Trading is a mind game - by Forex Mind Games

In this series, i would like to share my thoughts on the idea that trading is a mind game. In order to win consistently in this game, we have to know what the big players (ie the operators such as hedge funds, banks) are thinking. And we need to discern whether the small players (ie the retail traders) are trading with the big operators or not.

http://i49.tinypic.com/2d92u5h.jpg

Ever since trading has shifted away from the floor pits onto the electronic screen, trading has become a mind game. On the floor, we can hear, feel and breathe the excitement, boredom and sheer panic by the floor traders. We cannot literally replicate any of these on the computer screens any more. We can only gauge the mood of the traders via price action on our charting platforms. So in essence we are playing electronic versions of mind games with the market, with other traders, and with the price action.

When the market moves, we must inject our own emotions into that move. For example, while ECB Draghi is making a speech and EURUSD is dropping like a rock at the same time, what should we think? We say to ourselves

"Aha! I know what the market is thinking. I will join in the shorting."

Treating trading as a mind game forces us to think in a higher order of thinking.

1st order of thinking - We have to think for and of ourselves. I am feeling bullish today. I am not feeling well yesterday.

2nd order - we think of the meaning of the current and past price action. Is this price action a real breakout? Is this trend line going to hold?

3rd order - we think of what the retail traders are thinking. Do i trade with or fade the retail traders?

4th order - we think of what big operators are thinking. Do i know where the big operators are pushing the price to? If i know, i can follow them.

5th order - we think of the market as one single entity. The market is a living and breathing creature. It is alive! Think of the market as your girlfriend or wife. Or if you are a woman, think of it as your boyfriend or husband. Get to know your market as your girlfriend / wife. Talk with her. Understand her moods and emotions. Is it that time of the month already? Spend quality time with her. Buy her gifts. Bring her to her favorite restaurant. After spending years with her, you will gradually be able to predict her next move. Likewise, after you spend years observing the market movements, you develop an intuition for where it is going. This is the highest order of trading.

Trading is truly truly a mind game!!!

You are most welcome to contribute your ideas to this thread.

Precisely! Your mind should rule over and does you need to have a good plan and a well defined action.

http://i49.tinypic.com/mhfv5g.png

Some interesting news. ECB president Mario Draghi decided not to attend the annual Jackson Hole event. This is a premiere event for the central bankers. It is the who's who list of the monetary policy makers around the globe. Draghi cites "heavy workload" for not going. What work is he working on? What is so important he had to skip this event? Especially when he is originally scheduled for a speech this Saturday.

I think the answer is coming next week on 6th Sept Thursday. Every month ECB will have a press conference. It is broadcast live if you are interested to know. The ECB press conference for September is on the 6th. Most of the time when he speaks, there is usually high volatility on the EURUSD. I think we may see some ultra high volatility for 6th Sept thursday 830pm. Draghi's track record during the press conference for the past 2 months has been awful for EURUSD. In July, it tanked 170pips!! In August, it cratered 250pips!!

http://i47.tinypic.com/25p06xk.png

I believe he will finally share more details on ECB’s bond buying program. Which he had subtly alluded to for the past few months. Whether the market accepts and believes in the validity of the bond buying program to solve the Euro Crisis, i am not sure.

Here is my market sentiment analysis. If market is caught by surprise, expect a bullish upmove. However, market may had already anticipated this news and is buying ahead of time. In this case, we may see the classic “buy the rumor and sell the facts” move. This should result in an initial false bullish breakout followed by a sharp downward move.

I have not decided on my game plan for 6th Sept. I shall see the price action for this week and next week to determine my course of action.