Psychology and Trading

22 5 2014 - No comment

Trading is primarily psychological

It is quite possible to control your emotions while trading, I have already mentioned the fact that a good trader is a calm and cool person. Are you cut out to be a successful trader ?

In fact, if you’re excited by your trading, or you are looking for a dose of adrenaline, you will definitely not trade well; you will be less lucid and the first mini stock market crash will sink you and your portfolio. But the controlling or channelling of your emotions has a price, and trading is no longer “fun” ;)

How to control your emotions and trade ?

Freud, a good Trader ?

Freud, a good Trader ?

It took me 12 years to get there; to find a kind of trading that generates no extreme feelings in me (which does not mean that I am emotionless. I am a human being, but it is neither those emotions nor the quest for adrenaline which consciously or unconsciously govern my trading).

That is why I do scalping: duration of trades less than 30 seconds, maximum loss €100, will not generate me a lot of stress, and represents 0.x% of my capital. Number of trades per day between 30 and xxx, which makes it very repetitive, and I get bored trading (that is why I am efficient; trading no longer gives me a feeling of pleasure or displeasure, I’m looking for just efficiency and I write blogs in parallel to fight against boredom). At the end of the day, I find out how many losing trades I have had, and they are forgotten by concentrating on the next trade that can arrive in the next minute.

In short, I started earning money in the stock market when it was no longer a game, and when I was no longer looking for my dose of adrenaline, when I understood why I wanted to trade in the stock market (and not just earn money). Now I get bored in the stock market, as I found a system to counter my psychological weaknesses: it is a trading that suits my psychological structure. For example, the repetitiveness of scalping prevents me from brooding over my losses; profits or losses are in my unemotional area (€100)…

I was often “attacked” on stock market forums, because of the way I traded. “You have earned €10, it is nothing, you’re a loser, I have earned €1000 etc”. In fact, the scalper reveals an unemotional, repetitive, boring but efficient trading. This is a bother because it may unconsciously refer to people who trade mainly to feel the emotions, to feel alive (no matter whether they win, profit is strongly felt and a loss brings you down, but if you feel these emotions, then you are alive) and not to stupidly earn money to improve a dreary everyday life.

If I did swing trading by using levers as I did in the past… then it is a sure thing that I won’t sleep. All the emotions I will feel will bring me alive and in the end risk the “tilt”. I will then end up as all the players; losing everything; but in the end it was quite good (your emotions) and that is why the player, the trader wants to “start all over again”.

In short, a successful trader follows Socrates’ maxim: “Know thyself” to be a good trader 😉

Adrenaline is not related to Trading

Finally, adrenaline is not related to trading, but to the personal representation of money, loss, appetite for risk etc. Whether I earn €100 or lose €100, it does not change anything in my life. I accept to lose and to win; it makes me neither happy nor sad. If I want to feel that I’ll play at the casino, play poker online etc with very modest sums 😉

This is why trading is primarily psychological and the main job is to work on yourself and your ego; carry out a psychoanalysis for example to understand a lot about yourself, money, loss, the father’s name, manage your superego that is involved in trading …

Of course, this is a bit extreme, but I can assure you that some people are trying to lose money in the stock market in order to have a reason to complain, and others are hurt when they make money in the stock market … and there is always a reason. I am always surprised, even if I know why, to see people happily talking later on about their losses in the Stock Market; during a crash for example. You feel happy to still be there, to have survived … You can be sure; they have cheated death, they survived, they are alive … and a profit will never give this feeling … that of having triumphed over death, the only real fear we have; which we fight every day. This is also why 90% of traders lose … but this would require the writing of a blog on psychoanalysis and not trading 😉

Trading is an addiction like any other

Trading can be an addiction like the casino game etc. I knew a trader (not me) who punished himself with his trading losses; he was subconsciously trying to lose money because he was sinking psychologically and that is what he was looking for (like an alcoholic, a drug-addict etc). There is always a conscious or unconscious reason that pushes a drunk to drink, a drug-addict to shoot up, a trader not to take his losses despite his trading plan… Trading is more socially acceptable than taking drugs, but the cause of addiction is the same. Here, you need to find out why.

There are hundreds of exciting books which are accessible to the general public on gambling addiction, on the fact that the casino player who wins continues to play, knowing fully well that he will lose … substitute the casino player with the trader and you will have a book on trading, they look for the same emotions, they play for the same reasons … it’s all about the same resiliency.

In short, becoming a trader is discovering what lies deep down in you and trying to channel it… trading “methods” never take the psychology of the trader into account. In fact, a book should be written for each person … This is why I often say: “there is no trading method, each trader has his/her own method adapted to his/her psychology …” In short, write your own book on trading.

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