Psychology is in everything we do, every action we perform, and every thought we have. Even when you’re NOT doing anything, psychology is there mixing chemicals inside of your brain determining what your next move is.
They say money never sleeps? Psychology NEVER sleeps…
Today, I want to address a psychological issue that has plagued many traders as of late, because of the current see-saw action prevalent in today’s market environment.
Let’s first address the life of a day-trader. A day-trader wakes up every morning expecting to find the action and find the money. He/she generally doesn’t come to the conclusion that the day may be a ‘churnbox’ unless they put some money to work and figure it out indirectly by losing money. Typically, a trader goes into everyday assuming the day will yield money-making opportunities.
It’s only until after a trader has done enough damage to his/her accounts, that they take a step back and realize the big picture. At the end of the day, the majority of us all trade break-outs and break-downs of levels that we feel are pertinent. We create these levels from watching price action, watching charts, or watching the paint dry on the walls. How you come up with the levels is irrelevant the point is, many times during changes in the ebb and flows of the market, those break-outs and break-down entries simply don’t work. Coming up with a reason as to WHY they don’t work, however, is not an easy task. Manipulation is often times the easiest explanation. We’re humans. We naturally play the blame game in order to explain why something didn’t work. North Korea & Venezuela blame American for just about everything, man blames woman & vice versa, Democrats blame Republicans, and traders blame the market makers.
Regardless of what mechanism caused your trade to fail, the point is that the trade DID fail. Now, traders are not going to assume that because one trade failed, the rest will follow suit. A trader is, by nature, quite stubborn. As a young thundercat back in 2006, I wouldn’t learn the lesson until I erased my whole months gains.
The psychology of NOT trading is even more difficult to learn than the psychology OF trading. Imagine that shit?
Again, traders feel the urge to be in a trade at all times. If you don’t believe me, think back to the times where you’re away from the markets. How many times do you refresh your phone for prices? How many times do you rush through other activities to run back to your computer only to find your stock has gone absolutely nowhere. Better yet, how many times have you neglected your body’s needs and foregone a meal to watch your stupid positions?
Learning how NOT to trade is one of the most important lessons in trading you can learn. Gut instincts tell you exactly when to pull the reins back, the problem is we seldom listen to the gut when emotions are running high. I urge any one of you to comprise your stats for the last 5 years and figure out where you made the most money. Chances are it’s a few weeks or months out of the year. The rest of the time you’re just trying to stay alive and not lose too much.
So take a word from a bird in a fuzzy herb tree and try to NOT trade if the market isn’t paying your strategy out at the moment!
Again, traders feel the urge to be in a trade at all times. If you don’t believe me, think back to the times where you’re away from the markets.
Thanks to the Currency pairs on that start Trading on Sunday through Friday, Stocks Monday through Friday. One day off is Saturday…
Again, traders feel the urge to be in a trade at all times. If you don’t believe me, think back to the times where you’re away from the markets. How many times do you refresh your phone for prices? How many times do you rush through other activities to run back to your computer only to find your stock has gone absolutely nowhere. Better yet, how many times have you neglected your body’s needs and foregone a meal to watch your stupid positions?
..yo thats me..hahahaha..its an addiction..
That is a great article and a very important point that has to be repeated all the time. What does everyone else do to help cope with this addiction? Personally, I will watch stocks (make no plays) and watch some YouTube videos to pass the time.
There’s a lot of truth in that article. Sometimes my problem comes when I’m unsure whether it’s a churn day and I should sit it out…..or maybe it’s a fine time to trade and I just don’t realize it, LOL. That is, I must stop second-guessing my decisions to trade or sit it out.
One thing I realized early one (but sometimes have trouble implementing) is that not only must you establish a strategy, but you must also understand what that strategy works and when it doesn’t.
sanglucci, you hit the nail on the head with a trader needing to have the ability to do nothing. For many years I lost a lot of money trying to trade in all market conditions, now I try to take only one kind of trade (price action break out/down) and try to ignore everything else.
- Trin