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The Psychology of Trading
Possibly THE most important part and yet most new traders ignore it. Below are a collection of thought provoking articles which enable you to create the mindset of a professional trader.
Fear Vs Greed based traders
Two key drivers for humans are fear and greed. They influence us in all aspects of life and can aid/disrupt our decision making abilities. When it comes to trading the markets, individuals who are influenced by one or the other of these traits will need to recognise them so they can improve their results....read more
Do you follow the crowd?
When it comes to trading, do you follow the crowd? We as humans have a natural tendency to do so, but when trading the markets, following the masses can often lead to losses. Unless we are in the middle of a trend, it doesn't normally pay to be on the side of the masses...read more
Understanding our emotions when trading
We repeatedly say that psychology is by far the most important aspect of trading in the markets. The best market timers are able to control their natural emotions and make calm, calculated decisions about when to buy or sell. There are a huge array of emotions that different investors may go through but the bottom line is these are not all conquering, you can control them like anyone else...read more
Hitting the trigger
The difference between success and failure for a trader is much closer than you might think. New traders tend to think that the pro's have some sort of secret knowledge/system that enables them to make trading look so easy. However, the difference between a new trader trying to gain consistency and a professional normally comes down to mindset...read more
Two of the most powerful investment secrets
Having re-read Jack Schwager's book 'Market Wizards' recently, it gave us yet more evidence that the world's greatest traders and investors really only have two things they would agree on. You see, most of them trade differing markets and certainly have different styles/strategies for investing. But there were two common links between them...read more
The power of patience
We all like to think we have the discipline to always trade in a way that is logical and acting in our best interests. But certain emotions can cause us to make decisions that are in direct conflict with this. There are many psychological traits that can help or hinder our trading and one that we want to explore is patience...read more
Keeping the scoreboard ticking over
Watching the 6 Nations rugby reminded us of an important parallel between the game with the oval ball and trading in the markets. Clive Woodwood always stressed the importance of 'keeping the scoreboard ticking over', keep taking the 3 points whenever they were on offer...read more
Trade like the house
It's widely accepted that in Las Vegas, the house always wins. Not necessarily every time, but in the long run it always wins because the odds are stacked in its favour. When we travel to Vegas to gamble, we 'hope' that we will leave the black jack table a winner - we are either going to get lucky or not. However, trading the markets is not gambling if done correctly. If you trade with a plan, you have an edge that you know will win over time as long as you have the discipline to follow it...read more
Getting your revenge!
One of the easiest mistakes traders and investors make is trying to make back losses from a previous trade. Many people call this revenge trading and it can come in various forms. However, the most common is to double up on future trades to try and make back previous losses quicker...read more
Taking the long way round
When it comes to investing and trading, we need to be able to objectively analyse the markets without allowing our emotions to influence us. Now when it comes to making decisions in everyday life, our minds tend to react to the situation that is in front of us on each occasion. These reactions are completely natural and we don't even have to think about them. But when it comes to investing, the reactionary impulses that we naturally use in every day life are very often the complete opposite of what we need to be successful in the markets...read more
Essential Reading
If you really want to master this essential aspect of trading, here are our recommended must-read books:The Disciplined Trader - Mark Douglas
Reminiscences of a stock operator - Edwin Lefevre
Stock Market Wizards - Jack Schwager
Trading for a living - Dr Alexander Elder
Trading In the Zone - Mark Douglas
Behavioural Finance - James Montier
Japanese Candlestick Charting Techniques - Steve Nison