The mantra of trading is not as simple as the sales mantra or commerce mantra. The reason behind the trading mantra is the psychology of the market behind it. One who can analyze the stocks with their technical skills or fundamental skills can’t be a good trader. As, at least one of those skills is needed, but the trading mantra is more about the way a trader reacts to the market than how the share market reacts.
In one word, if I need to specify the mantra, I must say it is “Market psychology”.
Everyone needs a mantra to be successful in his field. For a trader in a share market, a trading mantra is the essence of his financial life. Some fundamentalist says it is the observation or the speculation of the stock. Some technical analyst says it is the price action theory. One part that all the premature traders miss and the professional traders make their edge i. e. Market Psychology.
Saint Easter once said, “You cannot judge from my face that if I am blessed with a baby today or I lose one.”
I know it is pretty much more than a trader needs. The good thing is that we don’t need to win our emotions fully in the share market. All we need to do is to be aware of the traders, nourish them a little, and create an edge in the market to make a win-win situation.
This article is for beginners (who just entered the share market and looking for the right study and stock market courses) to advance level traders (who are doing well and want to increase their profit with consistent knowledge and experience.)
So, before coming to the mantra directly, let’s understand what the market is.
What is Share Market?
The market is just the communication happening about money between humans. Just like any other communication such as verbal language, body language, and eye expression language, there are a lot of other non-verbal languages. The share market is one of those languages; the only small difference is that the money speaks for itself.
People are continuously talking verbally about money in the market. An amateur trader comes to the market and usually becomes one of the crowds. Before understanding the basics of this language, he becomes part of the crowd and starts buying and selling based on any technical or fundamental approach.
Role of Market psychology in Share market
Imagine a merchant from the village with 50,000 bucks in his pocket and his candies going to a shopping mall. After reaching a mall, he lost his mind in the glamour and all the precious sparkling things. Instead of selling his product, he starts buying others with the money he took with him. This is where he loses his mantra of trading.
The same happens with the beginner trader. He comes into the share market to do the right trade which will make him profitable, but the sparkling market plays with his emotions and he buys somewhere else without his wish but with the wish of his greed and fear.
Here the psychology of the share market is necessary. A trader predicts that ABC stock is going up within 2 days, but still he can’t be sure about the stock. Not being sure inculcates emotions and this misleads a trader.
A professional trader is one who understands the problem that one can never be confident about his trade but still he has to be disciplined about his trade.
A disciplined trader works on his emotions that no matter where the market will influence him, he should be focused on how you are going to manage the trade. He knows that whatever indicator or theory he uses; it won’t be profitable till he won’t understand his own emotions.
Most of the crowd who is communicating is actually communicating unconsciously. This is exactly how we use to live our lives. We become angry only if triggered by someone else. Being happy, egoistic, fearful, lovable, dramatic, or even sad, these are happens based on our emotional cycle. Understanding our emotions and being aware of the emotions makes an edge in the share market.
Being choiceful is one of the trading mantra
Have you ever thought that how much choiceful we become in our decisions?
A trader should not be as disciplined as Saint Easter is, but there is a saying from a trader in the Book “The New Trading for a Living” by Dr. Alexander Elder.
A professional trader from Texas invited me to his office and said: “If you sit across the table from me while I day-trade, you won’t be able to tell whether I am $2,000 ahead or $2,000 behind on that day.”
My question is, are we that aware of our traders? Do we live our lives being choiceful about our emotions?
If a person next to you starts praising you with refined words and have you seen what happens to you? Same as somebody told you some of your bad habits, do you remember what kind of feeling you had?
In trading, when you have a vision of a stock going up, it starts going up. After some time, when the price starts falling down, have you seen your emotions, even if your stop loss is far?
Trading means distributing flowers on a street where people are becoming mad at each other and continuously slapping each other. Once you step into the market, you get a slap. Now, what is your next move, a slap in return for a slap or being aware and not to get slapped again and keep distributing the flower?
Don’t be a part of this communication as an unconscious soul. You will be sometimes profitable, but most of the time loser if you are unconscious.
Understand the trading mantra for trading
To see what other people are doing, or how the other trader’s emotions occur, a trader should read the psychology of the other traders also.
So, what is the best thing a trader should do in the share market? A mature trader should understand the psychology of the crowd, and read the emotions of the crowd. This can happen only if a trader gives his emotions a pause.
If you will get to know the emotions of the crowd in a chart, you can see when the crowd is going to be fearful in relation to price. You can come to know that when the crowd is going to become so greedy. Chart analysis is all about reading the psychology of the crowd.
Adapt the trading mantra for the share market
After getting art to see the emotions in the chart, the work is not yet done. It is the same as if I tell you that when a person tells a lie, he usually touches his nose. Now you have a piece of information that how to spot a liar. Having information is not enough, because while a person is telling a lie while rubbing his nose, we are busy with our own emotional thinking.
When there will be a time to hide something and speak a lie, you won’t be able to control your hand, if it will be an unconscious act. Nor you will be able to find out if someone is telling a lie, ‘coz when the situation arrives, we face it unconsciously.
The trading mantra to read the stock chart
Same, a trader after getting art to understand the price action of a chart, falls into the emotions when the chart is running.
For example, the result of ABC stock is coming, and the results are pretty good. We look at the price and analyse that the good news we get today is already adjusted in price. The market will jump a little to trap bulls and it will fall like hell. Can we short the future at that time? Because, while looking at the fake bull run, our emotions will start saying that it can rally a little long.
Most of the time a trader is not sure. When I say not sure, I mean there is a possibility for the move to go down, but not with surety. Now, the time comes when a trader’s emotion plays.
An armature trader long the position being emotional. An undisciplined trader trades a wrong move in a fear of missing out on a big move and greed for getting a big move. A professional trader is not one who only understands the emotion of the crowd. He also manages his emotion and makes himself disciplined.
The essence of the trading mantra
Understand the market psychology that how emotions control your trade. Don’t let the emotions control your trades but control your emotions and traders as well.
Be aware of your emotions and also the other market participant’s emotions which we can see in the charts as a pattern.
Most of the people selling you courses on how to analyze the market. I am telling you it is not just mathematics or the science behind the stock market. The main role in the stock market is psychology, an art.
Moreover, it is not just about how you forecast the move. It is more about how you are going to play that move.