Psychology and the market

[tsptalk]

I took this from another thread and have been meaning to start this new psychology topic because it plays such an important role in trading. This subject does notso much affect buy and hold investing except at market extremes, but rather trading because you are constantly faced with decisions and you have todeal with your ego and emotions particularly when you make prediction in a public forum such asthis. Anyway, I hope this triggers some interesting discussions...

The psychology of trading isvery interesting indeed and there have been many books written on the subject. If you ever want to get to know yourself, I recommend doing two things: Try daytrading and play poker. Both are great tests of character. Assuming you have a knowledge of "the games", how you react when things are not going your way can be the difference between winning and losing.Actually daytrading (outside of our TSP accounts) has a lot moreobstacles, but you can be your own worst enemy in both.

A couple of things I learned the hard way (and I would bet anyone new to this will have to learn that way) is always be humble. Never brag about gains (or wins in poker) and don't whine about loses. Once you bring your ego into the mix, you bring yourself another obstacle. Your ego will lose more money for you than any other influence. Like I said, daytrading has a lot more obstacles (commissions, slippage and the fact that you are going against very intelligent traders and market makers trying to take your money). We don't really have that problem with our TSP accounts so your ego is your main enemy. I suppose that is one reason why someone would rather buy and hold. You don't have to face yourself :).

I could talk all day about this stuff because as much as I was unaware of it's effects early on in life, Iconsider it now in almost everything I do.Attitude is everything.

[JerBer]

It is very difficult not to let one's emotions get involved in this endeavor of trying to second guess the market! So many times I have made thewrong move since becoming proactive in January of this year. If only I had a crystal ball! But then again I probably wouldn't waste it on my tsp account, there are bigger fish to be had!

It offers some comfort knowing and reading that others are doing the same as me at times, and I'm not alone. I guess misery loves company, right? :D

JerBer

[GTO1970]

Just wondering aboard the U.S.S Enterprise,

How Spock managed his Government TSP Account or how he reacted to markets fluctuation? Was he able to make warp speed,inter-fund transfers being millions of light years away? I can only imagine his threshold and discipline level!

I think maybe he has a book out called:[Your TSP Account and Market MindMelding]
I'm pretty sure the Star Series cut somewording out of one of his quotes and it should have been left alone. originally he said:

Quote: TSP Participants-Live Long and Prosper, Be One as TSP Talkers!

:DGTO

[tsptalk]

You've been at that rum candy again haven't you GTO? :oo

[tsptalk]

JerBer wrote:
It is very difficult not to let one's emotions get involved in this endeavor of trying to second guess the market! So many times I have made thewrong move since becoming proactive in January of this year. If only I had a crystal ball! But then again I probably wouldn't waste it on my tsp account, there are bigger fish to be had!

It offers some comfort knowing and reading that others are doing the same as me at times, and I'm not alone. I guess misery loves company, right? :D

JerBer

You'll be wrong a lot. I am (as you all know :P). That's not the problem My problem is not quickly fixing my mistakes. That's when the ego gets in the way. It's tough to tell everyone you think the market looks good, for example, and then it drops like a rock. Instead of getting out you stay in because you don't want to admit you are wrong. Or your indicators tell you something but you want to do something else. Have discipline and leave your ego at the door is a good formula. Easier said than done.

[puertorico]

Like last week,I was too greedy and not took

out the winning money,loosing even more.

What about this ....

Logic

If we are wrong more times than right,

We must do the contrarian wayof what we're thinkings:D

"crazy but make sense":^

basic:

-in the way up take half out of the table,

grap theprofit ."defence"

[tsptalk]

Something interesting to do is to monitor your own threshold of pain. Take notes for future reference. As I mentioned, it seems as soon as you feel you can't take it anymore, that is when we will get a rebound. Next time we are in this situation, you will have those notes to that tell you how you were feeling and how the market reacted.

It may keep you from jumping out at the bottom next time, or maybe it will tell you to get out because your fears were correct. Whatever it is, this will happen again. These sell offs happen all the time in the market.

If you are out of the market now, write down how you feel about jumping in to a market like this. Are you being patient or are you itching to get in?

It may seem silly but you'll enjoy reading these notes down the road.

[ChuckBecker]

Tom,

How right you are to encourage recording what we are thinking. Right now I'm just itching to get back in. What I'm seeing is a generalized fear (maybe anxiety is a better word). 1) It's a weird recovery, it feels like it started to early and it's progressing somewhat strangely, 2) the world situation is so dang unsettling right now, as though the future is taking on a sense of inevitability [sleep walking, almost], 3) i feel fear in the markets and there's certainly a fair ways to [potentially] go down.

But a lot of the above is my own personal situation, only a couple of years from retirement. I believe I will start dollar cost averaging back into the market effective tomorrow...

Chuck

[tsptalk]

Sounds like a good plan Chuck. Feel the fear and do it anyway ;) Wasn't that a book?

On Monday I wrote "What scares me the most is that I'm not too worried". From experience, that told me we probably have more downside to go. Today I'm a little more concerned. The rally was sold after onlyone day. I hope my new fear is a better sign for the market.

[Mr. Duke]

I still fear the market is uncertain/too many variables to get heading in the right direction....glad to see some money was pulled back in for those in...however, I am looking for another bad day or two before I'm back in...If today continued as started I would have been initiating a get in 100% move.... Still can't decide if it should be the S or I....Most likely S

Later tater

[Bullitt]

A couple of things I learned the hard way (and I would bet anyone new to this will have to learn that way) is always be humble. Never brag about gains (or wins in poker) and don't whine about loses. Once you bring your ego into the mix, you bring yourself another obstacle. Your ego will lose more money for you than any other influence. Attitude is everything.

I compare it to baseball. The guys who would dwell on an error or bad at bat only made things worse by letting it affect the rest of their game. The players that over celebrate their successes more often than not found failure an extraordinary obstacle to deal with. We always find a way to come back to the norm. Whether we're in the slump or streak of a lifetime, we can't let our emotions run too high. They will ruin you every time. If you watch a pro baseball game, whether a player hits a homerun or strikes out with the bases loaded, he'll most likely go back to the dugout in the same manner. Every now and then emotions get in the way, but for the most part you don't see the, "hey did you see that homerun I hit?", or the helmet flying off after a failure like you see in amateur baseball.

There are hundreds of baseball players out there that are capable of playing at the major league level right now, but they lack the mental capacity. They are unable to cope with the swings of success and failure that come with a long season. Big leaguers know that they aren't going to deviate much from that .300 level over the course of a season during a good year.

So what's this have to do with investing? Who cares if someone hits a quick double on a stock. For every stock these people invest in that hits a 20%+ gain, there are 5 or six picks that they either lost money on or broke even. They won't tell you about the ones that lost money though. There will be days everyone gets hammered with losses. The key is that you don't let your ego get in the way. You can't stay in a stock because you think it's undervalued and that the pros are wrong selling it off. You can't say, "OK, yesterday I lost $1.50 a share on that trade, I have to force a trade to get that money back today." Again, wrong mind set. You have to swing at good pitches in the stock market. When you get that pitch down the middle, you have to jump on it and drive it. Succesful traders only swing at their pitch and spend more time out of the market than in it. Going into the opening bell swinging at the first pitch you see is the way to financial ruin.

The baseball season goes from April to October. The stock market goes 365 days a year. They are both long seasons. There will be good weeks and bad weeks. At times it may seem that everyone around you is making money while you lose. At the end of the season, we'll always finish somewhere around the average. Don't let the emotions of the moment get the best of your decisions.

[tsptalk]

Good post bullitt. As volatility picks up, psychology becomes a bigger factor in what happens next. It's a good time to get this old thread churning again. Time to look inside ourselves again.

That's why I like the idea of using a system. Those following ebbnflow right now are sleeping well these days as they don't have to make any decisions. Emotions are out of their picture.

[Bullitt]

Letting your highs get too high on a day like today (DOW 250+) is the perfect setup for emotional meltdown. Emotions must be left at the door in this game because The Market could care less. Take today for what it's worth. We didn't beat the bears for good.

In case anyone is wondering. Today's price action was driven by emotional investors at the first sight of good news. The good news was another buyout, decent retail sales, and MTB reporting good earnings at the open. The retail investors drove prices up because they wanted to get back into the market after selling into end of the world fear two days ago. While the prices began to rise and the shallow pocketed shorts began to see what was happening, they began to cover into strength. All those people who took advice from the guy next to him at the gym that 'the market is going into a recession. it's time to short,' quickly ran to cover their emotional decision. The whole while the big boys were taking profits behind the scenes. As prices continued upward toward key resistance at 1540 at around 14:30, the real buyers stepped up and crushed everyone in their path with their sophisticated technical buying programs driving us on to a new breakout. If you don't think anyone was selling today, take a look at the money outflows for SPY and QQQQ, you'll be surprised. There are broader strokes to every painting.

To those that maybe got hammered today or maybe weren't in the market... Don't worry about it. One day isn't going to make or break you if you stick to your game plan through the long term. TSP for example, is a long term investment.

Develop a game plan to include stop loss and price targets, and always take profits on the way up.

[weatherweenie]

Develop a game plan to include stop loss and price targets, and always take profits on the way up.

After losing BIG in the early 2000s, maybe I'm learning something.

I moved my C fund $$, 60%, into the G fund for Friday. Left 40% in the I 'just in case'.

[Wolverine]

After losing BIG in the early 2000s, maybe I'm learning something.

I moved my C fund $$, 60%, into the G fund for Friday. Left 40% in the I 'just in case'.

In hindsite now...lol.....I kinda shoulda maybe done the same thing. lol

But, went all G for tomorrow though. Always learning and this board is a great school for all this.

[Bullitt]

What a reversal from the bullishness on 7/12/07 compared to today. This is the day that an investor finds out what they are made of. A kind of stress test so to speak. I remember how people not just on this site but in general, were bragging about how they made X amount of dollars in the big market move on 7/12. A day like today reminds one that it doesn't matter in the grand scheme of things if they went 4-4 with 2 homeruns and 5 RBI's in last week's game when they're batting 0-9 the past 2 games 10 runners left on base. Besides, anyone who held on when we went to 14K only gave it all back and then some on a day like today.

With emotional investing comes irrational decisions that will eventually crush the investrader down the road. I know these investors enjoy celebrating their extreme ups, but what about their depression induced lows that emotional trading brings? It's like crashing at 10am every day because the coffee is wearing off.

Tom Glavine is possibly a Hall of Fame pitcher who is currently one win away from the milestone 300 win mark. Along his career, he's distinguished himself as one of the most classiest athletes in all of sports. Whether Tom Glavine wins, loses, pitches a shutout or gets hammered out there, he walks off the mound in the same manner. I wish I knew the secret to how he does it every time.

[mlk_man]

He's a quite man just like our members with the best returns this year are. Except for that Pyriel. I just can't get him to shut up!!!!!!! :cheesy:

[Tempest]

HOT TIP to enjoy the weekend

Don't download and open Rokid's tracker.
:laugh:

[tsptalk]

Tom Glavine is possibly a Hall of Fame pitcher who is currently one win away from the milestone 300 win mark. Along his career, he's distinguished himself as one of the most classiest athletes in all of sports. Whether Tom Glavine wins, loses, pitches a shutout or gets hammered out there, he walks off the mound in the same manner. I wish I knew the secret to how he does it every time.
Win or lose, he gets paid. :D

Kidding - I'm a huge Mets fan. Go Tommy!

[mlk_man]

HOT TIP to enjoy the weekend

Don't download and open Rokid's tracker.
:laugh:

LOL, good one! ;)

[GGal]

Where is Ronald Reagan when we need him....



GGAL

[James48843]

Where is Ronald Reagan when we need him....



GGAL

GGAl, I hate to break this news to you, but Ronald Regan was the President of the United States at the time when the market got hit with the worst decline in history-

It was a Monday. I remember because I lost a lot of money that day.

October 19,. 1987, with Ronald Regan as President, our Dow Jones fell 22.6 percent in one day.

[GGal]

Exactly.

And I think he came on tv or did a press meeting and told everybody, hey, its all your head, if you'll just put your money back in everything will be okay.

And it was.

That's what I meant.

Never assume a woman is stupid just because she is a woman.

GGAL

[offtrack]

And I think he came on tv or did a press meeting and told everybody, hey, its all your head, if you'll just put your money back in everything will be okay.

And it was.


Well as another survivor I can tell you it wasn't quite as simple as that. :laugh: I tend to follow the thought that the economy and markets are somewhat independent of Presidents though.

[GGal]

Amazing. I crack a little joke about Reagan and the 87 crash, and men come out of the woodwork to challenge my knowledge and admonish me for my faulty reasoning.

Why am I not surprised?

GGAL

[mlk_man]

Amazing. I crack a little joke about Reagan and the 87 crash, and men come out of the woodwork to challenge my knowledge and admonish me for my faulty reasoning.

Why am I not surprised?

GGAL


You were fine until you made this little comment. Two men means "coming out of the woodwork"? Also, you say that the market turned around after Reagan's speech but then next thing you say is that your original comment was just a joke. Now we get this little male bashing post.

I wonder who the real ones not surprised are. :rolleyes:

[James48843]

Ok=

Psychology time.

This morning, I looked at the early strength, and thought I saw a good opportunity to catch a bounce in the "I" upward tomorrow.

Then, I saw Tom move OUT of the market today, after I moved INTO the market.

Now, I see this huge force downward moving.

Lots of psychology today.

What are people thinking? Are we at a near panic point for the general public?

Or is this the buying opportunity of the year?

You have to admit, it's a nice 10% decline from the high, and then some, and stocks are "on sale" now.

Where will the bottom be?

12,000 Dow?

10,000 Dow?

[vectorman]

" Lots of psychology today. " I'll say...


Fear...Fear...Fear



1895

[tsptalk]

Ok=

Psychology time.

This morning, I looked at the early strength, and thought I saw a good opportunity to catch a bounce in the "I" upward tomorrow.

Then, I saw Tom move OUT of the market today, after I moved INTO the market.
I moved out in a "sell the rally" move. Unfortunately, by COB we had no rally. We will get a decent rebound soon - but it may be another selling opportunity.

The thing that spooks me most is that the market is not bouncing from extreme oversold conditions. That's new and a concern.

[vectorman]

I moved out in a "sell the rally" move. Unfortunately, by COB we had no rally. We will get a decent rebound soon - but it may be another selling opportunity.

The thing that spooks me most is that the market is not bouncing from extreme oversold conditions. That's new and a concern.

" The thing that spooks me most is that the market is not bouncing from extreme oversold conditions. "

That's when the panic starts to take hold.:worried:

Everyones' rush to keep 4 years worth of profits causes the situation to get worse. And in my mind this all snow balled after Cramer exploded on TV, getting the media to start scaring the heck out of the world. Besides, its the big dogs game, we just hope to hang on to the leftovers.

[tsptalk]

In 1997 we had a 1-day 500 point drop in the Dow - the equivilant of close to a 1000 point drop today. Now that was panic - and the next day's 250 point drop in the morning did mark the bottom of that correction.

Maybe that's what we need.

[Birchtree]

In times of panic I try to remind myself: What's easy to do is almost always the wrong thing to do. And what's hard to do is almost always what makes you money. It has worked for me on and off over many years. In November we'll look back and think....how silly we all were. Some will hold and many will run, only time will be the judge.

[ATCJeff]

Tom wrote.......




The thing that spooks me most is that the market is not bouncing from extreme oversold conditions. That's new and a concern.

This is the only reason I bailed today. We are not seeing the bounces.

[James48843]

The thing that spooks me most is that the market is not bouncing from extreme oversold conditions. That's new and a concern.


I absolutely concur.

Very odd.

I am trying to remember a period of similar behavior- the 10% correction and the accelerating downward thrusts. I am thinking this is more like January 1991. But the financial market is totally different and the outside influences are totally different this time. Which means that what we are seeing COULD be a cascading of letting off steam for the longer term run up, not just a simple 10% sell off before resuming upward. The housing market rules. Look at the parallels between the current state of the housing market, (and the NAHB confidence numbers) now and January 1991. That is a better clue as to what is next.

And it is not pretty.

[Bullitt]

Let us be thankful we have commerce. Buy more. Buy more now. Buy. And be happy. The Shanghai Bull will save you from all evil.

Remember when the Bull arrived at the drunken orgy on Wall Street...
“From the next day, it started to go up,” says Di Modico. “It never stopped.”WSJ LINK (http://blogs.wsj.com/chinarealtime/2010/04/19/shanghai-stampede-a-bull-on-the-bund/?KEYWORDS=shanghai+bull)

http://online.wsj.com/media/BULL_DV_20100419020407.jpg

[Bullitt]

This is what a mania looks like


Why Young People Should Buy Stocks on Margin

You don't have money, so the only way to have more exposure to the market is to employ a little leverage. It may be leverage, but it's not on a lot of money

http://www.time.com/time/business/article/0,8599,1982327,00.html

[Bullitt]

No wonder everybody is happy, it's nearly vertical right now. What ever happened to buy low, sell high? Let me guess- We've still got a long ways to get to match 2007 so right now you're actually buying low.

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