finance – LIBERTY PSYCHOLOGICAL ASSOCIATION

Trading Psychology, explained:

Trading Psychology refers to the mental and emotional factors that influence how traders make decisions, manage risk, and respond to market conditions. It is often more important than strategy or technical skill, because even the best system fails if the trader cannot execute it consistently.

Below is a clear overview.

Core Elements of Trading Psychology
1. Emotional Regulation
Markets trigger strong emotions:

Fear → leads to hesitation, panic selling, or exiting too early

Greed → leads to overtrading, oversized positions, or ignoring risk

Hope → leads to holding losing trades too long

FOMO → jumps into trades without analysis

Goal: Develop the ability to act based on plan, not emotion.

2. Cognitive Biases
Traders often get trapped by psychological distortions:

Loss Aversion: losses hurt more than gains feel good → sabotages consistency

Confirmation Bias: looking only for info that proves your idea

Recency Bias: assuming the last few results represent future outcomes

Anchoring: clinging to a price or belief despite new data

Goal: Recognize these biases and build rules to override them.

3. Discipline and Consistency
Winning traders don’t react randomly — they follow:

A trading plan

Risk rules

A daily routine

A position sizing model

Discipline reduces emotional decision-making.

4. Risk Tolerance and Stress Management
Every trader has a psychological threshold for:

Size of loss they can tolerate

Level of volatility they can handle

Time they can hold a trade

Ignoring your own risk tolerance creates stress → stress leads to mistakes.

5. Self-Awareness
Successful traders study their own patterns as much as market patterns:

What triggers impulsive trades

What conditions lead to mistakes

What emotions appear after wins or losses

Self-awareness = the trader’s greatest psychological edge.

6. Mindset: Growth vs. Ego
Two mindsets exist in trading:

Ego-based: needing to be right

Growth-based: needing to learn

The growth mindset understands:

Being wrong is part of the game

Losses are data

Consistency > perfection

7. Patience and Timing
Most traders lose because they:

Enter too early

Exit too early

Overtrade because they’re bored

Patience is a psychological skill — waiting for high-probability setups.

8. Recovery Psychology
After losses:

Many traders tilt (revenge-trading)

Lose discipline

Try to “get it back” immediately

A strong recovery psychology includes:

Taking breaks

Reducing size

Reviewing mistakes without blame

9. Confidence (Not Overconfidence)
Confidence comes from:

Back testing

Experience

Consistent execution

Trusting your edge

Overconfidence comes from:

Winning streaks

Luck mistaken for skill

Taking bigger risks than the plan allows

Differentiating the two is key.

10. Flow State and Intuition (Advanced)
With experience, some traders enter:

Flow: complete focus and clarity

Market intuition: pattern recognition built from thousands of hours

This is not impulsiveness; it’s subconscious expertise.

How to Develop Strong Trading Psychology:
Daily Practices
Journaling every trade

Reviewing emotional triggers

Using meditation or breathing exercises

Setting clear pre-market checklists

Using stop losses and defined risk so emotions are minimized

Structural Practices
Trade small enough that emotions are quiet

Use a written rule set

Automate parts of your process

Create accountability (mentor, community, or self-audit)

In One Sentence
Trading psychology is the ability to manage your emotions, biases, and behaviors so you can follow your system with consistency — especially under pressure.

Shervan K Shahhian

The Psychology of Money, explained:

The Psychology of Money is the study of how people think, feel, and behave around money — including how beliefs, emotions, experiences, and biases shape financial decisions. It looks at why people make the choices they do about spending, saving, investing, and risk-taking, often in ways that go beyond logic or economics.

Here’s a breakdown of the key ideas:

1. Money is Emotional, Not Rational
Even though money seems like a logical topic (numbers, balance sheets, profits), people rarely make financial decisions purely rationally.

Fear, greed, status, security, and identity heavily influence choices.

For example: Someone might overspend to feel accepted, or avoid investing because of past financial trauma.

2. Personal History Shapes Financial Behavior
Everyone’s money mindset is shaped by their upbringing, culture, and past experiences:

A person who grew up during financial instability may hoard savings or fear debt.

Someone raised in wealth might view money as a tool for freedom or influence.

3. Perception of Money = Perception of Control
Money often symbolizes control, freedom, or security.
How much control one feels over life circumstances can shape how they manage money:

Feeling powerless → impulsive or avoidant money behaviors.

Feeling capable → strategic planning and long-term thinking.

4. Cognitive Biases in Financial Decisions
Human judgment is full of mental shortcuts that affect money management:

Loss aversion: People fear losing money more than they enjoy gaining it.

Present bias: Preferring small rewards now over larger rewards later.

Anchoring: Relying too heavily on first impressions (e.g., the first price seen).

Herd behavior: Following what others do (like during market booms or crashes).

5. The Relationship Between Money and Happiness
Money can increase happiness — but only up to a point, mainly by reducing stress and providing basic comfort.

Beyond that, happiness depends more on meaning, relationships, and autonomy than on wealth itself.

The psychological trick: People adapt quickly to new levels of wealth (the hedonic treadmill).

6. Identity, Status, and Self-Worth
Many people tie self-esteem to financial success. This leads to:

Comparison with others (social pressure).

Spending to signal success (“conspicuous consumption”).

Anxiety when financial goals are unmet.

7. Healthy Money Mindset
A balanced “psychology of money” involves:

Awareness of emotional triggers and biases.

Mindful decision-making instead of impulsive or fear-driven actions.

Values-based financial goals — aligning money with what truly matters (freedom, creativity, contribution, etc.).

I would like to explain this concept from a clinical/therapeutic perspective:

From a clinical or therapeutic perspective, the psychology of money explores how a person’s emotional life, attachment style, and internal belief systems influence their relationship with money. In therapy, money is not only an economic topic — it’s a mirror reflecting one’s self-worth, safety, power, and relationships.

Here’s how it’s often understood in clinical terms:

1. Money as a Mirror of the Psyche
In psychotherapy, money frequently symbolizes much more than currency:

Security → a substitute for safety or love.

Control → a means to manage anxiety or uncertainty.

Worth → a reflection of self-esteem or personal value.

Autonomy → a measure of independence from parents or authority figures.

Clients may unconsciously express unresolved conflicts through their financial behavior — overspending, hoarding, avoiding, or rescuing others financially.

2. Family-of-Origin and Money Scripts
Therapists often explore “money scripts” — deeply rooted beliefs learned in childhood about money and survival.
Examples include:

“Money is the root of all evil.”

“More money will solve my problems.”

“I must work hard to deserve money.”

“Rich people are selfish.”

These scripts shape adult behaviors:

A child who saw parents argue about money may associate it with conflict and avoid financial discussions.

Someone raised in scarcity might struggle to spend even when financially secure.

3. Emotional Regulation and Financial Behavior
Financial decisions often serve as emotion-regulation strategies:

Shopping to soothe loneliness or stress.

Saving excessively to ward off fear of loss.

Avoiding bills or taxes as a way of denying anxiety or shame.

In therapy, the focus is on helping clients identify these emotional patterns and replace them with healthier coping mechanisms.

4. Attachment and Money
A client’s attachment style often predicts their relationship with money:

Anxious attachment → financial overdependence or people-pleasing (giving too much, avoiding conflict).

Avoidant attachment → secretive, controlling, or emotionally detached from financial intimacy.

Secure attachment → open communication and balanced financial boundaries.

Couples therapy often reveals that money conflicts are attachment conflicts in disguise.

5. Shame, Guilt, and Self-Worth
Money frequently triggers shame (“I’m bad with money,” “I don’t deserve wealth”) or guilt (“I have more than others”).
Therapy helps clients:

Differentiate net worth from self-worth.

Recognize inherited guilt or unspoken family contracts (“Don’t surpass your parents”).

Develop financial self-compassion.

6. Power, Control, and Boundaries
Money dynamics in relationships often reflect power struggles:

One partner controlling finances as a form of dominance.

Another using spending to assert independence.

Families using money to maintain loyalty or dependence.

Therapeutically, this involves restoring financial boundaries and empowering clients to make choices aligned with their authentic needs and values.

7. Healing the Relationship with Money
Clinically, working on money issues means healing one’s emotional relationship with security, value, and trust:

Exploring the narrative behind financial behavior.

Building emotional tolerance for uncertainty and loss.

Creating a values-based financial plan that integrates emotional health with practical goals.

Shervan K Shahhian

Financial Competence, explained:

Financial competence refers to a person’s ability to effectively manage money and financial decisions in a responsible way. It goes beyond just knowing about money - it’s about applying knowledge and skills in real-life situations.
It usually includes:
Knowledge - understanding basic financial concepts (budgeting, saving, debt, credit, investing, taxes, insurance).
Skills - being able to track expenses, create a budget, make comparisons, and plan ahead.
Judgment - knowing how to evaluate financial risks and opportunities, and making decisions that align with one’s goals and values.
Responsibility - following through on commitments, paying bills on time, and avoiding reckless spending.

In psychology, financial competence is also tied to executive functioning (planning, organizing, self-control) and financial literacy, but with an emphasis on practical, real-world performance.
In clinical and forensic psychology, financial competence usually refers to a person’s capacity to understand, manage, and make responsible decisions about their own finances. It is often evaluated when there are questions of:
Guardianship / Conservatorship - Can this individual manage their own money, or do they need someone legally appointed to do so?
Capacity Evaluations - Does a mental illness, cognitive impairment, or developmental disorder affect their ability to handle finances?
Forensic Assessments - In cases involving exploitation, fraud, undue influence, or competency to stand trial (especially if financial understanding is relevant).

Key Areas of Assessment

A clinician might examine:
Understanding - Can the person grasp basic financial concepts (money value, bills, banking, debt, budgeting)?
Appreciation - Do they understand how these concepts apply to their situation? (e.g., knowing they have rent due, or what income they receive).
Reasoning - Can they compare options (e.g., saving vs. spending, understanding interest rates, evaluating contracts)?
Judgment - Do they demonstrate realistic, consistent decision-making aligned with their needs?
Functional Skills - Paying bills, writing checks, using online banking, safeguarding PINs and cards.

Psychological Factors

Cognitive functioning (memory, attention, executive function).
Mental illness (delusions, mania, severe depression may impair judgment).
Vulnerability to undue influence (especially in elderly or dependent individuals).

Methods

Clinical interview and functional assessment.
Standardized tools (e.g., Financial Capacity Instrument, Lichtenberg Financial Decision Rating Scale).
Collateral information (family, bank records, caregivers).

In forensic settings, the ultimate question is often:
Does this person have the capacity to manage their financial affairs, or do they require legal/protective intervention?

Shervan K Shahhian

Financial Therapy, what is it:

Financial Therapy:

Financial Therapy is an emerging field at the intersection of psychology and finance. It focuses on the emotional, behavioral, and psychological aspects of money—how people think about, feel about, and interact with money—rather than just the numbers.

Here’s a detailed overview:

1. Definition

Financial therapy is a collaborative process that helps individuals and couples understand the connection between their financial decisions and their emotional and psychological well-being. It aims to address underlying emotional issues that influence financial behavior, such as anxiety, guilt, shame, or compulsive spending.

2. Goals of Financial Therapy

Identify Emotional Triggers: Understanding the feelings that drive financial behaviors (e.g., stress leading to impulsive buying).
Improve Financial Behaviors: Developing healthier habits around saving, spending, investing, and budgeting.
Resolve Money Conflicts: Addressing money-related conflicts within couples or families.
Enhance Financial Well-being: Building confidence and reducing stress related to money.
Integrate Psychological and Financial Health: Creating a holistic approach to financial decision-making.

3. Who Can Benefit

Individuals with money anxiety or stress
People struggling with overspending, hoarding, or debt
Couples experiencing money-related conflict
People with financial trauma or past financial setbacks
Anyone seeking a better relationship with money

4. Methods and Approaches

Financial therapists use a combination of psychological and financial tools:

Cognitive Behavioral Techniques: To change unhealthy money beliefs and behaviors.
Emotion-Focused Therapy: To process emotional responses related to finances.
Couples Therapy Approaches: To manage shared financial decisions and conflicts.
Psychoeducation: Teaching about money management, financial planning, and emotional awareness.
Behavioral Interventions: Creating practical plans for budgeting, saving, and debt reduction.

5. Difference from Financial Advising

Financial advisors focus on numbers, investments, and planning.
Financial therapists focus on the emotional and behavioral side, though they may collaborate with financial advisors for a holistic approach.

6. Examples of Financial Therapy Work

Helping a client understand why they overspend when stressed.
Coaching a couple to navigate conflicting financial priorities.
Assisting someone with financial trauma (e.g., loss of a home or job) to rebuild confidence.
Addressing feelings of shame or guilt around debt.

Essentially, financial therapy treats money problems as human problems, not just numeric ones, helping people make conscious, aligned financial decisions without being driven solely by fear, habit, or emotion.

Shervan K Shahhian

Understanding The Psychology of Money:

Psychology of Money:

The psychology of money looks at how people think, feel, and behave around money. It blends psychology, economics, and behavioral science to explain why we don’t always make “rational” financial decisions.

Here are the key themes:

1. Money as Emotion, Not Just Math
Money decisions are often driven by fear, greed, pride, guilt, or love rather than pure logic.

Example: someone may keep too much cash “for safety” even though investing would yield more over time.

2. Childhood Money Scripts
Early experiences with money (scarcity, abundance, secrecy) shape our “money script.”

Example: A child raised in financial insecurity may become overly frugal, even when wealthy.

3. Cognitive Biases in Money
Loss aversion: Losing $100 feels worse than gaining $100 feels good.

Present bias: People prefer small rewards now over bigger rewards later.

Overconfidence: Many think they can “beat the market” even when statistics suggest otherwise.

4. Money and Identity
Money becomes tied to self-worth, status, and identity.

Spending can be a way to signal success, while saving can represent discipline or control.

5. Happiness and Money
Research shows money increases happiness up to a point (around $75,000–$100,000/year in U.S. studies), but beyond that, how money is used matters more.

Experiences, generosity, and security create more well-being than luxury goods.

6. Cultural and Social Influence
Different cultures place different values on saving, debt, and spending.

Social comparison drives much financial behavior (“keeping up with the Joneses”).

7. Money Disorders
Psychologists recognize maladaptive patterns like:

Compulsive spending (oniomania)

Hoarding money out of fear

Financial infidelity (hiding money from partners)

Workaholism tied to financial validation

8. Money and Relationships
One of the top causes of conflict in couples.

Conflicts often reflect deeper issues: control, trust, security, independence.

Clinical Mental Health Perspective:

From a clinical psychology perspective, the psychology of money is less about financial advice and more about how money reflects — and often hides — deeper psychological processes.

Here’s a structured breakdown:

1. Money as a Psychological Symbol
Money is rarely just “currency.” Clinically, it often symbolizes:

Security (a buffer against danger or deprivation)

Freedom (ability to choose, escape, or be independent)

Power & Control (over others, or over uncertainty)

Self-worth (how much I “deserve” or how “valuable” I am)

In therapy, exploring what money represents to a client can reveal unconscious beliefs and conflicts.

2. Money Scripts (Unconscious Beliefs)
Research in financial psychology shows many clients operate from “money scripts” formed in childhood, often inaccurate or rigid.

Four common maladaptive money scripts:

Money Avoidance — “Money is bad,” guilt about wealth.

Money Worship — “More money will fix all my problems.”

Money Status — “My net worth = my self-worth.”

Money Vigilance — “I must save every penny, spend little, or I’ll be unsafe.”

Therapy helps uncover and challenge these scripts.

3. Money Disorders
Psychologists have identified dysfunctional patterns around money, often tied to anxiety, trauma, or identity:

Compulsive buying disorder (spending to regulate emotions)

Gambling disorder (risk-taking as escape or thrill)

Financial hoarding (fear-driven over-saving)

Financial infidelity (lying about money to partners)

Workaholism (seeking self-worth through earning)

4. Money and Trauma
Financial behavior often reflects unresolved trauma:

Growing up in scarcity → hypervigilance, hoarding, fear of loss.

Growing up in affluence but neglect → entitlement, compulsive spending, emptiness.

Clinically, money can be a reenactment of early wounds (e.g., recreating scarcity, overspending to feel nurtured, or using control of money as a way to master helplessness).

5. Money in Relationships
Money fights are often proxy battles about power, trust, intimacy, or control.

Couples therapy often reveals money conflicts are about:

Security vs. freedom needs

Equality vs. dependence struggles

Trust vs. secrecy issues

Exploring these helps shift the focus from numbers to needs.

6. Therapeutic Approaches
Psychodynamic therapy: Explores unconscious meaning of money, family money narratives, and transferences.

CBT: Challenges irrational money beliefs (“If I spend, I’ll end up homeless”).

Financial therapy: Integrates psychology + personal finance planning.

Motivational interviewing: Helps with ambivalence around change (spending, debt, saving).

Mindfulness-based approaches: Develop awareness of emotional triggers tied to financial behavior.

7. Money & Mental Health Cycle
Financial stress ↔ mental health problems (depression, anxiety, substance use) create a feedback loop.

Example: Anxiety → avoidance of bills → more financial stress → more anxiety.

Therapy breaks the cycle by addressing both emotional regulation and practical coping strategies.

In short: Clinically, the psychology of money is less about “smart spending” and more about uncovering the hidden emotional life of money — how it represents security, love, control, and identity, and how those meanings shape mental health and relationships.

Shervan K Shahhian

Understanding the Broke Mentality:

Understanding the Broke Mentality:

The “broke mentality” refers to a mindset that perpetuates financial struggle, regardless of a person’s actual income or resources. It’s less about lacking money and more about how someone thinks about money, success, work, and value. Understanding it can help in breaking free from limiting beliefs and patterns.

Core Traits of a Broke Mentality:

Scarcity Thinking

Belief: “There’s never enough” — money, opportunities, time.

Consequence: Fear-based decisions, hoarding, or impulsive spending out of fear of missing out.

Short-Term Focus

Prioritizing immediate gratification over long-term stability.

Examples: Constantly spending on wants instead of saving or investing.

Blaming External Circumstances

Belief: “I can’t get ahead because of the economy, my job, my background…”

Consequence: Lack of personal responsibility and initiative.

Avoidance of Financial Literacy

Thinking money is too complicated, boring, or not for “people like me.”

Leads to ignoring budgeting, debt, or investment planning.

Negative Views of Wealth and Wealthy People

Belief: “Money is evil,” or “Rich people are greedy.”

Subconscious self-sabotage: rejecting wealth to remain morally “clean.”

Underestimating Self-Worth

Charging too little, not negotiating, or not pursuing better opportunities.

Often rooted in fear, insecurity, or lack of self-value.

Lack of Vision or Goal Setting

No clear plan or dream that requires financial growth.

Living reactively instead of proactively.

Examples in Action:

Someone receives a large tax refund and immediately spends it on luxuries rather than debt or savings.

A person stays in a dead-end job for years, believing they “can’t do better.”

A small business owner resists investing in marketing or hiring help because “it costs too much,” stalling growth.

Breaking Free from the Broke Mentality:

Develop a Growth Mindset — Believe you can learn, grow, and change your financial life.

Practice Delayed Gratification — Prioritize long-term wealth over short-term pleasure.

Learn Financial Literacy — Budgeting, saving, investing are learnable skills.

Set Clear Financial Goals — Make your money serve a purpose.

Change Your Environment — Spend time with people who have a healthier relationship with money.

Reprogram Money Beliefs — Challenge ideas like “I’ll never be rich” or “Money is bad.”

Shervan K Shahhian

Strategies for Impulse Control:

Strategies for Impulse Control:

Impulse control is the ability to resist immediate urges or desires in favor of long-term goals or values. Developing strategies to improve impulse control can be beneficial for various aspects of life, including personal relationships, work, and overall well-being. Here are some strategies to help enhance impulse control:

Awareness and Mindfulness:

Pay attention to your thoughts, feelings, and impulses.
Practice mindfulness to stay present in the moment.
Identify triggers that lead to impulsive behavior.

Pause and Reflect:

Create a “pause” button in your mind before acting on impulses.
Take a few deep breaths to give yourself time to reflect.

Set Clear Goals:

Define your long-term goals and values.
Remind yourself of the bigger picture when faced with impulsive decisions.

Prioritize and Plan:

Break down large goals into smaller, manageable tasks.
Create a daily or weekly plan to stay focused on your priorities.

Delay Gratification:

Practice delaying immediate rewards for more significant, delayed benefits.
Gradually increase the time you can delay gratification.

Create Boundaries:

Set clear boundaries for yourself and others.
Learn to say “no” when necessary to protect your goals and values.

Seek Support:

Share your goals with friends, family, or a mentor.
Surround yourself with a supportive network that encourages positive behavior.

Develop Coping Strategies:

Identify alternative activities or coping mechanisms to replace impulsive behaviors.
Engage in activities that help you relax and manage stress.

Practice Self-Control Exercises:

Gradually expose yourself to situations that trigger impulses and practice resisting them.
Role-play scenarios to strengthen your self-control skills.

Educate Yourself:

Understand the consequences of impulsive actions.
Stay informed about the benefits of delayed gratification.

Celebrate Progress:

Acknowledge and celebrate your successes in controlling impulses.
Use positive reinforcement to motivate yourself.

Professional Help:

If impulsivity significantly impacts your life, consider seeking guidance from a therapist or counselor.

Remember, improving impulse control is a gradual process, and it’s okay to seek help or adjust your strategies as needed. Consistent practice and self-reflection are essential components of developing better impulse control over time.

Shervan K Shahhian