Wednesday, April 30, 2008

The psychology of trading

The mind is really the psychological aspect of trading.

Admittedly, this is the most challenging aspect of trading for most people, including myself. The other 2Ms, method and money seem to pose less of a problem. Now, I am not saying that the psychological aspect of trading is more important than method and money. I am just saying that it seems to pose the most problem.

Why?

It is because trading involve risking your blood-stained,sweaty dollar bills. When money is involved, people will be emotional. The market itself, in its infinite wisdom, is one big mass psychology, driven by human greed and fear. People trade emotionally in the market; they feel happy when their share prices go up and sad when their share prices go down. This emotional roller-coaster is a draining experience for most people. For Singapore readers, the number one stock market rumour mill can be found in the following link:

http://forum.channelnewsasia.com/viewforum.php?f=13

You can read all kinds of news and rumour in the forum. The idea is obviously not to trade off the rumour but to understand the thought process, if any, behind most people and trade off it to your own trading advantage. After all, equity trading is a zero-sum game. When you make money in a trade, you are taking money away from another person.

It maybe coincidental but the two teachers whom I follow are both psychiatrist. Dr. Alexander Elder is one of them. This is his web site:

http://www.elder.com/

I read all 3 books from him, "Trading for a living", "Come into my trading room" and "Entries and Exit". I read some of the titles a few times and even completed the student guides for all his books. His writing style is easy to read and follow. The other person is Dr. Barry Burns. This is his web site:

http://www.topdogtrading.com/

I will discuss a lot more about Dr. Burns in the future blogs. The idea is to keep my blog entries short so that I can post more often.

2 comments:

Createwealth8888 said...

Have you read The Discplined Trader?

Solomon Grey said...

Trading is not a zero sum game; It's a minus sum game because of commissions;