The Psychology of the Stock Market – @DarkPoolAlgo

brown cow on gray concrete floor during daytime

How I am growing as a new stock market day trader

Paying Tuition – Yeah it sucks when the market decides it wants to remind you that the stock market is an educational journey. However since it is an education let’s not forget the learning opportunity available. Being a better trader is not about the size of the trade or the increase in your P/L, or even having better charting strategies. No matter the exhausting technical analysis that is done; being a better trader comes down to one thing. MINDSET..

If you’re like me you probably have seen the countless thousands of videos when you search on YouTube for terms like “Learn to Trade”, “How to day trade”, “Avoiding the PDT rule”, “Moving Averages”, “How to find support and resistance”. While I can appreciate the time and effort it takes for all of these video content producers to make these bite sized pieces of trading, what there is not enough of is how to deal with losses or more aptly put Your going to blow up your account, here’s what to do next”

Best Trading Strategy?

Accept the fact that you are going to lose money, I know everyone wants to make it big or scale up slowly with defined risk. While those are great ways to plan your trades or include in your trading plan I feel it would be a better service for me to tell you make a plan for dealing with the loss. Hold on before you start getting out the calculator and pen and paper ask yourself what does he main the loss?

The Psychological Mindset of Trading

I chose the above image of money on purpose. When we see or think of money our brains have a chemical reaction and release dopamine. This is the number one reason people fail at trading; the dopamine or lack of it that is flooding the brain when we trade. Everyone who has ever made a single dollar from trading equities, options, futures, forex or crypto currency has had the dopamine rush. There are tons of articles that talk about the attitude of a winning trader, the mindset, or how your beliefs that the market is rigged and acting against you directly affects your ability to trade. Well let me sum it up for you in one simple yet powerful sentence.

The market doesn’t care about you or your account; because the market is going to do what the market wants, all we can do is look for a high probability point in time where price action will be.

If you can make the above statement your mantra then you will be able to deal with the fact that losing money is part of trading and therefore paying tuition to the stock market actually makes sense. I recently suffered a pretty significant loss and immediately went to journal or review what I did wrong from a technical standpoint and then I stopped and took inventory of my brain and body. Was my face flushed, stomach sick, do I even deserve to be trading, am I worth it? All of these questions/feeling happened in about 10 seconds and I stopped myself. I told myself these are the exact same feelings/thoughts I had when the week before I had my best single trading day ever and my first 5 digit day. Granted my loss was a fraction of that and by far way less than I have lost before, I realized in that moment during the previous week I had expanded my dopamine levels and this was the inverse or balancing out that needed to occur for me to be a functional person. I immediately wrote down the above statement and that was it for reflecting on the losing trade.

gamestop short squeeze - gme or $gme

What I had done was an attempt at reprogrammed my brain and the psychology behind trading, with that one single statement I had a turned the corner and began the climb up to the next plateau of trading. If I were to make one suggestion to new traders or even anyone who is struggling with being stuck I would say take a moment to internalize that the market doesn’t care about you or your account and then look back on some of your losses, then do the same for some of your wins.

The beauty of doing this eliminates all the chemical reaction since its in the past and you cannot do anything about it, just like with trading what ever is going to happen is going to happen, don’t get me wrong you still need to look and pay attention for an opportunity to predict where price action could be at a moment in time. If you use technical analysis or fundamental analysis or some other type of trading plan that works for you great, just approach your next trade with this mindset.

Control of the market and yourself

In this statement which part is true? Can you affect any change in the market or can you affect change in yourself? To become a successful trader most of the time you have to realize that you cannot really actually control either, the amount of dopamine flooding your brain is out of your control as well as what the market does.

So what can you do?

  • Continue to follow your trading strategy or trading plan
  • Become more self aware of moments in time where your brain or physicality is different
  • Appreciate the wins and the losses, trick your brain that no matter the amount of money up or down that in two days the chemicals will be gone
  • Write it out share the knowledge, everyone is the same when it comes to the stock market everyone can win and lose

Educational opportunities

I realize that there may not be an exact answer for you on how to deal with losses but I truly believe being prepared for the wins is crucial, having the right tools and education will give you a better chance at finding that winning edge or accepting mindset. Below are a couple links that might provide you some tools to help you on your journey.

Thanks for you time – @DarkPoolAlgo

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