How Sentimental Trading can deplete your Profit Margins

Trading, by its very nature, is associated with calculating margins, purchase and selling strategies and is indeed calculative. Any decision that you take must be accompanied with complete focus and know-how regarding the individual needs and requirements. This calls for getting assistance in market matters from a firm like Tradebulls, which is in effect an established entity for dealing with all your brokerage and share-market related concerns. Sentimental trading or trading using intuition or without any solid reasoning is also referred to as noise trading. Such kind of trading rarely generates any positive market trends or benefits for the broader segment of traders and is generally negative.

Sentimental trading can be broadly understood based on human behavior which tends to be either positive or negative depending on a variety of factors. Here is an example to demonstrate this:

Mr. A, a dentist by profession and a beginner trader of stocks, planned to move to another city along with his family. The earnings that he had wouldn’t suffice for this move and other expenses as he had a large sum of money tied up in investments. To generate a sufficient corpus, Mr. A went ahead and decided to quickly purchase shares that were doing good. The problem was – he did not have time for proper and credible market research and had a vague idea about what to do with his investments. At that time, the market was rife with speculations about investing in a particular small-cap company’s shares and instead of taking time to properly and methodically analyze things, Mr. A decided to go with the speculations. The result –instead of making any kind of substantial profit, his profit margin was swayed as the share prices fell through and he had to sell off a large portion of his stock.

Sentimental trading generally banks on the individuals’ tendency to believe a particular “noisy” segment of speculative traders who are not professionals and do not have any significant credibility. This is where the problem erupts. By its very nature, sentimental trading can sway the market prices of certain stocks negatively – either way too high than the actual forecast or lower than what it should ideally be. This is the reason why many traders lose money whenever they indulge in speculative or sentimental trading.

Tradebulls promotes and values the core financial aspects of trading very carefully and analytically. The tools used are modern and purely logic-oriented. This is why the estimations are data-based and systematic and never indulgent of any kind of futile speculation. The profit structure does not provide any significant advantage or leverage for growth through expansion or vertical integration. What this means is that little flexibility is available in the inherent divisions of pricing and hence, profit-making. The key lies in the successful interpretation of data, taking into consideration the changes in the trading environment as may happen from time to time. This is why the professional services of a firm like Tradebulls are required.