability

https://images.app.goo.gl/QnPvrvxSgdkvSUmw9

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 Chapter no. 2
2.1 What is market structure?
Market structure is like the blueprint of how a market works. It includes things like important
price levels, trends, and areas where prices tend to go up or down. Traders look at charts to
understand these elements and make decisions about buying or selling. Market structure can
be seen in different ways, like when prices are going up and down or when they're mostly
staying in a certain range. Traders use this knowledge to understand the mood of the market,
spot patterns, and make smart decisions when trading without relying on indicators.

https://mytradingskills.com/new-trader-struggles

2.1.1 Market Structure Trends in the Trading Market Over the Past Decades.
The market structure of the trading market has evolved significantly over the past decade, with
notable improvements driven by various factors. Here is an overview of key trends and
improvements based on data and graphical representations:
Generative AI Transforming Trading Analysis
• Traders have shifted from command-line codes to user-friendly interfaces, with
Generative AI emerging as a powerful tool for complex data analysis.
• AI search capabilities are enhancing traders' ability to navigate through vast datasets
efficiently, enabling plain language searches for complex criteria.

Exchange Evolution and Data Accessibility

• Major exchanges are diversifying their revenue streams beyond matching buyers and
sellers, with a focus on unique data, analytics, and workflow tools.
• The market is witnessing a trend of consolidating liquidity in competitive markets like
stocks, options, and bonds for financial efficiency.

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Private Markets and Hybrid Systems
• Private markets like private equity and credit are becoming more accessible, potentially
reducing costs for clients
• Firms are adopting a "buy, build, and integrate" approach, combining pre-built
platforms with customization for greater control and flexibility.
Search for Market "Normalcy"
• The trading environment continues to seek a new normal post-pandemic disruption,
with oscillations between bull and bear markets challenging conventional wisdom.
• Market conditions remain unique in 2024, characterized by ongoing shifts in trends and
investor sentiments.
• These trends reflect a dynamic market landscape shaped by technological
advancements, evolving exchange strategies, and changing investor behaviours. The
use of AI, data accessibility, and adaptive approaches to system development are key
drivers of market structure improvements over the past decade.

https://www.bis.org/cpmi/publ/d92.pdf

2.2 How ‘The Cycle of Doom’ Kills 95% of New Traders

95% of traders who enter the market are rumoured to lose all of their money. Additionally,
there are numerous things that destroy new traders. If there's one thing, though, that I've
discovered, it's that novice traders are being destroyed at an incredibly fast pace by a single,
particular process. In fact, I think it's the only explanation for why nearly every trader who
enters the market experiences financial loss. The Cycle of Doom is the name of it. And as
you read this, you might potentially be stuck in it! I want to explain what it is, how to avoid
it, and how you can start making money trading right now.
how The Cycle of Doom works:

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 Cycle of Doom Step 1: Explore
This is the point at which novice traders look for a system. A trading method that can
make them rich Benjamin surpasses their highest expectations by far. Books, blogs,
webinars, events, free reports, friends-of-friends, and websites... They're looking at
everything. They would do anything to obtain the trading system's golden grail. And
once they do, they usually don't think about the repercussions, don't test much, and don't
ask a lot of questions." Well, it appears to be effective for other traders.
Cycle of Doom Step 2: Attempt
There’s no better feeling than holding a winning lottery ticket, right? You can feel it
between your fingers, you’re almost spending the money before the numbers are even
drawn. What a rush. The newbie trader then begins to put positions on. The profits are
piling in… Things are going according to plan… Until… SHABAM! A drawdown. And
a bad one too. They keep trading a little more. And they keep losing a little more. All
those precious profits, gone. “Well, I’ll just wait for the market to come right. I’ll time
it”. Yeah, good luck with that. Until a certain point (usually when the balance is looking
rather unhealthy and teetering close to 0) these traders decide this ‘holy grail’ system
wasn’t what it seemed. Other traders must’ve got lucky, yes that must’ve been it,
because this system is not very ‘holy’ is it? They lose faith in the system, and then move
onto Cycle of Doom Step 3.
Cycle of Doom Step 3: Blame
This is a time of intense emotions. Since the system failed to function, it must be
poorly designed, right? At this point, novice traders find every justification in the
book. It's all the fault of the system. It starts to irritate me. And one thing can only
follow from it! Going back to the first stage to find a new system. Since finding a new
system makes sense if the system is at fault, isn't that, right? They thus return to the
exploration stage and repeat their losses and experiences.

2.3 What are the common problems faced by traders in the past years?
Traders have faced several common problems in the past years, impacting their trading success and
longevity in the market. Some of the key challenges include:

• Overtrading: A common mistake made by novice traders is overtrading, which

involves observing several charts and pairs at once. This increases the chance of
losing money and results in poor decision-making.
• Emotional Trading: Emotion-driven trading, such as being overconfident after a
string of profitable deals, can result in large losses and impede long-term success.
• Lack of Trading Plan: Initiating traders frequently make snap decisions and deviate
from their intended tactics since they don't have a clear trading plan in place.
• Following Market Gurus: Sometimes, inexperienced traders place an undue reliance
on market experts or con artists, ignoring their own due diligence and succumbing to
schemes promising rapid riches.
• Adding Too Many Technical Indicators: Novice traders tend to overload their charts
with numerous technical indicators, which can cause confusion and hinder effective
decision-making.
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 • Trading Against the Trend: Ignoring the trend and attempting to trade against it can
result in significant losses for inexperienced traders who fail to recognize the
importance of following market trends.

2.4 What is T+0 Settlement, and Why Does it Matter?

T+1, T+2, and T+3
Traditionally, after a trade was executed, it would take several days for the transaction
to settle. Think of it as buying something online but waiting a few days for delivery.
T+1 means the trade settles the next business day, T+2 the day after, and so forth.
These delays were often due to the sheer volume of trades and the need to coordinate
between parties.
2.4.1 How T+0 Changes the Game?
Enter T+0 settlement – the grand idea of settling trades on the very day they’re
executed. It’s like instant delivery. Imagine making an online purchase and having it
appear in front of you immediately. That’s T+0 for the trading world.
The promise of T+0 offers numerous advantages.
• Instantaneous Transactions
No more waiting! Just like how streaming changed how we consume media, T+0
has the potential to revolutionise the financial markets.

• Reduced Credit Risk

With shorter settlement periods, the risk of one-party defaulting diminishes. It’s
like lending your mate a fiver and getting it back before you even miss it.

• Increased Liquidity
Quicker settlements mean funds get freed up faster. It’s akin to water flowing
freely in a river rather than waiting behind a dam.

2.4.2 What challenges are associated with implementing T+0 settlement?

Implementing T+0 settlement can be challenging due to the complexities of switching
systems in intricate markets. Additionally, faster settlements might lead to quicker
market reactions, potentially resulting in increased market volatility.

Team, C. (2023, December 5). Settlement Date. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/career-map/sell-side/capital-

markets/settlement-date/

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3.1 Research Methodology
Here are some key points from the search results that outline the research methodology used
in preparing a report on the trading market:
• Understanding Trading Psychology: Trading psychology delves into how
emotions and mental processes impact trading decisions and behaviour.
• Role of Trading Psychology: Successful trading hinges not only on analysis and
data but also on understanding one's cognitive biases, exercising self-control, and
managing emotions to make informed decisions.
• Behavioural Finance: Behavioural finance explores how psychological
influences and biases affect financial behaviours in markets, challenging the
assumption of investor.
• Secondary Research: This type of research draws on external sources of data,
such as academic articles, infographics, white papers, and other relevant sources.
• Surveys: Surveys are one of the easiest and most cost-effective ways to capture
data in market research.
• Observation: Observation when researchers need a real look into customer
behaviours and want to learn how customers interact with products or services.
• Online Market Research: Online market research uses the same strategies and
techniques as traditional primary and secondary market research, but it is
conducted on the Internet.
By utilizing a blend of these research methodologies, researchers can collect
comprehensive data on the trading market, analyse it effectively.

25 Responses

23% PEOPLE TRADE ON DAILY

BASIS
PEOPLE TRADE BY
77% EMOTIONS

TOTAL NO . OF PEOPLE TRADE BY

PARTICIPANTS PEOPLE TRADE ON DAILY BASIS EMOTIONS
25 Responses 10% 3%

SAMPLE SURVEY REPORT OF DATA

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4.1 Limitation of Study
Studying the trading market for research comes with specific limitations that researchers need
to consider for accurate and reliable analysis. Some key limitations include:
• Expense and Time-Consuming Nature: Market studies can be costly and time-
consuming, making it challenging to gather detailed information about specific target
areas.
• Historical Data Limitations: Relying on historical data in market research may not
always predict future trends accurately. Past performance does not guarantee future
outcomes.
• Regulatory Limitations on Research Analysts: Research analysts face regulatory
limitations on their trading activities to ensure fairness, transparency, and investor
protection.
• Latency and Real-Time Analysis Challenges: Timely analysis is crucial in fast-
paced trading environments; however, challenges related to latency in data analysis
can impact decision-making processes.
Understanding these limitations is essential for researchers to conduct thorough and unbiased
analyses of the trading market, enabling them to make informed decisions and
recommendations based on a comprehensive understanding of the market dynamics.

19
 Conclusion
Trading psychology plays a pivotal role in determining a trader's success, as it significantly
influences their behaviour and decision-making process within the market. It is imperative for
traders to comprehend and effectively manage psychological levels, such as round numbers,
moving averages, double levels, full levels, mid-levels, and Fibonacci levels. By doing so,
traders can make well-informed decisions that ultimately enhance their overall performance.

Furthermore, risk management is a crucial component of trading that involves implementing

strategies to mitigate various risks, including market, operational, liquidity, and credit risks.
Techniques such as diversification, position sizing, stop-loss orders, and risk-reward ratios
are essential tools that traders must utilize to safeguard their capital and enhance profitability.

In addition, cultivating discipline and patience in trading is essential for maintaining

consistency and effectively managing emotions. Adhering to a well-defined trading plan,
setting specific goals, and practicing self-control are key practices that can help traders steer
clear of impulsive decisions and ultimately improve their trading performance over time.

20
 Appendix
Questions for trader in the survey
• For world duration have you been engaging in market trading?
• Which market stocks, FX, futures etc- do you trade most frequently?
• What would you say about your entire trading approach such as position, swing and
day trading
• How big of an influence do you think your emotions have on your trading decisions
on a scale of 1 to 5?
• Which feelings do you typically feel when reading?
• Do you have a regular trading plan that you adhere to? if yes, what level of rigour do
you apply?
• In the event of losing transaction or drop, how do you usually respond?
• Do you love your trade in a general or other record?
• When Trading, which psychological biases- such as loss aversion over confidence and
fear of losing out do you feel most challenged by?
• What my heart’s all strategies to you employ to control your emotions and trading
psychology

21
 References and Bibliography
Kapil, K.N (2023). Psychology of investment-sentimental based literature review. Academy of
Marketing Studies Journal, 27(5), 1-13.
Altuwaijri, B. (2016). The Relationship between Total Management Team (TMT) Compensation and
Corporate Governance: The Case of Saudi Stock Market. Available at SSRN 2889750
Bouteska, A. (2019). The effect of investor sentiment on market reactions to financial earnings
restatements: Lessons from the United States. Journal of Behavioural and Experimental Finance, 24,
100241.
Naik, P. K., & Padhi, P. (2016). Investor sentiment, stock market returns and volatility: evidence from
National Stock Exchange of India. International Journal of Management Practice, 9(3), 213-237.
Aggarwal, D. (2017). Exploring relation between Indian market sentiments and stock market returns.
Asian Journal of Empirical Research, 7(7), 147-159.
https://www.greenwich.com/market-structure-technology/top-market-structure-trends-watch-2024
https://www.bis.org/cpmi/publ/d92.pdf
https://mytradingskills.com/new-trader-struggles
https://fastercapital.com/topics/challenges-faced-by-floor-traders-in-the-modern-era.html
https://www.oecd.org/trade/understanding-the-global-trading-system/trade-challenges-and-
opportunities/
https://www.desiretotrade.com/5-difficulties-in-trading-and-how-to-overcome-them/
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[Clay, B., & Clay, B. (2023, October 6). What are Psychological Levels? – Blueberry Markets
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