Emotions and Trading Psychology
Trading is very subjective and there are various types of personalities that can arise at different times when faced with making a decision. Here you will find a lighthearted list of the different types of traders that we can all be at different times during our trading career.
Mr Stupid – ‘just guesses and hopes without doing careful and thorough research’
Mr Naïve – ‘hopes that because its him he will win’
Mr Indecisive – ‘waits for the perfect set up and finds a reason not to trade it’
Mr Impulsive – ‘fed up waiting and wants some action so trades just for the sake of it’
Mr Brown Trouser – ‘wants out of the trade as soon as he is in, he is so sure that he will lose he will close the trade early without realizing the potential for profit’
Mr Bear/Bull – ‘it’s a mood issue, his nature clouds his judgment’
Mr Greedy – ‘not happy to close on target’
Mr Info – ‘my pal down the pub says…’ or ‘I reckon’
These traders are making decisions on a random basis and will lose their money.
Avoid all of this…
You need to -:
- Remain cool
- Have an unconscious competence
- Detach the emotion
- Follow your trading plan
- Be disciplined in your Money Management
Some people prefer to use a demo account, which permits them to get used to the trading platform and the instrument, but there is a tendency for those who use it to trade fictionally.
Some People Should Not Become Traders
That may surprise you to read this. But during my career as a futures broker, I saw many of my customers blow themselves up – and the most common cause? – they did not have a plan – they acted on impulse after reading some big story in the news. That is a sure-fire way to lose.
If you have done one or more of the online personality tests I suggested, and your scores show that you would have great difficulty in most of the critical areas with handling trading stress, then perhaps this is not for you.
Of course, anyone can be very lucky and score a “home run” on your first swing of the bat (with your eyes shut), but I wouldn’t put great odds on that person surviving very long.
In cricket terms, imagine you are put in to bat against a great fast bowler. You have had no preparation, no net practice, no coaching, and you may well be very unfit, oh – and your eyesight and reactions may not be what they once were! You may snick a lucky 4 off the first ball, but what are your chances of surviving the over being not out, or not being carried off on a stretcher? I hope I am not being too dramatic, but I want to be realistic with you.
Trading is a very competitive activity. It’s really you against a sea of very smart (and often well-heeled) people. What makes you think you have the edge over them? Well, it is possible to gain a definite edge, and in the rest of the book, I hope to show you how you can gain the trading edge that’s right for your style of personality.
One thing I want to get across above all else is that trading should be fun. It is a game – the most fascinating game invented by man. Please don’t take trading too seriously – it’s far too important for that.
Realistic investors and traders are those that do not become emotionally attached to shares and recognise that there are cycles and patterns. Seasoned investors and traders are those who have an open mind, research trends and patterns and adopt different strategies depending on the situation. These investors typically invest or trade when there is blood on the streets or derampers are predicting placings and suspensions. Experienced traders will acknowledge these dangers but discard these predictions as they are not usually concerned with long term movements or prospects.