Hello everyone, let's talk about the market psych

I want to have a strong discussion about the market psychology, i recently had done an assignment for uni with a very broad topic.. i chose to do the market psychology. we all know and feel that we are not naturally wired for prudent long-term/short-term investments.. research has also proved that.

“Financial losses are processed in the same areas of the brain that respond to mortal danger.” -Jason Zweig

i want to talk about the emotional behavior and biases we have developed through trading. there are many, but i would like to share 3 of them because i think it will change your perception in trading.

Hindsight bias, if some of you have ever experienced looking at the chart after the event has occured and saying.. ahhh how could i have been so stupid.. IT WAS SO OBVIOUS.. this is because when we look at the past.. we disregard all the emotions that were being felt during that moment. the emotion we feel from losing is twice what we feel from the pleasure of winning. i understand now that if someone that is profitable in trading teaches you exactly how he trades..the chances are it wont work for you.. its one big psychological game, i admit that trading with real money has been one of the darkest times of my life.

secondly i would like to talk about Cognitive dissonance. this is from my assignment

The cognitive dissonance phenomenon theory states that when human beings hold two contradicting ideas and beliefs mentally, the discomfort caused by it forces the investor to acquire and may sometimes even invent newer thoughts, create believes or even alter the current belief in order to ease or erase the dissonance that exists. Cognitive dissonance in property buying is known as buyer’s remorse, the fear of regretting a decision. In order to combat cognitive dissonance, investors must always re-evaluate their investment positions as new information and date becomes available to them. An investor cannot always win the market, but rather than losing they can minimize the financial losses, this will evade large losses and evade the feeling of cognitive dissonance.

lastly the confirmation bias
Unlike the other types of psychological behavior occurred during investment decision making, the confirmation bias is the behavioral flaw after the investment decision has been made. As investors, they believe in their investments and actively seek information that will confirm the decision. In other words, finding information to prove that the investment decision made is a wise decision. The confirmation bias act is done subconsciously and the investor continues to emphasize how good of an investment the already made decision was. The confirmation bias prevents the investor from strategically looking at an investment once they have already made it

there are so many market psychologies.. and im sure we all believe that we completely understand and have full control of ourselves when we trade.

i also want to add that, because most of us are focusing on 1 strategy.. it makes it hard for us to find another.. (im not saying it is a bad thing, it can be good or bad).

anyone have any experiences with trading psychology.. and how they plan to overcome it? please i dont want some person commenting pretending that they know everything

I use the following approach: I open an oder, and then I close the terminal for a long time, because if I watch on the chart too much, then I make stupid mistakes.
Most retail Forex traders who make it to the level of full-time or professional trading have a daily routine that is probably a lot different than what most amateur traders imagine. In reality, most professional traders interact with the market far less frequently than what most people might suspect, and this is especially true for pro traders who trade price action on the daily and four hour charts like I do.

A list of cognitive biases is one way to go; what threw me off was the long, somewhat thrown-together list at investopedia. A compact diagram one can more easily relate to the trading chart is the way I prefer.

I wouldn't be too surprised if I have a long way to go before getting something to work for trading; however, this is how I deal with psych while there:
One version of the market emotion chart, for measuring how well one's doing the chart study;
blended in with that, using the same chart study for the trading chart and for (,in a rather complex, lengthy study leading up to its use,) in a separate chart, how one acts;
and, to the side of the noted combo, a decision table, to help define better choices.

dont you want to see the market for any unsuaul movements.. i.e news spikes?

you're certainly right, but I try not to enter into the market when I expect some significant news, because news can have an unpredictable impact.

You overcome the impact of psychology mainly by

1.managing your risk.

2. confidence in your strategies

The outcome of any particular trade then becomes irrelevant. Trading no longer has the "mortal danger" effect. The decision is justified by the strategy, not the trader. All the trader has to do is execute and follow the plan. That is not to difficult once the risk is under control

There are probably some zen techniques or personal development systems you could do to try and rise above the negative psychological impact. Thats alot of work and time away from trading.

All you really need to do is manage risk.

true words!!

btw, I use one pretty good tool which helps me to avoid trading, when the news is coming. Just want to share it, it's free: http://www.fx-metropolis.com/nu_Info.html