From The Desk of Novice_Trader_Cindy
Psychology was my subject of interest when I was in college. After earning a BS in Employee Assistance Counseling, I went on to Human Resources Management positions where I found myself constantly using psychology to interpret and understand the true emotions employees were experiencing in a given situation. I NEVER even thought that psychology would apply to the stock market as well. I thought it was just a game of statistics and economics. Was I ever wrong!
Receiving a 400+ page book on trading from my Dad (Trader_Joe) for Christmas surely opened my eyes! I was SO excited to dig in. What did I learn in the first sixty pages of the book? Psychology is tightly intertwined in the markets. You may be like me and skeptical at first, so let me explain a few of the concepts in the book.
Idea #1: Wanting to be right, is wrong. We all have the innate desire to be right. Who wants to admit they’re wrong, after all? It’s in our nature to fight to prove we’re right. Think about the last fight with your spouse. Did you hold your position and fight to prove you were right? How’d it turn out? Now equate that to a recent losing trade you had. Did you stay in the trade, even though your trading plan told you to get out? Were you SURE it was going to become a winning position and you were going to stick with it and prove your strategy was right? That’s what the experienced traders are counting on! They want you to stay in your losing position trying to prove you were right. Meanwhile, all your losses become another trader’s gains.
Idea #2: Focusing on the potential results is faulty thinking. If a trader is focused on the potential result, or the potential money gain, she will see many opportunities that really aren’t there. It is important to always focus on the set up. If you don’t have the desired set up, chances are you won’t have the desired outcome. Patience is essential in both learning what setups work best and also waiting for those setups to occur.
Idea #3: Market Violence is driven by fear. This idea actually came from another source but I felt it was an important part of the psychology of trading. Fear drives market violence. There are two types of fear; one the fear of losing money and second, the fear of missing out. Again you have two sets of traders, in the same trade, on opposite sides. One will win and one will lose, but both made decisions based on fear.
Psychology does indeed play an important part in the trading world, and on me as a new trader. Knowing this, I can now be aware of my emotions to make sure they are in check and are not setting me up for failure!
Happy Returns,
Novice_Trader_Cindy
Psychology was my subject of interest when I was in college. After earning a BS in Employee Assistance Counseling, I went on to Human Resources Management positions where I found myself constantly using psychology to interpret and understand the true emotions employees were experiencing in a given situation. I NEVER even thought that psychology would apply to the stock market as well. I thought it was just a game of statistics and economics. Was I ever wrong!
Receiving a 400+ page book on trading from my Dad (Trader_Joe) for Christmas surely opened my eyes! I was SO excited to dig in. What did I learn in the first sixty pages of the book? Psychology is tightly intertwined in the markets. You may be like me and skeptical at first, so let me explain a few of the concepts in the book.
Idea #1: Wanting to be right, is wrong. We all have the innate desire to be right. Who wants to admit they’re wrong, after all? It’s in our nature to fight to prove we’re right. Think about the last fight with your spouse. Did you hold your position and fight to prove you were right? How’d it turn out? Now equate that to a recent losing trade you had. Did you stay in the trade, even though your trading plan told you to get out? Were you SURE it was going to become a winning position and you were going to stick with it and prove your strategy was right? That’s what the experienced traders are counting on! They want you to stay in your losing position trying to prove you were right. Meanwhile, all your losses become another trader’s gains.
Idea #2: Focusing on the potential results is faulty thinking. If a trader is focused on the potential result, or the potential money gain, she will see many opportunities that really aren’t there. It is important to always focus on the set up. If you don’t have the desired set up, chances are you won’t have the desired outcome. Patience is essential in both learning what setups work best and also waiting for those setups to occur.
Idea #3: Market Violence is driven by fear. This idea actually came from another source but I felt it was an important part of the psychology of trading. Fear drives market violence. There are two types of fear; one the fear of losing money and second, the fear of missing out. Again you have two sets of traders, in the same trade, on opposite sides. One will win and one will lose, but both made decisions based on fear.
Psychology does indeed play an important part in the trading world, and on me as a new trader. Knowing this, I can now be aware of my emotions to make sure they are in check and are not setting me up for failure!
Happy Returns,
Novice_Trader_Cindy
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