Trading Psychology; Focus on Facts, Not Fiction
Updated May 2023
Information overkill is why we won’t inundate your inbox with updates, which applies to our paid subscribers and subscribers of our free Newsletter. We are already flooded with too much unnecessary junk. On any given day, you will find experts telling you why the markets are destined to soar and why they are destined to crash, so how is anyone supposed to make any sense of this? News outlets are desperate for eyeballs, so they are going out of their way to make titles bombastic and offer multiple scenarios so they can proudly state we told you so when one comes to pass.
Faulty Perceptions Lead to Faulty Outcomes.
The problem is that, in most cases, the information used to back these scenarios is on par with toilet paper. At this point, we will stop and make another prediction. The masses are tired of bombastic crap being put out by places such as Yahoo, Market Watch, the street, Huffington Post, etc.
We have been monitoring all these sites, and for the past 12 months, they have been steadily losing eyeballs no matter what crap they try to market. We have also noticed overseas news outlets are moving up in rankings.
There is a significant paradigm change in the works. People want to hear the truth; they want a story to have some meat, no matter how short that story is, and they are tired of being tricked into clicking on a link only to find out that the title was the best part of the story. Today’s reporters, like mindless bots, assume they can continuously employ the same approach, and the masses will embrace them with the same enthusiasm as yesteryear.
Essential Trading Psychology Rule; Live within your means
This brings us to a significant point. The problem with the world today is that over 90% of the world, especially in the West, wants to live the life of a king but on a soldier’s salary. They want to buy things they don’t need, and with money, they don’t have to impress people they hate with their guts.
Why would they want to do this? The idea is to give their enemies the illusion all is well. We have news for these morons; you don’t climb in life by impressing your enemies. The focus should be on improving yourself and the product/service you are selling.
You see this trend everywhere. The first sign that a massive new trend change was underway was when Obama, a nobody, was elected president. He had no experience; he was just a fresh senator; decades of tradition were broken and thrown into the toilet. This year, we have Terrible Cruz, Rowdy Rubio, insane Hillary, hopeless Bernie, etc., all trying to run for president. With such a terrible line-up, loudmouth Trump starts to look good.
Two elements are necessary for a Con to work.
We have always stated that for any con to work, you need two elements the conman and the person willing to be a victim. The share buyback scam continues because the public does not care what method is used to boost earnings as long as earnings look great. If shareholders cared, they would have made a noise long ago. If you look everywhere, this trend of doing nothing and wanting everything is gaining traction.
What made the baby boomers tremendous and all those that came to the U.S. decades ago? Everyone worked hard; there were no handouts, today’s generations want the best of the best, but they do not want to pay for it. On that note, a superpower holds onto its position for roughly 250 years before it is replaced. America has held that position for over 240 years, so the end is near.
Law of balancing
This law states that the more you do, the less you will receive, as the equation must balance. That is why most good Samaritans die before their time, and most heroes die young. It is not wrong to help someone, but you should never attempt to help those that do not want the help or do not seek it; the only exception being young children.
Experts and the crowd think This stock market is supposed to crash and burn:
This is why it will not; it will crash (more like a powerful correction) one day, but that day is not upon us yet. The markets will likely trade much higher than these naysayers could envision. The Fed is far more powerful than a few hundred loudmouths that claim to be experts but, in reality, know next to nothing. Instead of listening to rubbish, focus on putting the “Trading Psychology” concepts discussed in this article. Mass psychology states that a market will crash only when the masses are euphoric and vice versa.
Focus on The Trend
Forget bombastic titles and ignore the spin doctors; look for outlets that focus on the real issues at hand and describe things how they are and not how they should be. In terms of the market, focus on the trend and spurn the noise. The trend is supreme to all the crap the experts are spewing.
If these experts really knew what they were talking about, they would not appear on TV trying to sell you crap you don’t need at a ridiculously inflated price; instead, they would be at a lovely resort enjoying all the gains they were banking from the trades they were making. But 90% of experts are not doing this, so they don’t know what they are talking about and hope you don’t catch on to their con game.
Interesting Pointers on the Subject of Trading Psychology
Successful traders are disciplined system followers, consistently executing trades based on a strategy they have honed over time through various market conditions. They don’t make impulsive decisions based on emotions or gut feelings but stick to a well-defined system that has proven to work. Understanding the psychology behind market behaviour is essential to success.
One should only take trades they have practised hundreds of times before, mastering the entry and exit strategies. Avoid taking trades based on overconfidence or hunches without a clear plan or statistical evidence that the trade has an edge. Ultimately, following a proven strategy and avoiding impulsive actions are key to success in trading. Full Story
Trading Psychology and the secret desire to lose syndrome
Unfortunately, this is what drives most investors today. Notice how everyone is always happy to talk about a miserable situation and how very few enjoy examining a favourable situation. We seem to have an affinity for negativity, and this is what most investors need to overcome if they stand any chance of winning in the markets.
We will examine this topic very briefly because it does play an essential role in investing. Individuals, as a rule, seem far more inclined to listen to and act on negative information rather than on positive info. Don’t believe me; allow me to illustrate this point to you.
We have four glasses of water on the table. Someone states that the water in one of the glasses came from a Jug with a dead fly. Now mind you, you don’t even know this person, yet immediately almost everyone would walk away from those glasses, even if they were dying of thirst. Virtually no one would try to verify if this information was indeed accurate.
Now someone comes to you and states, hey, one of those glasses contains water from the purest spring in the Swiss Alps. I am almost sure that no one would rush to drink all four glasses to secure the purest water. Tactical Investor
Final Notes on Trading Psychology
Life is not static, and neither is trading. Life is what you make of it, and the same concept can be applied to the “trading psychology” debate. If you deem the markets are a place to lose money, then your wish will come true, for you will approach experts that create false narratives of an impending market crash. If, on the other hand, you are overtly bullish, you will follow experts who state that the current bull market will last forever, and that’s never true—case in point; the Bitcoin crash of 2018. Experts were issuing lofty targets of one million; shortly after hearing this nonsense, we stated that this rubbish advice indicated that a top was near at hand.
Two simple rules to follow
Purchase stocks when the masses panic and vice versa
Follow the trend, for it’s your friend, as everything else is your foe
Historical Lessons on Trading Psychology
Proceed with Caution
Beware of excitement and fear-driven impulsive decisions. Wait for market conditions to align before entering trades.
Exercise Patience
Observe and wait when the market is not conducive to trading. Stay on the sidelines during uncertain times.
Embrace Conviction
Stand by your beliefs and protect profits when a trend weakens. Fear should not cloud your judgment; trends may resume.
Practice Detachment
Focus on technical aspects, not money. Emotional detachment prevents impulsive decisions and screen-watching habits.
Maintain Focus
Prioritize more extended time frames over short-term fluctuations. Profitable trades lie in capturing significant trends.
Expect the Unexpected
Investment involves probabilities, not certainties. Avoid relying on the gambler’s logic for predictions.
Average Up, Not Down
Avoid increasing positions against price movement. Expand exposure when the market validates your strategy.
Limit Losses
Use stop-losses to protect capital. Act promptly when triggered, avoiding holding onto declining stocks.
The Cost of Hope
Holding onto falling stocks can lead to severe capital loss. Sell before losses decimate your funds.
Originally published on July 27, 2016, this article has been updated multiple times, with the latest update completed in May 2023.
FAQs
Q: Why do I need to focus on facts, not fiction, regarding trading psychology?
A: Because faulty perceptions lead to faulty outcomes. You need to be aware of the real issues at hand, focus on the trend, and spurn the noise.
Q: Why is it important to live within my means regarding trading psychology?
A: Over 90% of the world wants to live the life of a king but on a soldier’s salary. People want to buy things they don’t need, and with money, they don’t have to impress people they hate with their guts. This is a faulty perception that can lead to faulty outcomes.
Q: How can I improve my trading psychology?
A: The focus should be on improving yourself and the product/service you are selling. It is essential to live within your means, ignore the noise, and focus on the trend. Remember that mass psychology states that a market will crash only when the masses are euphoric and vice versa.
Q: Why is it essential to avoid bombastic titles and ignore the spin doctors?
A: News outlets are desperate for eyeballs, so they are going out of their way to make titles bombastic and offer multiple scenarios so that they can proudly state We told you so when one comes to pass. This creates a lot of noise that can lead to faulty perceptions.
Q: How can I make sense of the conflicting information about the markets?
A: Instead of listening to rubbish, focus on putting the “Trading Psychology” concepts discussed in this article. Look for outlets that focus on the real issues and describe things as they are, not how they should be. Focus on facts, not fiction.
Q: Is it true that the stock market is supposed to crash and burn?
A: The markets will likely trade much higher than naysayers could envision. The Fed is far more powerful than a few hundred loudmouths that claim to be experts but, in reality, know next to nothing. Mass psychology states that a market will crash only when the masses are euphoric and vice versa.
Q: What is the law of balancing, and how does it relate to trading psychology?
A: The law of balancing states that the more you do, the less you will receive, as the equation must balance. This is why most good Samaritans die before their time, and most heroes die young. It is not wrong to help someone, but you should never attempt to help those that do not want the help or do not seek it, except for young children.
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