This episode dives into the minds of traders and discusses market psychology. Matt proposes several unique and interesting analogies that may help demonstrate why market psychology is so important and how traders can help themselves through tough times.
There is a substantial risk of loss in futures trading. Past performance is not indicative of futures results.
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Welcome to Episode 3 of the Optimus Futures Podcast. In this episode our host Matt Zimberg will dive into the minds of traders and discuss market psychology.
Please remember that this matter should be viewed as a solicitation to trade trading futures and options involve substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. Optimus Futures LLC is not affiliated with, nor does it endorse any trading system, methodologies, newsletter or similar service. We urge you to conduct your own due diligence.
Have you been looking for practical advice to take our trading career to the next level. Can’t decide on which platform to trade on fearful of the current state of the market. Look no further. Welcome to the Optimus Futures podcast a place to learn from an industry insider with over 20 years of experience in commodity futures and options gain insight to the newest technology platforms risk management concepts. Trading philosophy and advice about the current state of the market for futures trading platforms deep discount trading commissions overnight margins and instructional videos. Feel free to visit our website at Optimus Futures.com. Now here’s your host independent broker veteran and CEO of Optimus Futures, Matt Zimberg.
Hi guys this is Matt from Optimus Futures, in this podcast I want to talk about market psychology. I would like to have a different angle on this analysis and I’m not here to discuss individual psychology that you might go through while you trade because every person out there has its own individual personality, his own or her’s risk tolerance, capital that they work with, experience and that all affects psychology. But I’m here to discuss something which is common to all traders and it’s the challenge of market psychology when we analyze the markets. So I’m going to deviate just for a minute and use an analysis and then bring you back into the market.
So imagine this imagine that there’s 49 people in a group in Europe outside the group and now I come to you and I ask you. Tell me what this group thinks right now today thing zero or one meaning that this specific group can only think in terms of binary terms only zero or one. And now I’m going to give you input about the groups I’m going to tell you about their age or their personality I’m going to tell you how they make their decisions and everything else and hopefully you could come to the right conclusion to tell me whether they think 0 or 1. Now this would be one challenge second challenge would be to come to you and say OK now that you know about the group I want to know whether they think zero or one every 30 minutes and you have to tell me precisely whether they think zero or one every 30 minutes for let’s say eight hours. So you have 16 decisions to make. Let me make this challenge even more difficult and ask you whether you can tell me how they think every five minutes so every five minutes you have to tell me whether they think 0 or 1. Now I’m going to tell you how it relates to the market. When you sit in front of the monitor you think that the market is a separate entity from you. In fact you’re part of that group. So you’re not really one looking at 49. In fact you’re a total of 50 and you’re within that group trying to figure out how the rest of the group will think you’re part of the market. Now every single participant in that group is trying to do the exact same thing. They try to think how is the rest of the group that I am in, collectively how will they think. Will they think 0 or 1. Now the markets can only go up or down. You can only go long or you can go short or you can do nothing.
But for the purpose of trading you have to make a decision and it’s a binary decision whether to go longer to go short. And this is the difficulty that you’re facing. You’re trying to figure out how a group thinks now this challenge is not only in trading it’s a challenge that we have in politics it’s a challenge we have in analyzing societies and sociology. So the market consists of all that and the reason that I’m telling you this specific challenge is because most of the time we’re wrong predicting group behavior. For example you know a lot of people thought that Brexit will not occur. A lot of people thought that Trump will never be president. And yet over and over again we are faced with the fact that the collectively thinks very differently as us individually. Now how does all this input potentially help you. So for example if you’re a beginner trader it’s very hard to start thinking every five minutes how do group think you have to make less decisions and collect more data. So for example if you were part of that group of 50 and you saying OK now I have to choose to go along short. 0 1 I have to minimize the number of decisions that are make throughout the day and gather as much data as possible. So day traders for example or people who frequently, well if you’re a day trader doesn’t mean that you trade frequently. It just means you’re closing your position for the day. But let’s assume that you do a high level of trading very frequent. And now you basically have to choose 0 or 1 every five minutes. It’s very difficult. So now you know the challenge that you’re facing you’re facing a challenge of figuring out how to grow things every five minutes and now you have to go longer short based on that decision. So beginner traders definitely should reduce their frequency a little bit. Look at the group gather data and then make a decision from there. As you get to know the group a little bit better you will find that only then potentially and I say potentially you could increase the level of trading that you’re at. But that’s the key. The key is to try and gather as much data you have to build the right methodology about the market, understand the participants in it, how they think and to try and eliminate any surprises that you might have.
This is all I have to say for today. I hope this was helpful. I tried to use examples that other people do not use and not use the typical things out there but actually draw them from other example in life and bring it to you so you can think about them consciously. I hope this was helpful. Today’s Friday. So I wish you guys a good weekend and I’ll see you next week with more podcasts. Thank you for listening.
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Please remember that this matter should be viewed as a solicitation to trade trading futures and options involve substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. Optimus Futures LLC is not affiliated with nor does it endorse any trading system methodologies newsletter or similar service. We urge you to conduct your own due diligence.