Psychology of Trading - What are YOU interested in learning?

I am completing my graduate degree in psychology and have decided to write my thesis on a psychological component of trading. With an undergraduate degree in neuroscience and a true passion for Forex trading, this topic really excites me!

I wanted to open up this discussion to the FF community to see what aspects of trading you are most interested in learning more about.

The combination of psychology and trading is nothing new and there are many publications out there that discuss such topics. I wanted to explore and see if there is anything beyond the commonly found dialogue in psychology of trading discussions.

If you could help my brainstorming process by contributing any idea,question, or thought, it would be greatly appreciated!

I think one of the most interesting aspects of trader psychology is the requirement to overcome the conditioning of most humans to fear loss as much as they fear physical harm. The natural instinct of most people in a trading situation is to experience the same fight or flight reactions as if they were in physical danger. The trader has to overcome the reverence of money that is the root of this fear to divorce themselves from the dollar amounts in the trade and concentrate on the process. This, in my opinion, was the hardest part of trading for me to master. Once I was able to think in terms of the correct execution of trades and not worry whether they ended in win or loss I became a much more consistent and effective trader. I think it would benefit me and many other traders to learn effective ways to try to control this natural fight or flight reaction beyond just repeating trades for years until it finally subsides.

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hey neuron..... at first thought about bias or touchy-feely syndrome but both those would surely fall under self-sabotague...... hard for me to come up with something simple fear & greed and self-sabotague would not cover.......

as to what aspects of trading you are most interested in learning more about, that's an easy one..... transfering my trading thoughts into learning enabled expert advisors...... that quest consumes much of my day......h

Thank you for the replies!

In retrospect, maybe I'm limiting the discussion too much by avoiding fear and greed.

Let's open up discussion to include those topics, I'm sure there are certain aspects that will come up that hasn't been explored in-depth.


One idea that I have been kicking around in my head is the advent of social media in the financial world and its influence/interaction with daytraders. Todays SEC announcement that allows institutions to interact with their shareholders via Twitter is interesting.

While financial news/rumors/discussions traditionally has been limited to printed publications, squawkboxes, and finance-oriented TV, the spread of information is quite different now

Maybe interesting for you... idk

“The idea of synchronicity is that the conceptual relationship of minds, defined as the relationship between ideas, is intricately structured in its own logical way and gives rise to relationships that are not causal in nature. These relationships can manifest themselves as simultaneous occurrences that are meaningfully related.”

http://en.wikipedia.org/wiki/Synchronicity

It might be a bit difficult to translate this to trading....
but there ya' go

Develop a personality test that allows financial institutions to spot potential rouge traders in advance?

You could look into why people become traders in the first place. Is it because they like the challenge of beating the market, want to retire to a life of luxury, or just want to work from home?

You could also explore the psychological stress of a losing streak. Every body goes through losing streaks but there are many different ways people react. Some get angry and want to get revenge on the markets, others lose all confidence and begin to doubt themselves, others, in my mind only the best traders, are able to shake off a losing streak and stick with their strategy.

In terms of how social networking will affect the market, you could explore how this will open up information on general public sentiment to day traders. Before you had to rely on newspaper articles or tv/radio reports views on public sentiment. Basically, you had to trust their opinion on what the public was feeling. Now you can really feel the pulse of the general public by looking at their tweets and social media messages. There is a whole new industry developing of data mining social networks to discover previously unknown information about the public.

Hope this helps and look luck on your thesis!

Neuron,

This is a topic that really interest me (not that I have put much time thinking about it, but now that you've said something) and I was wondering if you could be a little more specific about what you are wanting to hear or write about? I really over-analyze things and tend to end up in another dimension when thinking about broader ideas. Some quick and easy examples of how far off I probably am: The psychology behind trading and how 1 (+/-) trade affects the next, how it affects your body/personal life, or...?

Wow! Thank you for all your replies, I really appreciate your participation in this discussion

Please don't let my comments limit your input! I'm open to all topics, even if it's super broad or seems unrelated. I'm reading and taking into consideration everyones ideas!




Interesting, while the concept is a little abstract I think there certainly is application to trading. Perhaps exploring this concept could shed more light on successful discretionary trading by traders.

Haha that would indeed be quite useful, and profitable if effective! Although there is alot of psychology involved in this area, I am trying to focus on aspects that we can develop a better understanding and ultimately improve our own trading from this deeper understanding

The challenge I face is that psychology can be applied to literally any aspect of trading--and I find every aspect interesting! I agree with your insights regarding social media, many thanks for your ideas!

Isn't it fun to over-analyze? I was trying to find specific topics that I can really go in-depth about. I'm more interested in the processes that occur in the mind rather than mental-well being or its affects on our mental health. For example, the tendency for new traders to religiously listen to "media experts". Or how we, as humans, are creatures of habit and breaking habits is quite possibly the one of the most challenging tasks (resistance to change, we can tell a newbie all the rules to a successful system and still witness failure)

Well I don't know if any of this will be any help at all(especially since I can't seem to convey a message too well), but I'll just start saying some stuff that pops to mind and if anything might be something you'd like to further discuss then we can go into greater detail.

I think some of the emotions or characteristics you deal with while trading are anxiety, hope, elation, being tired, being stubborn, and as you said fear and greed. I think some of these can lead to one another as well. When people trade they can often get addicted. This will cause someone to spend extraneous hours on their body and mind especially since one factor of people trading is a side of competitiveness. People want to win, people want to better themselves, and of course people want to make profit. However, enjoying something or doing something so much without sleep can really impair your ability to think and cause you to make decisions at a slowed rate or a decision that you wouldn't normally make otherwise if you were rested. It's almost like driving a car where if you drive a car and you're extremely tired you put yourself (and others) at a greater risk than if you were energized. This can be related to trading as if you are tired while trading you can jeopardize your account.

I think a lot of people also don't know how to take the time to learn anything themselves because they are LAZY. Some people will literally believe anything that they hear. I know some people who will read something on Twitter, hear someone else talk about a trade someone has made, or read about what someone has done on a forum and instantly go and make the same trade. These people can lack the ability to think for themselves and not think about what they are doing and make that impulse buy...... which seems to always go wrong (in my case anyways.) Then I start hoping, saying "wow, I really hope this trade comes back so I can not take a loss, I can't believe I made that stupid decision." Then I decide to put my whole account on a trade to make up for a loss with the "go big or go home" attitude and lose 80% of my account... Of course my unrealized profit grows so far negative until finally I cut my losses and by this time I'm pretty pissed off and could go on a rampage breaking my computer, tv, chunk a bowling ball through the window, etc... Luckily I don't allow myself to get that mad when I trade (OR I TRY NOT TO LOL), I have just been really focusing on the fact that I know I am going to lose some so accept the loss and continue on. Everyone loses sometimes. It's almost like learning to run hurdles in track. Some people are meant to run hurdles and some aren't(Some are going to pick up trading and be good and some just aren't going to be able to get good). We're all going to fall a lot early on and then hopefully after that things get smoother and we don't fall quite as much after we've learned things. Anyways, I know people mess up, they make mistakes etc, but they don't take the time to go and learn from what they have done wrong so they can better what they're doing.

Also, people can have a good streak going and be up by a great percentage of their account and then have this Godly perspective of what they're able to accomplish. Then they do something stupid and crash their earning and end back up where they were. It's almost like waves of the market...

Anywhooo, hopefully you can get something out of this however I'm probably so far off from where you're headed you probably can't get anything and I'll end up just wasting thread space ....... I tried anyways

Hi JoeyTT,

Thank you for your thought out response. I get the sense that this is something you like to think about as well, and when you look at all the different steps involved in trading, you can see how the mental game plays such a significant role. Your examples are all very valid and I see them as challenges that we all face as traders.

In my opinion, many of the challenges you have mentioned revolve around the issue of discpline and accountability. It's quite easy to outline and state the optimal emotions/attitudes needed to be successful, but actually implementing them consistently and sustaining these values is where many struggle.

Accountability and resistance to change (breaking habits/norms) is an area that I've identified as something to explore.


Please, if anyone reading this thread has any ideas or suggestions please feel free to contribute, there are no wrong responses and I'm curious to hear your thoughts. Thanks!

Well, some people take trade as a game just like kids pay games, they play games here and this is not for becoming millionaire.

Well done in getting half of your thesis outline written by other people - good work. I wish I had this idea when working on my dissertation as the ideas to explore my tutor gave were not too inspiring.

From when we first talk we are taught by adults into thinking in terms of association. Everything we come across in life is analysed and categorised in terms of it's relationship to the self - us. It's this relationship we have been taught to have with the world that makes trading difficult. As soon as we discover trading we are obsessed with what it can do for us - how rich will I be, what sort of life will I lead, what house will I buy. But we are not obsessed with how to trade well. When trading means so much to you inside it will always be so hard to do because high hopes live side by side with high fear and high anxiety. When all hope is gone perhaps you can begin to trade?

don't take this literally...

Interesting topic indeed

How about to study the psychology behind trading decisions (related to psychological & economical theories of reasoning & decision making, Twersky & Kahneman and such...).

It could make a pretty simple experimental setting to study how does the reasoning & decision making differ on traders when they are in a trade & when they are not. Like what do they see or try to find in charts when they are in a trade and when they are not. Test of a single group of traders in these two settings. Ask them to say out loud their every thought and study what you can find from the results. Maybe something to measure their level of experienced stress like galvanic skin reaction & heart rate......

There is the inside game everybody focuses on, it is least important, and most important, there is the outside game which is the big picture for the trader of who and what they are up against. Most of us are outsiders and at a huge disadvantage. The mindset is what I call the Trader's Truth Foundation (TTF). A trader can enter the proper mindset by strictly following three simple rules: 1. Manage the Risk not the Reward, 2. Manage the Reward, Repeat 1 and 2. The idea is to not lose money and that includes not buying anything. It is also important that a trader shut everybody out, especially people we don't know behind the pseudonames, to develop self reliance and as part of risk management. Free demo and information are good for some practice. I trade one penny with the smallest possible amount and account and sparingly, I try to pick the best possible trade setups.

That's really interesting topic.
I think in psychological aspects of trading there are a lot stuff similar to the theory of games. Have you seen a movie "A beautiful mind"? I think Nash could say a lot about this subject.

However I suppose a lot articles have been written about psychology of trading. And you should bring some brand new in there to get success.

Thank you!! These are great ideas, I'm still in the brainstorming process and this is helping tremendously. Really appreciate the contributions

Hi Neuron

I am also writing the thesis right now, could you please let me know if you have decided to continue your research? I'd love to read it.