Right trading psychology can make you successful in the market with limited knowledge

-Krishna Khatiwada

The experienced stock market specialist always mentions the importance of trading psychology in market. If your trading psychology is fine then you will most probably be successful in the market.

We will discuss trading psychology with an analogy of my daily life.

Few days ago, I was returning home from my office by a local bus. There are always number of vehicles that goes to my residence but unfortunately, I rarely find a vacant seat for myself. I often have to stand all the way, and the conductor doesn't like air occupying unnecessary space inside vehicle. So they request us to go to the back of the bus and occupy a minimum area as possible, creating frictional force among us.

We were trying our best to fit like a single body. The temperature was high and the crowd was making it much more difficult. The route to my residence goes via Pepsi Cola and the driver was complaining about the traffic jam which they get stuck in for almost 2 hours when they were returning to Ratnapark. The reason of the jam was not clear but public inside the vehicle were already anxious by the news. Vehicle turns to new route which I was not familiar to. The vehicle was going through a gravel road and it got stuck in sludge, and tried hard to get out of that. After 5 minutes of vehicle struggle, I went outside to see the condition of road and I found that the whole road was totally full of sludge all the way till the main road.

I was already tired from the work, but the sweltering heat forced me to get out off vehicle. I walked towards the main road while I observed the bus which was trying get out of sludge. So that if it moves then I can get into that. I reached main road and I was pretty sure that I will reach home on my own, but when I observed my surrounding in details then I realized that the place was unfamiliar to me. I didn’t know which way to go but my void confidence said that the place I knew was on my way. I walked there for around 20 minutes then I realized that I was on the wrong route. I was lost, nervous, tired and hungry at that time, and then suddenly I saw a bus which goes via my residence so I followed the direction. I was taking random streets and sometimes I felt that I was lost again and at last I reached my place. I didn’t have proper idea about the routes, which took me to my home.

Now, I will discuss various things that I could have done that day.

After reaching home, I started justifying my decision of walking off by giving evidences but somehow I believed that the one who stays on the vehicle made the right choice.

I was not the only one, who stayed out of vehicle. There were people who encouraged me by their act and the burning heat didn’t allow me to think practically. Without proper knowledge about vehicle past performance on overcoming such type of situation, driver’s expertise on the incident, I got off. When I reached the main road, I noticed some of the familiar vehicles taking new routes from the main road but I didn’t follow their route as I was confident that I could find right track. However, when I was finally lost, I realized that I need to follow a familiar vehicle and when I found a bus that was going to my place, I could have taken that which can comfortably take me to my place but I refused and walked. By exploring my mistakes, I believed that the one who stayed inside the vehicle was the winner.  

Let’s discuss about the psychological level of people inside the vehicle.

I won’t talk about the people who have physical problem on walking or have to cover more distance than me, but will discuss about the people who are in similar situation like me.

People inside the bus had to bear the burning heat. Human nature says that people are more likely to follow the one who took counter-action on that type of situation but the people who decided to stay inside the vehicle have to ignore that, which is very difficult. If one had experienced that type of situation in the past and if he knew the driver’s potential and vehicle's potential, then he could have taken decision very comfortably. For the people who were stuck in that situation for the first time, they have to calm their restless attitude, which is not a common trait among human beings.

The biggest hurdle for the vehicle was the sludge. If it overcomes that, then it will take 10 more minutes to reach my place, which took me 1 hour.

Inexperienced people like me could have thought logically by bearing some emotional pain as these types of incidents is common in Kathmandu valley and the driver who took the vehicle in that road, definitely had some experience and logic behind it. The passenger can move in any other vehicle but  the bus staffs have to wait as long as vehicle stays there. Considering these things, the chances are huge that vehicle will move at any cost.

On that particular incident, I could be right and vehicle could have taken more time than me. However, over the long period of such incidents the one who decides to stay inside the vehicle will be a winner. When I walk, it demands physical tiredness as well as emotional pressure but the one who stays inside will have a huge emotional pressure.

In the stock market same type of situation arises. Inexperienced investors find similar situation frequently and react even on small knowledge they have got. Investors that enter into the market by others influence without any knowledge are more likely to be lost and if they don’t understand which thing to follow, then they will be lost forever. Expectation on deluded logic leads you to trouble and lack of adaptation leads you to the unexpected trouble, which will break your motivation and confidence to enter the market again. By doing all unplanned things, investors will rarely gain any effective experience and reacting on the basis of that experience will make the situation go from bad to worse.

If we were emotionally affected, then the truth will look similar to our expectation. In the market, it is very important to see things as it is, without emotionally manipulating the fact.  

In stock market, experiences gets build by taking required action on practical knowledge. Gaining sound experiences in stock market is difficult because investors react without proper plan. If market is not performing consistently on your logic, then it requires courage to trade with same failed trading plan to confirm that this plan didn’t work out, and these types of act make you experienced. To gain experience, it requires adaptation to change trading plan and observation to upgrade it and most importantly survival in the market by trading in low amount. There is a saying “first learn; then remove “L””.

Another important aspect of market is reacting on information. This sounds very simple but it is very difficult to apply. For example, those whose liver has been damaged by over-drinking, they do know that if they drink further, they might die. But they still drink. It is because our subconscious mind is more powerful than conscious mind.  His conscious mind tries to stop him from drinking but his billions of neurons demand for alcohol, which worsens his health.

In trading, investors have thrilling experience when they enter market. You can observe your own behavior on owing and not-owing state of mind to understand this attitude. When we get into the market we feel thrill, we want that thrill all the time like the addicted one. Even though we have pretty good information that at this time it’s not worth buying/selling the stock but our subconscious demands thrill, which eventually makes us do exactly opposite. So it’s very important to understand our own behavior to be successful in market.

You gain experienced in market, not by the time you spend here but by the time you observe here.