The Science Behind Investment Decisions

Since the beginning of the stock market, financial sector researchers have worked to understand the factors that influence how people make decisions. According to classical financial theory, investors act rationally, which sustains market efficiency. However, this clearly doesn’t describe human behavior in practice – people frequently make irrational decisions that aren’t predicted under this theory. As a consequence, financial markets fluctuate widely.

This phenomenon has led economists to turn to behavioural science to help them understand how financial markets function in reality. Eventually, a new field emerged that combines conventional financial theory with cognitive psychology: behavioural economics.

Behavioural economics has helped to show that economic theory on its own cannot explain human behaviour, as behavioural economics is able to explain both rational and irrational decision-making. It also set the stage for the advent of neuroeconomics as an...

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How to Approach Trading Like a Business

insight psychology Sep 06, 2017

1.   Start thinking of your trading like a business.

Even though trading is not a typical business, it is important to remember that it still is one – so if you want to become a successful professional trader, your first step should be to treat your trading like a business. If you neglect to develop a structured business plan that accounts for your costs, it will be hard to develop a strategy for a long-lasting career in trading.

Running your trading business properly can help to simplify key business decisions. If your revenue is higher than your costs, your business will be profitable – and if you lose more money than you make, you will be running at a loss and risk going out of business unless you correct the situation. So it’s important to plan ahead by assessing your costs, managing your risks, and developing a trading strategy that enables you to consistently run a profitable trading business.

2.   Take stock of your business costs.

...

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How You Can Transform Anxiety Into Trader Growth

insight psychology Sep 01, 2017

If you’re struggling to continue growing as a trader or simply don’t feel like you’re achieving everything you’re capable of, understanding some lessons from psychology could help you to make a change. Making use of a simple psychological technique can lead you to take advantage of your full potential. With the right mindset, you can transform the anxiety that’s been holding you back into a key source of growth, in everything from your trading career to your personal life.

The first step is to figure out exactly what it is that makes you nervous, uneasy, or uncomfortable. A good way to do this is to identify the situations that you tend to avoid. Because anxiety causes psychological pain, your mind will naturally try to keep you from experiencing it. Think about it – the easiest route for you to take is usually one that doesn’t make you feel nervous, stressed, or uneasy at all.

Now let’s consider this in terms of trading psychology....

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How Long Will it Take to Become a Profitable Trader?

The number one question traders have when they’re starting out is “how long will it take for me to become a profitable trader?” It’s not at all surprising that this is the first thing novice traders want to know about; after all, trading has the potential to be an incredibly lucrative career, and that was probably a factor in choosing this path. The problem with this way of thinking, though, is that it doesn’t really address how to achieve the goal of becoming profitable.

When starting out, the number one question should be more along the lines of how to amass the knowledge and training needed to be successful in this field. Instead of focusing solely on the goal, it should be the journey that they are thinking about.

Here are the questions that should be asked by new traders:

 

“What can I do as a trader to become profitable?”

Before jumping straight into how long it will take to make profit, it’s much more sensible to think...

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Trade Your Fear For Profits

insight psychology Mar 15, 2017

Hey it's Natascha, co-founder of Trader Prophets.

Today, I want to share with you some of the struggles our traders face and how we have worked with them to overcome these.

I'll also share with you some tips, tricks, tools and insights that have helped our traders enhance their trading performance to go on and then achieve consistent results.

Having worked with some of the world's best traders and investors for many years now my team and I have had the privilege of working closely with over 10,000 traders across the globe, with traders at various levels and from all different walks of life.

This has given me great insight into what a traders journey entails and the problems all traders encounter when trying to reach their financial goals.

 

The Problem

 

Two key questions I get asked the most are:

  1. How do I stay consistent in my trading performance?
  2. How do I prevent my emotions from affecting my trading performance?

To help us answer these we first have to look at the...

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Learn The 4Point Trading System™ To Pick High Profit Trades In Any Market

Are you struggling to pick the right trades? Can't seem to get any consistency in results? Then the 4Point Trading System™ can help!

Discover how you can approach the markets in a consistent way every day and on every trade. Not only will this help you to think 'top down' but you'll absorb more information from the market to build your intuition - something the greats like George Soros and Warrren Buffett rely on. 

 

Why is the 4Point Trading Sytem™ important?

In trading having a PLAN/SYSTEM/METHODOLOGY is hugely important. Without it, forget about achieving consistent results - you just won't. That's because you need consistency when you trade to allow probabilities to work in your favour. Think about it. The market can be quite random. The only part of trading you have control over is what you trade, how you trade and why you trade. 

Turning up everyday and trading the same way not only helps build consistency in results and good habits. It also helps to...

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A Trader's Lesson From Usain Bolt & Steve Jobs

insight psychology Dec 15, 2016

The World Athletics is a phenomenal event; watching athletes who train for four years for that one moment of glory is just astonishing. It is Elite Performance at the very highest level. However, every trader needs to perform at this level on a daily basis. So the question is how do we achieve this? Is it an innate ability? Is it a developed skill?

Some interesting psychology work of Sandra Scarr, was reviewed by Brett Steenberger, a trader and clinical psychologist. What she found was that genotypes shape phenotypes; people with inborn characteristics seek out particular kinds of environments which cultivate those characteristics. Thus, brighter people seek out brighter peers to stimulate their intellectual growth. The less brighter people never seek out such environments so tend to lag behind their more gifted peers. 

As with traders, we see young traders who pick up markets and technical information a little quicker. These individuals tend to get snapped up by asset...

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4 Questions To Ask To Find The Root Of Your Trading Problems

It’s a well-known fact that before a physician can begin to treat an illness or ailment, a diagnosis must occur. It’s the same process with engineers dealing with machinery, or mechanics working with cars: if you don’t know what the problem is then you can’t begin to fix it.

The same analogy can be applied to traders, and therefore trading problems. Time and time again traders facing problems will try various solutions without really stopping to assess what problem they’re trying to solve. Even worse, unlike doctors, engineers or mechanics, trading mentors will jump straight to the treatment without pausing for diagnosis.

This post will help anyone facing trading problems to identify what is going wrong, by asking a series of diagnostic questions.

 

QUESTION #1 Do I actually have a problem?

You probably think that’s a weird question to be asking when you’re experiencing a drawdown and you’re becoming frustrated. But, even if this...

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The 3D's For Success: Drive, Determination & Direction

insight psychology Aug 15, 2016

We believe there is one simple way to get ahead in life... use 3D - Drive, Determination and Direction. All feed from each other and need to be all used together. All too often we see people trying to change their lives, they have the right direction but simply just do not have the drive or determination to see their goals through. Similarly, we've seen people with so much drive and determination but no clear direction which just amounts to wasted effort.

Many of our students progress from student to a PAYE job to self-employment and to setting up a business. In almost all cases no one fully utilises the 3D model, probably because they had never heard of it until now! In a 9-5 job you have the drive and determination to succeed but lack the direction as most people aren't passionate about what they do and the direction can also be out of there control. Many students have found that after making the sacrifice of leaving their 'comfort zone' to progress as an independent trader they...

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A Trader's Cognitive Theory & Frustration

insight psychology Jul 02, 2016

Cognitive theory implies that we do no react to events but react to the thinking of those events. For example, when a trader is overcome with frustration, it is not their losses, but their thinking of those losses that generate knee jerk reactions and result in self-criticism and overtrading.

It is a common human reaction to to feel that losing is a sign of weakness; that losing makes you a loser. Therefore, as a trader this may typically lead to us holding onto losing positions, changing our trading strategy and rules or overtrading to make our money back. Ironically, it is these reactions that increase the trader's likelihood of financial losses.

A cognitive approach to overcoming this is to find ways of thinking that make losses non-threatening. One way to do this is to embrace losses and learn from them. By analysing our losses we can turn them into an opportunity to learn. This learning, growing and development approach helps with our self-improvement.

All of our students are...

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