I’ve been involved in trading and investment in financial markets, which in my early years I have invested considerable time and money. I focused on technical analysis by implementing what I read in books, websites and some specialized courses. While all this helped me to have the solid foundation of what would develop later thanks to a record that I became experience, initially I hit the wall many times a bad approach and inappropriate use of technical analysis.
Please note: the technical analysis consists of a series of tools that serve to identify possible trends for investment decision making. However, it is based on a linear approach, but remember that most of the time financial markets are governed by chaos. It is time to recognize that education for these markets mostly gives investors and traders the wrong impression of it focuses on numerical analysis ignoring the psychological factor. The use of linear mathematics such as algorithms, regression techniques, neural networks, etc; it leads in most cases to the mistake.In financial markets chaos is a constant variable!
But let’s face it, the chaos has always existed and has certain repetitive patterns over time. These patterns can be used by investors and traders, so that our goal should be to identify these patterns to have a higher success rate when making investment decisions.
A determining factor: the ego
While technical and fundamental analysis must be taken into account in decisionmaking in global financial markets, the psychological factor is the key factor because the investment markets also has a part that is speculative and emotional.
When we heard some news for media or by someone close almost automatically we elaborate an idea, an opinion. Based on our review we make an investment decision and then expect the market to strengthen our investment decision giving reason. If we manage to confirm that our decision of investment is being accompanied by the market this it will give us earnings in the very short term. But when this is not given, we enter conflict with our decision of investment. In this point it is probable that our ego of wanting to have the reason us clouds our aptitude to take an objective position with regard to our decision of investment.
Our ego will do that often that we find reasons so much fundamental and technical in order that we support our position of investment even going in opposition to the market and as consequence it will make us lose more and more money. The ego begins to take control of the investor with the only end of preserving our autoesteem since it is difficult to us to accept that our analysis to which we dedicate time and experience is not correct, and it will turn small losses in big affecting in high negative percentages our capital of investment.
In another face of the currency, when our decision comes supported by the market and we generate earnings, the ego demonstrates increasing our autoesteem since we take the correct decision of investment. Our ego forces us to close of positions of hurried form because we need to see the earnings capitalized us to demonstrate that we have reason. Ultimately, which we are doing is to cut rapidly the earnings and we do not cut the losses during long times. Undoubtedly, everything what must not be done.
On the other hand, the persons who are not controlled by the ego do not have anything to protect or to demonstrate for what they limit themselves to continuing to the market. On not having had ego that his analysis of the market affects this it does that it is simpler to follow the trends of the same one. To focus to analyzing the market without the present ego, listening what the market wants to report and not to think that our position or analysis of the same one will do that the market behaves as we want is a very important factor to develop a suitable psychology in his investments. Remember that our position of investment will not change the market and we must try to be followers of the market.
It is not easy at all to liberate us of our ego since we have to put time in our education and have discipline. In the personal thing it took me enough time and practice, but ultimately it has helped me in improving to a great extent my rate of success with better profits with regard to my positions of investment.
Michael Venezia, head trader at tradeview markets, discusses some rewarding trend plays citing some specific and interesting examples of how to trade them.
More of Michael Venezia
Graduated from The Marist College School of Business with a Bachelor’s Degree in Finance and a minor in International Marketing. His education was mainly focused on the fundamental and statistical dynamics of the US and International equity market, his passion from the very start.