Hi Reader,
In this blog, I'm going to discuss about trader mindset and behaviour. l lose some money in trading. If anyone advises me, about the stock market, mainly trading is not for beginners and first, try to understand the market behaviour and then start trading. But the reality is I won't listen to them at first. So, nowadays I won't advise anyone about a trading problem or it can be financial destroy. But I advise everyone to invest in the stock market, not in the direct market.
Trader ideology
In everywhere you can see patterns and patterns will repeat themselves. If you can understand the pattern and create it, then you can do anything you want. But, everyone needs to control other people, but no one wants to wait for it.
Why as traders like me don't like to listen to advice or suggestions? That is cautionary that even remotely suggest. That the market might be about to change direction either upward or downward. Not necessarily that the market is topping out it could be either way. Now you can see much as you would like to think that trading is a purely physical activity wherein, all that is required in mathematics, a fast computer, a fast high-speed internet connection and a broker is a trading terminal that has a very fast refresh rate.
But I would say that these are just minor items, they are way low down on our priority list. What helps you make money in trading is your mind and your ideas. The guy with the clearest and the fastest mind, and the best ideas takes money out of the pocket of the other guy and puts it into his pocket. People like smart are brain warriors. We fight with our ideas and we win or lose because of them. So trading is a mental process. And to be able to understand this mental process. And you need to understand how our brain works.
Human Brain
First of all, the human brain can be divided into two parts of vertically - the left-hand side brain and the right-hand side brain. The left-hand side brain is all about rationality judgement, it's all about mathematics, logic and reasoning. It's also about process-based learning. The right-hand side brain is all about human emotions, soft skills, appreciation of art and irrational tendencies like greed and fear. Now as much as we'd like to ideally speak as much as we'd like to keep both the segments of the brain far away from each other very well divided by a Chinese wall or maybe a hard partition.
It doesn't happen easily and it's not possible, so you may being the trading session with absolute clarity in your mind about what you're going to do, but when the trades or the market started to go again you. It is very natural for you to have a palpable sense of fear like a cold fist closing around your heart and you start to sweat from behind the ears. In such a situation what happens why is it that when you switch on the television and you see somebody on TV or you open your cell phone and on your WhatsApp message. Something that comes up and then that message is all about why the market should be going in a direction exactly opposite to the position that you've taken and you feel a sense of rage you feel a sense of rejection you feel senses of anxiety or even depression.
Imagine someone who climbs Mount Everest. Explaining that, he was just walking around one day and found himself at the highest mountain in the world. Of course, that would not happen because it is not possible without any vision. There was a vision. And the vision became a goal. And the goal became a thought. Then thoughts need to plan with training and then it will happen, so are you living your life in the same way? Or are you just wandering around, hoping you'll end up at the top of Mount Everest?
Trader Brain Behaviour
We as traders tend to exercise only a certain area of the brain it's called the prefrontal Cortex. It's right behind your cranial bone. So it's the top most layer the frontal layer of the brain which is why it's called the prefrontal Cortex
- Prefrontal Cortex: focused attention, self control, compassion, freewill, judgement, planning, and a new idea
- Limbic/Mammal: ememotionalemory (hunter-gatherer, old)
- Reptilian Brain: Basic bodily functions (very old)
Prefrontal Cortex is responsible for extremely short term decisions, it's has a very short term memory, this is the brain also is responsible for what is known as the recency bias. You assign a lot more emotion. And you have a lot more feelings and your mental energy into very recent events so what happened to you last week may not be top of mind recall the trick that you have taken 30 minutes ago is all that this portion of the brain function on and when you have an open position all that you are seeing on your screen is the mark to market position on your Snape code windows a whether it's in a profit or a loss. So what happened when during trade which is not particularly going too well you receive inputs from outside whether it's a WhatsApp message or it's somebody on television, this thing or this trade is going to go against you.
Game show physiological questions
I was reading a book couple of weeks ago, it's an excellent Book about Human behaviour with money. This book name is "Your Money and Your Brain" by excellent author Jason Zweig. But in this book, there was an excellent analogy about how game show work and improve the auctions number. You know like you are the next million or money-based game show. In this game show, the participants and I didn't know about this frankly the participants are bound by the contract of entering the game show to answer questions about what they went through mentally.
After the game show is over, there is the psychoanalysis of what happens. Now the producer and director of the game show are trying to make it more interesting take it forward to another level and therefore they interview every participant as to what happened. Now the one question that they asked the participants was what did you feel when the anchor was telling you if you are unsure about the answer, then you can quit and let's say Mr X is telling you. Then our mind will think like "you've already won 25 lakhs, now the next question that you are facing is of 50 lakhs, you're exactly sure about the answer and the anchor is goading you to consider quitting the game". while you're still ahead by 25 lakhs, the temptation of trying to go for it and maybe take home 50 lakhs or even more is always there but it doesn't show up on your face what you feel doesn't show up on your face. So, in the secretary of the post-game analysis and discussion, you will be surprised more than 90% of the participants answered the psychoanalysis, "We felt a feeling of anger, We felt the feeling of disgusting, and some even said We felt a feeling of animosity and hatred towards the anchor because he was trying to step between me and my money to be and he did not want me to become a multi-millionaire and I got angry about it".
This is precisely why some of these guys succumb to that anger and they say we'd rather take a risk and we take a pot shot at doubling our money and instead of winning 50 lakhs from 25 lakhs, that they have already won, they fall all the way down to three lakh and then, of course, there is a great deal of remorse, there are plenty of regards, but that's later the die is cast the loss is already incurred. Before you get advice that is not conducive to you. You must train yourself to think whether you are thinking rationally. Don't give in to that temptation of taking a knee-jerk reaction and say oh my God this guy is trying to rob me of money.
Conclusion
You know the game show host has no vested interests in how much money you're taking home. Because his fee is already fixed, he'd probably even be paid upfront. So it's in your favour to exercise the left-hand side of the brain. Think rationally don't let your heart get involved in the process and try to keep the right-hand side of the brain at ease. If you study behavioural finance, this would be one of the primary tenets of the game.
Don't Deny Me, it is my opinion.
Leave a comment down below about your encounters if you'd like. Please feel free to share any thoughts you have as well. If you like this blog, then share it with those out there who trade in the market without thinking.
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