1. Most Discussed
  2. Gainers & Losers

Market Psychology

  1. arthur

    7,397 posts.

    An old poster from Hotcopper called Bundy
    ,not seen on here for some time ,shame as he did a good post ,
    We have lost a few good ones over a period of time



    _______________________________________________Market psychology Date: 27/08/2000
    Bundy



    It was written by Trevor Byatt.


    Market Psychology

    1. Understanding and acting in accordance with market psychology is vitally important. It is no good being a good technician if you are a bad tactician.

    2. Market psychology is very different from the psychology necessary for normal business and/or academic success. Many highly successful businessmen
    and academics have been abysmal failures as market operators.

    3. Develop your own system, test it, then stick with it. Other people's systems may work well for them, but probably will not be compatible with your
    psychological makeup.

    4. Accept total responsibility for the results of your trading results. Even if you authorized someone else to trade on your behalf, it was you who made this
    decision - nobody forced you. Remember losers always look for somebody else to blame. Winners look to themselves, particularly if they have to take a loss
    on some trades - as is inevitable for all traders and all systems.

    5. Do not take the advice of others. They could well be thinking in a totally different time frame from you.

    6. Always place a pre-calculated stop whenever you open a trade and decide how you are going to move this stop for all possible movements of price during
    the trade. Stick to your plan during the trade.

    7. Do not keep ringing your broker during trading sessions to inquire about market prices. (The exception of course is the day trader who would be crazy not
    to have his own quote system.) Your stop will protect the decision you should already have made. Ringing your broker will adversely influence your decision
    and may cause you to act irrationally and hence almost inevitably wrongly.

    8. Never worry that you could have done better had you second-guessed your system. Concern yourself only that you followed your system and
    predetermined stops. No system is perfect. The best systems can only give you an edge - never 100% of profitable trades.

    9. Do not trade for excitement. Avoid elation over fast profits and depression over losses. If you have a good system it does not matter whether any particular
    trade makes a profit or a loss. Remember all systems will generate losses. Only chide yourself if you broke the rules of your system (this applies to profitable
    as well as losing trades).

    10. Always trade with a view to protecting capital and limiting the value (not the number) of losses and never with a view to making large profits. Net profits will
    follow automatically if you execute a good system well.

    11. Never worry about the ratio of the number of profitable to losing trades. A good system may generate a relatively large number of small losses (and small
    profits) and relatively few large profits. Sticking rigidly to a good system will however produce a good net profit over time.

    12. Cut your losses quickly and let your profits run (with a predetermined stop). You should have read this advice so many times that it almost sounds trite -
    it is not - it is the best summary of all these rules that you could have.

    13. Reverse the natural reactions initiated by hope and fear, i.e., you should hope that profits will increase and fear that losses will increase. The
    overwhelming majority wrongly do the reverse, i.e., they take profits too quickly (fearing they will disappear) and keep losing trades (hoping they will
    decrease). They should keep winning trades (until stopped out by raising protective stops) and quickly close losing trades (however much it may damage the
    ego - if you are rich enough to afford the ego you do not need to trade).

    14. Never become complacent. This frequently happens after a string of good profits, which often are followed by unacceptably large losses. In such a
    situation, lighten up or stop trading and take a look at yourself. The unacceptable losses will inevitably be the result of complacency and consequent failure to
    follow the rules. Start trading again only after you have fully recognized your mistakes. If necessary, take a vacation or an extended period of not trading. "A
    great many smashes by brilliant men can be traced directly to a swelled head - an expensive disease everywhere to everybody, but particularly in Wall Street
    to a speculator" - Livermore.

    15. Never think as a biased bull or a biased bear. Decide from your system whether the situation is bullish or bearish or neither and act accordingly. By all
    means "Have an opinion on what the market should do but don't decide what the market will do" - Baruch "There is only one side of the market and it is not
    the bull side or the bear side, but the right side" - Livermore.

    16. Never trade for the sake of trading. Only trade when your system indicates a high statistical probability of success. Exercise patience (often difficult) and
    wait. "It was never my thinking that made the big money for me. It was my sitting. Got that? My sitting tight . . . Men who can both be right and sit tight are
    uncommon. I found this one of the hardest things to learn . . . It is literally true that millions come easier to a trader after he knows how to trade than
    hundreds did in the days of his ignorance" - Livermore.
    "Knowing when not to trade - patiently standing aside until just the right moment to enter the market - is one of the toughest challenges facing the trader " -
    Kroll.
    "When in doubt get out or do not get in" - Gann.

    17. Act promptly and decisively and do not procrastinate. When your system indicates a potentially profitable situation - ACT (also of course placing a suitable stop).

    18. Work hard. Always keep your charts and analyses up-to-date and your hard disk organized. You must be organized in order to conform with #17 above.
    Remember that successful trading is not easy anymore than is success in business and/or a skilled profession. A 10-year period of study and experience is
    usually necessary prior to any spectacular success.

    19. The human mind is more flexible than any computer. But it is subject to adverse behavioral patterns. Hence the best approach for most people is a good
    system aided by a computer to save time - and then followed by analysis by the trader provided he or she exercises rigid self-control as indicated above.
    Maintain an open mind. Do what is right (which is frequently not what feels comfortable). Dogmatic and rigid personalities rarely if ever succeed in the
    markets.

    20. Follow the rules of Neuro Linguistic Programming (NLP) - For further details, see The New Market Wizards (Faulkner) by Jack Schwager

    1.Use both 'toward' and 'away from' motivation.
    2.Break down potentially overwhelming goals into chunks with satisfaction garnered from the completion of each individual step.
    3.Have a goal of full capacity plus - anything less being unacceptable.
    4.Fully concentrate on the present, i.e., the single task at hand rather than the long-term.
    5.Personally involve yourself in achieving goals as opposed to depending on others.
    6.Make self-to-self comparisons to measure progress based on past performances.

    21. Never be loyal to a trade. Close it when the time is ripe. The market is utterly ruthless and it could not care less about you or your opinion.

    22.Never get mad with the market if you make a loss. If the loss is small, it may be consistent with your system. If it is large, it is almost certainly either your
    fault for not following the rules or the result of a surprise event beyond your control. Chalk it up to experience and move on, but never consider particular stock
    or commodity owes you - it does not.

    23.You can't win if you feel you have to win to survive. This is irrational gambling not logical speculating. Never turn to the market because you want money
    from it for a specific purpose (e.g., a new car, boat, house, etc.) - you will inevitably lose and be worse off.

    24.The key to building wealth is to preserve capital and to wait patiently for the right opportunities. Then and then only will extraordinary net gains be made.

    25.Remember price movements are largely but not entirely random. They give statistically valid signals and stay trending long enough to make substantial
    profits in short-term, medium-term and long-term trading. Which time-span you choose will depend on your own individual psyche and lifestyle. However under
    no circumstances will you make net profits unless you exercise strict self-discipline along the lines indicated above. I hope the above will help you - it is the
    result of hundreds of hours of research and study of the opinions and rules of a large number of traders who have proved themselves to be highly successful

    over extended periods.

DISCLAIMER:
Before making any financial decisions based on what you read, always consult an advisor or expert.

The HotCopper website is operated by Report Card Pty Ltd. Any information posted on the website has been prepared without taking into account your objectives, financial situation or needs and as such, you should before acting on the information or advice, consider the appropriateness of the information or advice in relation to your objectives, financial situation or needs. Please be aware that any information posted on this site should not be considered to be financial product advice.

From time to time comments aimed at manipulating other investors may appear on these forums. Posters may post overly optimistic or pessimistic comments on particular stocks, in an attempt to influence other investors. It is not possible for management to moderate all posts so some misleading and inaccurate posts may still appear on these forums. If you do have serious concerns with a post or posts you should report a Terms of Use Violation (TOU) on the link above. Unless specifically stated persons posting on this site are NOT investment advisors and do NOT hold the necessary licence, or have any formal training, to give investment advice.

Top