Psychology as a tool for market analysis
So how do we gauge the market to identify these psychological traps as you say?
So how do we gauge the market to identify these psychological traps as you say?
i am not sure i understand your question, but i'll try to explain:
the market as a hole is not supposed to identify the traps, it is supposed to fall into them.
it goes like this: the big players set a trap, for the example lets say they drive the price to create a certain well-known pattern, and the single traders (that are a very big part of the market when added) fall into this trap, each of them because of his own psychological problem (some will fear and close opened positions in the other direction, some will be greedy and get in too early and so on). the totall efect will be an expected price movement, and when it moves enaugh to make a nice profit for the big players, they take profit and the nice pattern melts away... and so are the single traders hopes to earn profit.
that is why i say you, as a single trader, should try to identify these traps while they are set, and join the ride with the big players.
did i answer your question?
i am not sure i understand your question, but i'll try to explain: the market as a hole is not supposed to identify the traps, it is supposed to fall into them.it goes like this: the big players set a trap, for the example lets say they drive the price to create a certain well-known pattern, and the single traders (that are a very big part of the market when added) fall into this trap, each of them because of his own psychological problem (some will fear and close opened positions in the other direction, some will be greedy and get in too early and so on). the totall efect will be an expected price movement, and when it moves enaugh to make a nice profit for the big players, they take profit and the nice pattern melts away... and so are the single traders hopes to earn profit.that is why i say you, as a single trader, should try to identify these traps while they are set, and join the ride with the big players. did i answer your question?
Thank you for your reply... Now I understood better what you said in the first post...
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Animals in Translation: Using the Mysteries of Autism to Decode Animal Behavior
by Temple Grandin and Catherine Johnson
When highly verbal people get control of the audit process, they tend to make five critical mistakes:
* They write verbal auditing standards that are too subjective and vague, with requirements like "minimal use of electric prod" and "non-slip flooring." Individual inspectors have to figure out for themselves what "minimal use" means. A good audit checklist has objective standards that anyone can see have or have not been met.
* For some reason, highly verbal people have a tendency to measure inputs, such as maintenance schedules, employee training records, and equipment design problems, instead of outputs, which is how the animals are actually doing. A good animal welfare audit has to measure the animals, not the plant.
* Highly verbal people almost always want to make the audit way too complicated. A 100-item checklist doesn't work nearly as well as a 10-item checklist, and I can prove it.
* Verbal people drift into paper audits, in which they audit a plant's records instead of its animals. A good animal welfare audit has to audit the animals, not the paper and not the plant.
* Verbal people tend to lose sight of what's important and end up treating small problems the same way they treat big problems.
Page 268 - 269 Animals in Translation
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Sounds like these same people also write trading systems.
Sounds like these same people also write trading systems.
what do you mean?
what do you mean?
I mean most people who write trading system make some of the same mistakes that the author pointed out.
Example:
* Highly verbal people almost always want to make the TRADING SYSTEM way too complicated. A 100-item checklist doesn't work nearly as well as a 10-item checklist, and I can prove it.
TRO is absolutey correct. Psychology definately effects trading system design, but unfortunately you'll rarely see this discussed on foums. He's right about the complexity too.
I mean most people who write trading system make some of the same mistakes that the author pointed out. Example: * Highly verbal people almost always want to make the TRADING SYSTEM way too complicated. A 100-item checklist doesn't work nearly as well as a 10-item checklist, and I can prove it.
ok, now i got the point. so what are the relations between these points and my original post? it sounds interesting, i'd like an explenation.
"i noticed almost all of the threads here that talk about psychology, talk about our psychological weaknesses when we trade and how to avoid falling into these traps. "
I believe my post is in direct relation to post #1.
It points out the weaknesses (mistakes).
i noticed almost all of the threads here that talk about psychology, talk about our psychological weaknesses when we trade and how to avoid falling into these traps. there is another very important aspect- psychology is somthing that sets traps to people, basically all people. that makes their reactions and responses quite predictable.the fact we know what traps they are about to fall, gives us a clue what the market as a hole is about to do! another issue in connection, is that the big players and brokers are aware of what i am saying, and use it to predict the market and set traps that make traders act in a predicted way, and then make money based on these predicted actions and responses. that means if a trader is aware, he can look for those traps and also make profits like the big boys. i think this is the only way to actualy beat the market. it still requires analyzing the market (charts, news, whatever), but with a large picture to place the conclusions in.comments?
"i noticed almost all of the threads here that talk about psychology, talk about our psychological weaknesses when we trade and how to avoid falling into these traps. " I believe my post is in direct relation to post #1. It points out the weaknesses (mistakes).
Hi,
How can I use these points to follow the big players?
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i noticed almost all of the threads here that talk about psychology, talk about our psychological weaknesses when we trade and how to avoid falling into these traps.
there is another very important aspect- psychology is somthing that sets traps to people, basically all people. that makes their reactions and responses quite predictable.
the fact we know what traps they are about to fall, gives us a clue what the market as a hole is about to do!
another issue in connection, is that the big players and brokers are aware of what i am saying, and use it to predict the market and set traps that make traders act in a predicted way, and then make money based on these predicted actions and responses. that means if a trader is aware, he can look for those traps and also make profits like the big boys. i think this is the only way to actualy beat the market.
it still requires analyzing the market (charts, news, whatever), but with a large picture to place the conclusions in.
comments?