Trading Psychology

Traders often make fun of how preconceptions and so-called 'common wisdom' influence on their expectations. The market is in constant motion and the formation of excessively strong opinions, especially when it is simplified can lead to bias, which is hard to shake. That is why some traders are strongly warned against the formation of strong opinions. Not harmful and often questioning the so-called 'common wisdom ', which is true only if it satisfies a specific set of conditions. Flexible traders tend to start each day with a clean slate, so that they can 'track and respond' to the market better than those who mistakenly allow preconceived ideas about the market to distort their perceptions. It is vitally important to remain open-minded, flexible and willing to adapt to what makes a market in a given day. Here is an example of how preconceptions and blind adherence to common wisdom, may cause to miss what is happening at the moment. Common wisdom is that the strength of the U.S.

dollar affects the stock price. But this correlation is far from comprehensive. It is important remember that, although an interaction, it is not always strong. Over the past six months or so the U.S. dollar was relatively weak, but weak dollar is not particularly affected the stock price. Even in the most explicit intraday days weakness of the dollar, stocks are not too varied in response to fluctuations in the dollar. Hence, for the past six months, the so-called common wisdom did not help.

Flexible trader, knowing the common belief, can nevertheless see that in the current market hypothesis is not justified. Flexible, adaptive traders. They both consider what 'should happen' according to common wisdom, along with what is actually happening. Inert traders on the contrary, limited its unwavering commitment to preconceived notions. They do not have the openness of perception, they are looking for confirmation of the rules. Instead of skillfully operate under current market conditions, they wait confirmation rules. In this case, they are waiting for is actually going to happen is a strong correlation between the strength of the dollar and stock prices (which seems to have recently occurred). When that time finally comes, they will probably say: 'I did said '. Well … General wisdom is sometimes justified, otherwise it would not be it. This means that if you wait long enough, prejudice will receive a confirmation. But at what cost? Expecting this, you can skip a lot of good trade opportunities. Instead of allowing preconceptions to take over a top, it's better to look at the current market situation and take decisive action. In the short trading 'is significant when significant ', so that commitment to the rules of thumb can be misleading. It is vitally important to be adaptive. Every day we must ask questions: 'What's in the market? " Maybe you need to open trade only in the long side. Maybe you need to sell dauntik on the mini, when Bonds did tick up. Maybe you need to buy power on the mid cap stocks with large short interest, as they well go up, even though the decline the major indexes. Being adaptive, you can simply choose what seems to be working every day and has a much better chance of success. So start each day with an open reception. And if you form an opinion, know how to temporarily set aside, not allowing it to resist your ability to be objective, and adaptive to the market today is telling you.

Tags: ,

Comments are closed.