Psychology

I'm going to make a bold statement. Perfectionists aren't great stock market traders. Interestingly enough, I'm sure statistically speaking, a large portion of share traders would be perfectionists at varying degrees. Why? Trading requires characteristics like excellence, attention to detail, discipline and persistence to succeed.

Insider trading breaches has surged according to an ABC interview with Australian Securities and Investments Commission (ASIC) deputy chairman Belinda Gibson. ASIC claims that it is receiving 200 alerts a day in relation to suspicious trading activity relating to the usage of privileged information not available to the public. There have been more insider trading breaches in the past three years than in the entire previous decade.

There have been quite a few rogue traders who have made the news over the past few years. There's a list of rogue traders below which includes well known names like Nick Leeson and Jerome Kerviel, along with the millions or billions of dollars which they’ve lost their companies as well as their penalties. A rogue trader is a professional traders executing unapproved or ill-advised financial transactions. But why do traders go rogue? What turns a trader to the dark side?

Trading is not just about numbers, trading systems and having a trading edge. Since we’re human (and we aren't using mechanical high frequency algorithmic trading) we have to contend with our psychology while we are trading. You've probably heard or been told many times that it is important to trade the markets as emotionless as possible - just like a robot. Trading must be a boring process of executing your trades.

I'm sure that we've all been desperate at some point in time. Sitting in front of your trading screen, with a series of losses, you'd be tempted to try and claw back some of your losses. Unless you've totally perfected trading like a robot and are totally and utterly emotionless, you would have felt this emotion at some point in your trading career.

Psychology and intelligence plays an important role for successful traders. It is imperative for struggling and unsuccessful traders to overcome their weaknesses to win by trading the share market.

In terms of necessary intelligence skills, in Turtle Trading, the candidates were tested for their mathematical aptitude as well as the ability to think in terms of risk and probability. Finding an edge in the market and learning whether a trade is worth trading and risking your capital requires a little mathematical skill.

Traits of Successful Investors and Traders

When I first started trading during my university days, I remember pondering about the true value of trading to society. I was studying engineering at the time and I saw my friends graduating to become engineers, bankers and lawyers. I personally saw that engineering was possibly one of the most noble of careers, since of course there is a direct contributor to the improvement of living standards of society (think computers, roads, bridges, plumbing, electricity, gadgets, cars and so on). Each and every occupation out there has a purpose for society. But what about trading?

I am confident that many traders go through negative thought cycles while trading. Negative thoughts such as the fear of losing money and the thoughts of greed and being a money glutton may haunt you in your trading career. So how do you defeat your negative trading psychology? You have two choices: to face your negative thoughts or to simply ignore it.

Control. We like to control things. We like to control things to a certain extent. To have some grasp of the environment around us. Most people like things to be predictable. For example: waking at the same time each day, having control of the choice of breakfast, a train or bus arriving at a certain time. Work which is predictable... controllable, where certain actions you take would produce certain results. Everyone operates within their own parameters. Whenever the unexpected arrives, it could be a pleasant or horrible surprise. The market can be predictable but it also can be an unpredictable beast. Only YOU can control your trading.

You are insignificant to the market. Remember that. The market does not care about you. Nor does it knowingly give or take money from you. The market is its own beast. A great trading genre writer, Mark Douglas once wrote in “The Disciplined Trader” that “The markets are always in motion; they never stop, only pause.” The market is in constant motion, open or closed, the field of market participants have perceptions which change with each new input of data.