I.15. Aspects of trader psychology. Axioms of a stock speculator by Max Gunther.

Having started trading in practice and having made your first trade, you will encounter the previously unknown features of your body’s reaction to the situation in which you found yourself playing for money. This issue is discussed within the framework of the so-called psychology of the trader. A significant number of books are devoted to this issue, the most famous of which is undoubtedly Max Gunther’s book “Axioms of a Stock speculator”. Using the example of stories that have happened to people when making transactions for money from a variety of areas of life, the author brings out a number of interesting observations that significantly help in making decisions for everyone who is faced with money in their life. The description of the axioms given here will not replace all the colorfulness of the description given by M. Gunther, and we strongly recommend that you make this book your first book about trading and listen to its audio version if you don’t have time to read the paper version. Nevertheless, we will present in our editorial some of the ideas of this book here, because we consider them important for your success.

1. Whether you want it or not, but having made a deal, you will always think about it until it is closed. It is ok. The larger the amount, the more you will think about the deal. Learn to experience not anxiety, but pleasant excitement at such moments.

2. When planning to make a deal, choose the level of risk so as to get the maximum benefit with an acceptable loss. Risking all your money, evaluate your decision in advance and carefully analyze what it is based on. If the reasons are good – do not think, urgently put everything. If successful, the result will surprise you.

3. If you plan to use diversification (conducting multiple transactions for small amounts at the same time), prepare for the fact that, most likely, you will end up with an unchanged account, earning at best insignificant interest.

4. Control your greed. Do not try to earn even more if you managed to make a profitable deal. Find the strength to stop and clearly assess the prospects for further participation in the auction. Most likely they have already ended. Remember that the market gives you the opportunity to earn always and you do not need to catch all its movements. Especially a lot of losses come from a lot of your transactions due to commissions for unprofitable transactions. After some time, the cost of commissions is already the predominant loss and eats up all your money. Above, we described the ideal trading model – a minimum of transactions with a maximum of profit.

5. Choosing a risk model, for example, 3:1, close the deal immediately after fulfilling this condition, or use take profit or move the stop loss after the price. This rule alone will give you more money than all the others.

6. If the ship begins to sink, do not pray – jump (edited by M. Gunther). Exit the deal on time.

7. According to probability theory, successful trades alternate with unprofitable ones in an unpredictable way. It’s pointless to look for a formula here. Use a short stop loss (0.2% or less. Less stop loss means less loss), then make trades a predetermined number of times until there is a large successful transaction, which ideally will cover all losses.

8. Don’t try to guess the market movement. Don’t believe the news, don’t believe the visionaries when it comes to your money. Focus on what you see and on strictly following your trading algorithm (more details below).

9. Attempts to describe the market in the language of mathematical formulas led to the 2008 crisis and a huge collapse of the American economy. The models were created by the smartest mathematicians. The mistake was not in the formula, but in the impossibility of selecting the necessary source data for managing models in view of their number approaching infinity. The market cannot be described mathematically. You cannot trust your money to trade with a robot or a neural network. The decision to close the deal should be yours.

10. The market never repeats itself. Use historical data only as a simulator.

11. Do not make a deal blindly, at random, in the hope that you will be lucky. Proceed to action only after a thorough analysis of the current market situation.

12. Avoid commitment to a particular tool. Look for the instrument most suitable for your risk conditions before each transaction. This condition is very important for beginners. Don’t get used to the tool, don’t take revenge on it. Choose another one that is more attractive for the current situation.

13. Use intuition. Check the intuitive idea with market data before starting a trade.

14. God the Creator has given man everything necessary to be God. But God is not interested in money and your dealings with it at all.

15. Do not try to link the behavior of the market with the behavior of celestial bodies. Perhaps sometimes it may seem that there is a connection. But only sometimes and only to show up.

16. Avoid optimism and pessimism when working with money. Just evaluate the current market situation and enter when the opportunity arises to take profit.

17. Most people make mistakes more often. Do not focus on the media, believe only the current market situation. Sometimes it is more profitable to do the opposite of conventional wisdom.

18. If the transaction did not bring profit immediately, either flip the position or exit this instrument altogether.

19. Do not use averaging if the trade remains unprofitable all the time. Close or flip the position/part of the position.

20. Avoid long-term planning, as periods of crises are shortened. 21. Don’t be afraid of the short, but use it correctly. For the most part, people want to put money into growth and this is quite understandable. Before the disruption of the balance of the economic system on the planet, any enterprise could only bring income. After the introduction of paper money, the situation became poorly predictable. The appearance of paper money has created strong imbalances and financial holes in the world economy, which has led to the enrichment of parasitic countries that produce the issue of their money, not tied to the commodity mass, violating the laws of Karl Marx, and sucking money out of the working countries. This became possible due to the elimination of state control over the activities of banks and the subordination of state structures to global banking syndicates. The population was given to them to be torn to pieces, absolutely unprotected from usury. As a result, this has led to the fact that no company can now show growing or at least stable profits all the time, because processes such as inflation, constant price hikes for basic goods, currencies, unpredictable interest rates on loans, inept actions of Central Banks do not allow companies to plan their activities and create a lot of unnecessary risks. Stock markets have become very volatile, sometimes not even allowing you to enter into a deal, which is completely abnormal. In order to benefit from such markets, it is inevitably necessary to perform short operations from time to time. In fact, short is no different from Long, but it causes panic fear in most people. Apply the basic principles described above and use stops to manage a short trade as easily as a long one. In addition, short trades have a number of valuable advantages, which we will discuss below.

Leave a Reply