I have to admit that last few weeks were very hectic. Lecture on the Money Expo, the release of our book … I did not even manage to write an article last week.
It’s time to catch up and start writing again good articles both on professional and business level. This week I decided to write about psychics, but from another point of view …
You can often read (I admit that I have also often used it) that 80% of the success on stock market is in the head. But why? There is not much written why. Let’s now focus on it.
Psychic – the biggest enemy of a trader
When I’m interested in a topic, I’m used to learn as much as possible. I often study scientific studies. It is not guaranteed, but often you can find an interesting information. I have recently read a large study on the functioning of the human brain and I had famous eureka moment when I realized where there is a snag.
In this article I will describe the first part that connects everything. In the next parts, I will look more deeply into trading psychology.
A common element for all obstacles in the brain is inconsistency. This is really something I do not write about for the first time. What’s going on?
Imagine the market like this EURUSD chart:
Now the classic question: Where the market is going?
If I take 100 people, 50 will say up and 50 will say down.
If I would take the same group of 100 people the next day again, (assuming they do not remember the chart), many of those 50 that have said up, will say down and vice versa.
And that is inconsistency. How it was defined by the author of the research: human mind is desperately inconsistent. We always evaluate the same situation differently, and many factors influence it – hunger, quarrel with a girlfriend, fatigue … And we usually even do not even realize it. The brain is, by its very nature, our enemy, and we cannot even recognize it.
How to deal with psychology in trading?
Many experienced traders confirm one crucial thing – the strategy must be systematic. It is not enough just to analyze support and resistance. We can use them as a support, but we have to work systematically. Therefore, key indicators must have an ability to be evaluate binarily – they are true or not. For example, if RSI is above 50 or below 50. There is no room for inconsistency. The situation either exist or not. This is the key to consistency.
So, work with strategies that are systematic, and you will see that you will achieve better results. In addition, it brings you another advantage – you can easily analyze your historical results and improve your trading.