Emotional States (Psychology) and Trading

Emotional States (Psychology) and Trading

Psychology is the science which studies mental processes and behavior.  This discipline may focus on the individual or a group. One such behavior, which individuals and simultaneously as groups humans engage in is trading. I maintain that mass psychology informs and directs individual psychology.  All possible mental states, arise from vibration. Accordingly, the serious investor, should adopt the attitude of a navigator and impersonally obey their computations concerning vibration.

Persistency of either motion or non-motion (stationarity) is one consequence of the vast spectrum of vibration. Newton’s first law, therefore provides a relevant starting point for financial market analysis.

Procedurally, assess the current reality through observation of a certain segment of the markets history. This is typically accomplished by simple visual inspection of a price chart. An assessment of a net change in price from one point in time to another is the first step. Once you distinguish the trend as either up, down, or sideways, you’ve essentially measured a current reality. Eliminate from further consideration markets that are trending sideways. Generate a forecast based on the notion that the current reality you have measured, will more probably persist than not. This forecast is a simple application of Newton’s first law. To filter the forecast and any possible entries that would stem from such, employ the following rules. For a rising trend, always buy above resistance. For a falling trend, always sell below support.

A traders search for value should always start by attempting to see the reality of the situation. A current reality is always by definition in a different category from what could occur or what should occur. All forms or models of analysis that project what could occur are secondary to any projection of a current reality.

Unless the system or phenomena which is being studied is at the temperature of minus 273 degrees centigrade (absolute zero), it will vibrate. The possibility for vibration is what creates a potential for change.

Whether you are measuring persistency, or transition,of  a market’s motion, be sure to cultivate an internal state of impartiality towards the information your calculations derive. Such an emotional state will reinforce whatever models are used to obtain your edge.

The webinar I present this Wednesday (12/18/2013) at 10:00 am Pacific Time, will list the ideas and techniques I use to realize an internal emotional state optimal for trading.


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