Stock Market Psychology

Stock market psychology is tricky… and can make a fool out of you if you’re not sure what to look for. I wish I knew then what I know now. Am I right? Newer traders certainly have a lot to learn. I’m not referring to technicals, theories, strategies, or even cold hard facts… but the psychological trading. The stock market psychology behind the game, referring to the personal battle with one’s own mind and emotions. While knowledge of how markets work is certainly valuable in itself, the ability to control your emotions and other mental aspects of trading is far more valuable.

Below are a few key points every trader should (mentally) come to grips with… points that I wish I understood from the beginning.

Real Pro Traders Don’t Live Flashy Lifestyles

Did the “trader” with the sweet ride catch your eye? That’s the idea. Let me guess… he offers a service that promises to help you turn pennies into riches. He sparked your interest, because after all if he can afford a car like that, his service must be authentic. I guess the cost of that rental car was worth it…

Boats, cars, girls, private jets, fancy hotel suites, stacks of cash, and mansions are just some examples used as a method of marketing toward the naive part-time trader to create the facade which is the “lifestyle” of a successful professional stock trader. Acting like Kanye and what not. Unfortunately, this isn’t reality… but simply a clever method of marketing. The “dream” that is advertised by stock picking services is a joke. Don’t get swindled.

Though a select few of these services are legitimately attempting to help their subscribers, sadly numerous services are simply feeding you ideas for a paycheck, and likely not even trading those ideas themselves. I would advise you to research such services in depth before committing to a monthly subscription. Are they flashy as hell, like mentioned above? What have they shown you to convince you they know what they’re talking about? Are they trusted by others? Positive reputation? Are they humble?

stock market psychology - Gates and ZuckerbergThe reality is that most of these flashy services make more money from subscriptions of clients and sales on their all of their products than they do with their own trading. These subscription service owners can literally rent this “lifestyle” (while marketing it to potential clients) as a result of the income created by the services they offer. Anything from a rental vacation home to exotic rental cars, they paint the picture of “Trade with us and you can live like this too!” But without you, the majority of these services would be out of business… quick.

The photo of these two is food for thought. It’s a photo of Facebook Founder & CEO, Mark Zuckerberg and Microsoft Founder and Technology Advisor, Bill Gates, which went viral with the caption “$138 Billion in one photo, and not a Gucci belt in sight.” The photo and caption spoke volumes. You will generally find that authentic traders are similar in this regard. Though most are not billionaires, they are humble, as they have been humbled numerous times by the market… and know to keep their ego in check. They are cautious rather than careless, and tend to lend help to other traders. Quite the contradiction from the flashy “expert” that drives a Lambo, plays with stacks of cash at his computer desk, and charges steep for their comical trading “lessons.”

The Odds are Stacked Heavily Against You

The human mind is a miraculous machine. So is stock market psychology. There are extremely brilliant people in this world, some of which are engaged in the same financial game as you are. The global stock market cap is currently upwards of $69 trillion. That’s a lot of money at stake and endless resources that are put into research to trade. Essentially, it’s David vs. Goliath, traders vs. the market.

stock market psychology - Stacked against you

You – Swing by the mall over the weekend and walk into a Nike store. You see a lot of people paying full price for shoes, clothes, headbands, etc. Nothing is on sale or clearance. It hits you… this store is packed, and it looks as though Nike sales are strong. After searching for a few minutes on your phone you find the “$NKE” ticker, talk to the store manager about sales volumes, and consider an investment in the company into the upcoming earnings announcement based on this recent strength the store has seen.

Hedge Funds – Plays golf with the founder and holds regular calls with the Chief Financial Officer. The staff they employ (specifically for research) calls Nike stores around the country, in addition to their suppliers, and pulls nationwide data to evaluate how the numbers really line up. They determine that margins are being contracted despite strong sales growth and make the decision to sell the stock heading into its next earnings call.

Which is more informed? Which do you think will be profitable?

You can’t outsmart the market, no matter your methods. There will always be someone out there that knows more than you.

Taking Tips from “Smarter” People is an Awful Idea

Stock market “experts” are everywhere. Even the most experienced traders can find it hard to pass up a great stock tip, especially if the “expert” they are obtaining it from has access to some “behind the scenes” information that no one else knows about.

stock market psychology - Crap marketing<—– Facade: Ads like this one for penny stocks are designed to sucker you in to buy a product or service. Sure… take $1000 and become a multi-million. Common sense should tell you that if it were that easy, the 90% of traders that are unsuccessful would be a much smaller figure. These “tips” are nothing but junk and will leave your wallet and trading account bleeding red.

Reality: If someone had a strategy that could return the sort of gains these ads would have you believe, they’d be crazy rich and would have no need to sell stock picks, products or services. Makes you think of the old saying: “If it looks to good to be true, it probably is.”

This also includes Wall Street analysts. A huge part of this stock market psychology facade is “professional” analysts. Completely ignore analyst buy/sell recommendations. No one knows what the market is going to do tomorrow, next week, a month from now, or a year from now. Evidence of this is found everywhere. The analyst on TV says to sell everything, and the market moves higher every day for a month. There are many “expert” analysts on TV that claim to know the market backwards and forwards. Some speak with such confidence and poise, yet none of them are sure of themselves. At best, it’s just an “educated guess” from someone who is portrayed as “knowledgeable” about the market.

No matter how smart they are, the odds are always stacked against you. Always pursue trade recommendations with extreme skepticism. Trust your own opinion over any other.

See the Trades for Yourself

stock market psychology - Useless eyesThis goes hand-in-hand with taking tips from people who are “smarter.” You will see this quite often. Naive traders look to “experts” to predict the next big move. “Where do you see $XYZ going?” In many cases, this is simply the blind leading the blind. The naive trader has no knowledge of what’s taking place or what they are seeing, just following a “seasoned” trader who exclaims about how much this stock is gonna move in the next few days. “Big news coming” or “get in before it pops.” *Shaking my head*

But why? What news (news schmooze)? Can you see the trade for yourself? Have you defined risk? What makes you believe this stock will move as you predict? Where do you place your stop loss? What are your target areas?

You need to visualize each trade on your own. Forget the “promises” of what big things are to come, or the “Press Release that is due any day now.” Chart out the setup. Often, these big news moves are already woven into the chart.

Your money. Your trades. If you don’t see it, don’t trade it.

A Single Trade Can Make or Break Your Whole Year

Until you go through this first hand, it may be difficult to comprehend. You can spend all year seeing small wins and losses, and one day decide to break your rules, and take a serious loss as a result… wiping out your year of small gains and progress.

Related reading: Recovering From a Sizable Loss

The opposite can also be true. You could make a great call, follow your rules to a “T,” and sell an epic winner that represents the majority of your gains for the entire year. Don’t ever underestimate the impact that a single trading decision can have on your account, and your overall progress.

Confirmation Bias + Your Emotions = Your Worst Enemy

Stock market psychology will play games with your head. Trading is a game of mental ability. The mind is a beautiful thing, but it can throw a serious wrench into your trading plan if you let it. Investopedia defines ‘Confirmation Bias’ as so:

“A psychological phenomenon that explains why people tend to seek out information that confirms their existing opinions and overlook or ignore information that refutes their beliefs. Confirmation bias occurs when people filter out potentially useful facts and opinions that don’t coincide with their preconceived notions. It affects perceptions and decision making in all aspects of our lives and can cause us to make less-than-optimal choices. Seeking out people and publications with different opinions than our own can help us overcome confirmation bias and make better-informed decisions.”

stock market psychology - confirmation bias

In other words… you expect a substantial move in $XYZ ticker to the upside. All bullish information and news is received with a smile, while all bearish is pushed aside in favor of your bias. A steep drop occurs in price (from bad news that puts gas on the fire), yet you tell yourself “it’ll bounce back.” You are so set in your bias that negative information and even a significant drop in price still hasn’t detoured you. You are “married to the trade.”

This is why Twitter, Stocktwits, Tradingview, Trade Ideas and other trading communities can be extremely beneficial, as they allow you to seek out people and publications with different opinions that can help in overcoming confirmation bias.

Trading is 90% mental. Those who succeed learn to manage emotion, risk and “noise” from outside sources. “Noise” can be found on many levels. From television, newspapers, radio, twitter feeds, even within your closest inner circle of fellow traders. Tune out the crap, and focus on your trading.

Forget the Bulls vs. Bears Mantra

“Bulls” expect the market to move upward, while “bears” tend to be “doomsday traders” who always expect the next big crash to be today or tomorrow. You don’t have to choose sides. In fact, you’d be wise to be open to both sides of a trade at any given time. Labeling yourself as a “Bull” or a “Bear” immediately establishes bias, contributing to confirmation bias, as mentioned above. Instead, try to approach each idea or chart with a neutral outlook. Let it speak to you. Put all other information aside and simply observe the chart. What do you see?

The entire bull/bear stock market psychology is overrated. Money is always made on both sides of a trade. Timing is the key, not your bias. Try to focus on strong setups, and good trading… regardless of long or short. Don’t focus on the money, focus on the trade. Consistent profitable trading is the result of passion, self discipline, and a willingness to recognize and conquer your own mental faults. As you begin to focus less of your mental energy on how badly you want to make money from trading and more on the actual process of mastering your stock market psychology, you’ll find that making money in the market becomes much easier.

With that being said, even some of the best traders have slumps, or periods where profits are hard to come by. Enduring these times can be difficult. However, recognizing the difference between the “slump” days and the “on fire” days, and adjusting your sizing accordingly will make or break you as a trader. Sometimes you’re in the zone, and sometimes you’re not.

Other Sidenotes / Tips

If trade using a desktop computer, get a quality wired USB mouse (laptops have the backup finger pads). The worst feeling is having batteries in a wireless mouse die at pivotal moments. Could be huge.

Consider adding an additional screen (or 5). One screen just doesn’t do it these days for active traders. Especially if you daytrade, monitoring, scanning, charting, ordering all on one screen is nuts. Once you see the benefit of additional screens, you’ll want more. Careful not to overdo it. No reason your office should look like Time Square.

Contact your broker. Attempt to bargain with them. Especially if you do a decent amount of trading, and have an account of any real value, you have leverage to work with. In many cases, commission rates can be negotiated. It’s certainly worth a shot. Worst case scenario is a “no.”


For novice traders just getting started, trading shouldn’t be about getting rich quick, but instead be a continual quest for knowledge. Learn as much about stock market psychology as you can. Experience it first-hand with valuable screen time. Don’t focus so much on making money, but rather focus on trading well. Where there is good psychological trading, good gains will follow. Develop a winning strategy and trading system that benefits you… and see the trades for yourself. The mind is a powerful tool, but must be kept under control.

Lastly, enjoy what you do. If trading isn’t a love of yours, perhaps consider moving on to something different. Steve Jobs said it best, “The only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle.”

Hope the above information is helpful to you, and I wish you the best in your endeavors.

Stock Market Psychology

3 thoughts on “Stock Market Psychology

  • February 23, 2017 at 10:45 pm

    nice article…I would add learn point and figure bullish percents and read every single WD Gann book you can find..then ask questions

    • February 23, 2017 at 10:46 pm

      and watch relative performance

  • December 6, 2017 at 11:44 am

    Thanks for the article!!!!


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