Three Psychologies in Trading

[rajesheck]

There are three psychologies in stock trading.


1. Stock Market Psychology (short-term scenario)

Probably more than 99% of stock traders are not businessmen and they know next to nothing about running a business. They react (not respond) to news and events mostly in emotional ways. Greed and fear are two highly frequenting emotions in stock trading among traders. Emotions are unpredictable and so is the stock market.

Simply short-term stock market forecasting is unreliable, because forecasting is based on business news and events while the actual reflections in the stock market are based vastly on greed and fear of traders who don't understand business.

Conclusion: Short-term stock market forecasts are unreliable.

Note : This is only a short-term scenario and has got nothing to do with long-term investments.

2. Stock Trading Psychology

Stock market short-term forecasting may be unreliable. Yet the short-lived market trend is more predictable. Supports and resistances tells us some story that is far more reliable than the short-term forecasting. Technical charts (EMA, RSI, MACD, etc,) are diluted versions of this trend and not for professionals, may be of interest for beginners.

Conclusion : Trend based trading is more reliable.

3. Stock Trader's Psychology

There are two levels to trader's psychology :

Level 1: Trading is a business. Trader is a businessman. Trader's psychology is fundamentally a business psychology. The relationship between a businessman and his money can be compared to the relationship between a mother and her baby. Warren Buffet expresses the business attitude as follows....

Level 2 : A businessman also need to understand his field of business. A stock trader has to understand and adopt 1) stock market psychology and 2) stock trading psychology.

Conclusion : Wear the business attitude and learn the business you are in.

A professional trader will always treat his money as his baby.

 

[rajesheck]

Human psychology

Other than these three psychologies there is general human psychology. The general human psychology is important for a trader to understand the trade and perform well.

There are three general ways to improve human psychology:
1. Psycho therapy
2. Hypno therapy
3. Alternative therapies like yoga, meditation, etc,.

Singing Hu is one of the alternative therapies to enhance general psychology:

This is Shabd Yoga or sound therapy.

 

[MrMuppet]

All that psychology stuff is utter crap when it comes to trading. Sure, you might get 2-3% closer to your A+ game, but working on psychology to become profitable is like taking yoga classes to cure cancer.

You need an edge, you need to know why you have edge, why it works and how to execute trades around that edge. That and only that will make you profitable...you can work on your brain when you have nothing else to do with your life.

 

[fordewind]

everything is everything in trading.

 

[rajesheck]

All that psychology stuff is utter crap when it comes to trading. Sure, you might get 2-3% closer to your A+ game, but working on psychology to become profitable is like taking yoga classes to cure cancer.

You need an edge, you need to know why you have edge, why it works and how to execute trades around that edge. That and only that will make you profitable...you can work on your brain when you have nothing else to do with your life.

Stock trading is nothing like a whether report. It is a psychological game. The quality of your edge is in the quality of your understanding this psychological game of trading.

 

[rajesheck]

everything is everything in trading.

Can i say psychology is almost everything in a human life including his profession ?

 

[wrbtrader]

...You need an edge, you need to know why you have edge, why it works and how to execute trades around that edge. That and only that will make you profitable...you can work on your brain when you have nothing else to do with your life.

Wrong and Right.

The problem is the word "edge". Some traders have "many" edges...not just one. One of those edges may be psychological for those that are not automated or it may be several edges working together (e.g. money management, psychological, extremely low commissions, living rent free or anything that determines if profitable or loser).

Thus, without that psychological edge...they're losing or struggling traders. With that psychological edge with their other edges...they're profitable traders.

Reminds me of this guy that was a "drunk"...an alcoholic and a trader. The guy would consistently make crazy trades and have big losing days when "drunk" while trading. In contrast, during the periods he was "sober" (not drinking)...he was a highly profitable trader.

Therefore, his sobriety was part of his edge. It allowed him to make good trade decisions and make a lot of money.

Thus, an edge to someone may not be the same edge to someone else. Simply, go tell that "drunk trader" you need an edge to be successful. He may do rehab, sober up and trade profitably.

 

[MrMuppet]

Guys, I think you mix up psychology with proper mental condition and work ethic. Of course trading when drunk is gambling. But be sure there are a ton of traders out there who are fat, don't work out, don't meditate, don't visualize, yada, yada, yada and still make a truckton of money...just because they have an edge.

Ask the SOES Bandits who went to the beach 2hrs after the open, the Code Monkey who knows how to game the queue, the brother of a friend of a lawyer who buys 100k OTM delta on inside information...psychology? Not so much...

Trading is hard work, but it's not a mental game. You grind hours and hours untill you found something that works and simply replicate that over and over.

Of course if you guys are lazy chart donkeys, you need a hell lot of psychology. You'll need so much psychology that you better go see a performance coach...who tells you it's not your fault that you blew another account, you just need more psychology

 

[wrbtrader]

Anybody that thinks trading their own money is not psychological is so wrong or not an important aspect of a trading plan...not worth going into any debates about it.

 

[MrMuppet]

Anybody that thinks trading their own money is not psychological is so wrong or not an important aspect of a trading plan...not worth going into any debates about it.

If you are attached to the money you are trading with...you probably should not be trading at all. Just saying