Archives of “Market Psychology” tag

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The way to learn

  
  Education
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Learning to trade is not very different from learning any other discipline. It takes a lot of efforts and finding the right teachers. At some level of experience, the best teacher for you will be you, but before such level is reached having someone to show you the direction of least resistance is priceless.

For example, in his early years, one of the most notorious composers ever –  Mozart, imitated and mimicked the work of others. From their lessons, later in his life, he gradually builds his own unique style. This is a common path to success in music. Common path to success in trading.

In music first you learn the notes. Then you try to replay other guys’ compositions until one day you start to compose in your own unique style. In trading, first you learn the basics of supply and demand, some common market anomalies and basic market psychology. Then you read about other, already successful, people’s methods and try to mimic them until one day you become experienced enough to create your own style of trading that satisfy you financial and personal goals best. These are three different levels of expertese in each field and they should be mastered in the mentioned sequence.

1930-The Gartley Pattern -For Traders

  
  Education
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A leading technical analyst of the 1930s created a method for trading that is still applicable today. Learn how to trade market turning points based on Fibonacci retracements and market psychology with the Gartley Pattern.

Many traders ask how a trading method that is 77 years old is applicable today. When you combine timeless tools like Fibonacci Retracements with great risk: reward ratios, it’s easy to see why this method is so popular. If those aspects of a trading method appeal to you, it’s my pleasure to introduce you to the Gartley chart pattern.

What is the Gartley Pattern?

The Gartley pattern is a powerful and multi-rule based trade set-up that takes advantage of exhaustion in the market and provides great risk: reward ratios. The pattern is also known as the “Gartley 222” because the pattern originated from page 222 of H.M. Gartley’s book, Profits in the Stock Market that was published in 1935 and reportedly sold for $1,500 at the time.

The Gartley pattern is based on major turning points or fractals in the market. This pattern plays on trend reversal exhaustion and can be applied to the time frame of your choosing. The other key that makes this pattern unique are the crucial Fibonacci retracements that come together to fulfill the plan.

There is a bullish / long / buying pattern and an equally powerful bearish / short / selling pattern. Much like you would find with a head and shoulders pattern you buy or sell based on the fulfillment of the set up.

Buy & Sell Gartley Chart Pattern (more…)

The way to learn

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #

Learning to trade is not very different from learning any other discipline. It takes a lot of efforts and finding the right teachers. At some level of experience, the best teacher for you will be you, but before such level is reached having someone to show you the direction of least resistance is priceless.

For example, in his early years, one of the most notorious composers ever –  Mozart, imitated and mimicked the work of others. From their lessons, later in his life, he gradually builds his own unique style. This is a common path to success in music. Common path to success in trading.

In music first you learn the notes. Then you try to replay other guys’ compositions until one day you start to compose in your own unique style. In trading, first you learn the basics of supply and demand, some common market anomalies and basic market psychology. Then you read about other, already successful, people’s methods and try to mimic them until one day you become experienced enough to create your own style of trading that satisfy you financial and personal goals best. These are three different levels of expertese in each field and they should be mastered in the mentioned sequence.

Ed Easterling’s 12 Rules of Market Cycles

  
  Education
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Here are Ed Easterling’s 12 Rules of Market Cycles:

1. Secular cycles are driven by the inflation rate (deflation, price stability, and higher inflation)

2. Secular bulls occur when P/E starts low and ends high over an extended period

3. Secular bears occur when P/E starts high and ends low over an extended period

4. Cyclical bulls and bears are interim periods of directional swings within secular periods

5. Cyclical cycles are driven by market psychology, illiquidity, or other generally temporary condition(s)

6. Time is irrelevant to the length of secular stock market cycles

7. Secular bulls require a doubling or tripling of P/E

8. Secular bears occur as P/E stalls and falls by one-third to two-thirds or more

9. When real economic growth is near 3%, there is a natural floor for P/E between 5 and 10, a natural ceiling around the mid-20s, and a typical average in the mid-teens

10. If economic growth shifts upward or downward for the foreseeable future, the natural range moves upward or downward, respectively

11. Inflation drives P/Es location within the range; economic growth drives the level of the range

12. The stock market is not consistently predictable over months, quarters, or periods of a few years; the stock market is, however, quite predictable over periods approaching a decade or longer based upon starting P/E

Discretionary & Systematic Traders

  
  Education
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Discretionary Traders…

  • …trade information flow.
  • …are trying to anticipate what the market will do.
  • …are subjective; they read their own opinions and past experiences into the current market action.
  • …trade what they want and have rules to govern their trading.
  • …are usually very emotional in their trading and taking their losses personally because their opinion was wrong and their ego is hurt.
  • …use many different indicators to trade at different times. Sometimes it may be macro economic indicators, chart patterns, or even macroeconomic news. Many discretionary traders are trying to game what they believe the majority of other traders will be doing based on market psychology as if it is one big poker game.. They are trying to form an opinion on what the market will do.
  • … generally have a very small watch list of stocks and markets to trade based on their expertise of the markets they trade.

Systematic Traders…

  • …trade price flow.
  • …are participating in what the market is doing.
  • …are objective. They have no opinion about the market and are following what the market is actually doing, i.e. following that trend.
  • …have few but very strict and defined rules to govern their entries and exits, risk management, and position size.
  • …are unemotional because when they lose it is simply that the market was not conducive to their system. They know that they will win over the long term.
  • …always use the exact same technical indicators for their entries and exits. They never change them.
  • …trade many markets and are trading their technical system based on prices and trends so they do not need to be an expert on the fundamentals. (more…)

Bear Market Psychology

  
  Education
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“This is my retirement money. I can’t afford to be out of the market anymore!”
“I don’t care about the price, just get me in!!”
“It’s a healthy correction”
“See, it’s already coming back, better buy more before the new highs”
“Alright, a retest. Add to the position – buy the dip”
“What a great move! Am I a genius or what?”
“Uh oh, another selloff. Well, we’re probably close to a bottom”
“New low? What’s going on?!!”
“Alright, it’s too late to sell here, I’ll get out on the next rally”
“Hey!! It’s coming back. Glad that’s over!”
“Another new low. But how much lower can it go?”
“No, really, how much lower can it go?”
“Good Grief! How much lower can it go?!?”
“There’s no way I’ll ever make this back!”
“This is my retirement money. I can’t afford to be in the market anymore!”
“I don’t care about the price, just get me out!!”

Famous Investment Quotations

  
  Education
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“Before you invest, investigate.” William Arthur Ward (1921-1994) author, educator.

“With an evening coat and a white tie, anybody, even a stock broker, can gain a reputation for being civilized.” Oscar Wilde (1854-1900) Poet & playwright

“Never invest in anything that eats or needs repainting.” Billy Rose (1899-1966) Composer and entrepreneur

“Emotions are your worst enemy in the stock market.” Don Hays, stock market commentator

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” Warren Buffett (1930- ) businessman and investor

“Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.” Peter Lynch (1944- ) money manager

“Gentlemen prefer bonds.” Andrew Mellon, Businessman & financier (1855-1937)

“Anyone who thinks there’s safety in numbers hasn’t looked at the stock market pages” Irene Peter

“The stock market has forecast nine of the last five recessions” Paul A. Samuelson

“The arts are an even better barometer of what is happening in our world than the stock market or the debates in congress.” Hendrik Willem Van Loon

“If stock market experts were so expert, they would be buying stock, not selling advice.” Norman R. Augustine

“Now is always the most difficult time to invest.” Anonymous

“I can’t figure the stock market out. I think it’s wacky. I have done well with a long-term strategy and will continue being a long-term investor.” Scott McNealy

“One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.” William Feather

It’s easy to grin when your ships come in and you’ve got the stock market beat, but the man worth while is the man who can smile when his pants are too tight in the seat” Anonymous

“My job is to make people money. If I don’t include every factor that moves a stock, market psychology included, then I’m not doing my job.” Thomas Kurlak

The most valuable things in life are not measured in monetary terms. The really important things are not houses and lands, stocks and bonds, automobiles and real state, but friendships, trust, confidence, empathy, mercy, love and faith.” Bertrand Russell, Philosopher (1872-1970)

“Stock prices have reached what looks like a permanently high plateau” Irving Fisher, Economist, (1867-1947)

“A stockbroker urged me to buy a stock that would triple its value every year. I told him, ‘At my age, I don’t even buy green bananas.'” Claude Pepper

“If you hear that everybody is buying a certain stock, ask who is selling.” James Dines, Investment newsletter writer (1935- )

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