How To Develop A Trading Brain

"Tradingpsychologie," is a book on trading psychology that was published in Germany in 2012 and was received with great enthusiasm. Many readers and reviewers commented that it was the best book on the subject that they had ever read or that it was the first which was of any real use.

The book's author, Norman Welz, is a psychologist and journalist who developed a keen interest in the stock market and the associated psychology. His specialty is trading psychology, a subject on which he has not only extensive experience but also some unique insights. Among other things, he trains traders to develop their brains in the right direction.

Welz stresses that what differentiates both his work and his book from the vast literature in the field is the emphasis on applied trading psychology. It is common knowledge that traders need discipline, but accepting this idea is simply not enough to enable investors to operate in the appropriate manner.

The essence of the problem is that most people like and need security in all its forms, but "trading is the most insecure business you can be in," Welz says. He argues that no other profession creates so many and such intense emotions and reflects so much of our personalities. He goes so far as to state that stock market activities personify money: "we don't just trade assets and money, we become the money," according to Welz.

To trade effectively, the right mindset is essential. Yet, nothing is harder than divorcing ourselves from the multitude of factors that have created our mindsets in the first place and that dictate how our brains function. We are influenced by parents, family, friends, the environment, society, the media, books and more. By the time we start trading, all of these influences tend to fix trading patterns that are often dysfunctional or suboptimal. Trying to change these patterns is somewhere between difficult and frightening.

It Is Truly All in the Mind
In order to understand Welz's approach, it is necessary to understand the pervasive role of psychology and the brain. While the notion that psychology is vital to the stock market is nothing new, Welz believes that trading is literally 100% psychology. Without a psyche, we could never evaluate financial risk or recognize trends. "No brain, no stock market trading," says Welz. Mental strength is thus absolutely fundamental to trading success. Furthermore, about 95% of our actions are subconscious, and we tend to replicate our behaviors over and over again. All too often, this replication means repeating the wrong or even disastrous courses of action.

To support this contention, Welz refers to a study in which 120 traders were given a system that had proved its intrinsic value statistically in 19 of the last 20 years. After a test year, it was evident that 119 of these traders failed with the system because their mental tendencies led them astray. All but one trader had the wrong mental processes. "Success comes from the head," Welz says. The system was good, but the attitudes and psychology with which the traders applied that system were not.

Why Do Traders Neglect Psychology?
Most traders are men, who tend to think that psychology is not what really matters. They think that what matters, rather, are simplistic notions of being coldly rational, well informed and experienced. According to Welz, however, rationality, information and experience don't help if the brain is not appropriately programmed and tuned. So what can we do to get our minds and subconscious to act appropriately?

Welz's Approach
Norman Welz works on the brains of traders through the subconscious and hypnosis. Trainees are put into a trusting mood and the necessary competences are anchored in subconscious regions of the brain. If this process sounds a bit weird, consider this: For many years, Welz has helped people overcome their fears and blockages, enabling them to win sporting championships and even to secure an Olympic victory. Furthermore, he has helped traders to earn money through activating the right mental energy, motivation and, thus, behavior. He stresses that each person has unique mental bridges and barriers that need to be crossed or overcome in order to ensure success.

"Trading discipline" comes from modifying one's behavior in a desired direction and overcoming the mental resistance and fear that generally get in the way. Particularly in the context of trading, Welz believes that "there are armies of resistance." The trading brain in fact entails an integration of the right investment and market knowledge with the right mental capabilities. It is not that the usual skills are unimportant, it is just that they usually get overridden by the wrong mental and behavioral patterns.

Effective trading thus involves personality modification. According to Welz, "people who are not willing to attempt this should not even bother with trading." Those who concentrate only on the so-called logical aspects of charts and trends, including all those patterns like "flags, triangles and channels or stops and trading ranges," will ultimately flounder on the myriad of emotions that inevitably come into play and even dominate the markets.

The above, explains Welz, is "the ultra-short version" of his theory, but indeed the essence of the matter. Furthermore, he believes that anyone can become a trader and overcome his or her fears. Provided that people are not clinically ill, they can resolve those fundamental anxieties if they are truly willing to work on themselves. In addition, they need a good sense of and grip on reality if success is to result. Of course, financial knowledge and skills, information and research all still play key roles.

However, it is hard work getting there. Welz believes that people shouldn't think they can "start with a mini-account and live from their earnings as a professional trader within six months." It takes time and dedication. Welz believes that if this weren't the case, the roads would be full of Ferraris and Porsches.

The Bottom Line
The fundamental role of trader psychology tends to be underestimated and too much emphasis placed on the technical side. While both are essential, it is arguably the right mindset that differentiates successful from unsuccessful traders. However, learning the technical aspects of trading is more straightforward than acquiring a top-notch trading brain. The latter generally entails working intensely on one's own personality traits and eradicating entrenched behavioral patterns. This process is not easy and requires dedication, time, and often, the aid of a skilled coach. Nevertheless, the results are very likely to reap dividends.



More From Investopedia

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • Italy second quarter GDP likely to be revised up - Treasury source Reuters - 4 minutes 32 seconds ago

    ROME (Reuters) - Italian second quarter gross domestic product data is likely to be revised up to show some quarter-on-quarter growth instead of the flat preliminary reading issued earlier this month, ... … More »

  • Two European energy analysts leave Societe Generale Reuters - 6 minutes ago

    LONDON (Reuters) - Two Paris-based analysts covering European natural gas, power, coal and carbon markets at Societe Generale said they are leaving the French investment bank. Thierry Bros, senior analyst ... … More »

  • Oil falls as dollar rallies again; storm fears limit downside
    Oil falls as dollar rallies again; storm fears limit downside Reuters - 7 minutes ago

    Oil prices fell for a second day in a row on Tuesday as the dollar rose on stronger U.S. economic data, but the downside was limited by production suspensions in the U.S. Gulf due to an expected tropical storm. U.S. West Texas Intermediate (WTI) … More »

  • Putin to visit Japan in December
    Putin to visit Japan in December AFP News - 17 minutes ago

    President Vladimir Putin will visit Japan in December as Moscow and Tokyo strive to ease old tensions over four disputed islands, the Kremlin said Tuesday. Tokyo-Moscow relations are hamstrung by a row dating back to the end of World War II when … More »

  • Grain lower, livestock mixed Associated Press - 31 minutes ago

    Grain futures were lower Tuesonday in early trading on the Chicago Board of Trade. Wheat for Sept. delivery was 1.50 cents higher at $3.7220 a bushel; Sept. corn was 2 cents lower at $3.0960 bushel; Sept. ... … More »

  • Berkeley could be dumped from FTSE 100 as Brexit bites Reuters - 39 minutes ago

    British housebuilder Berkeley Group could be kicked out of the top UK equity index following a sharp drop in its stock price on concerns about the pace of economic growth in Britain after it voted to leave the European Union. Berkeley shares have … More »

  • US stocks are mostly lower as investors wait for jobs report
    US stocks are mostly lower as investors wait for jobs report Associated Press - 44 minutes ago

    U.S. stocks were slightly lower in early trading Tuesday in what looks to be another quiet day as the summer comes to an end. Hershey plunged after the company walked away from a merger proposal, and Apple ... … More »

  • EU hits Apple with 13 billion euro Irish tax demand
    EU hits Apple with 13 billion euro Irish tax demand Reuters - 50 minutes ago

    BRUSSELS/DUBLIN (Reuters) - The European Commission ordered Apple Inc. to pay Ireland unpaid taxes of up to 13 billion euros ($14.5 billion) on Tuesday as it ruled the firm had received illegal state aid. Apple and Dublin said the U.S. company's … More »

  • Oil prices rise on U.S. weather fears, OPEC speculation
    Oil prices rise on U.S. weather fears, OPEC speculation Reuters - 52 minutes ago

    Oil futures rose on Tuesday supported by production suspensions in the U.S. Gulf due to an expected tropical storm and speculation that producers meeting in Algeria next month will act to prop up prices. Brent crude futures were trading at $49.58 … More »

  • Gold slips as focus shifts to U.S. payrolls data
    Gold slips as focus shifts to U.S. payrolls data Reuters - 54 minutes ago

    Gold fell on Tuesday after Federal Reserve officials sounded a hawkish note on interest rates, boosting the dollar, while attention turned to U.S. payrolls data this week for further clues on the pace of rate hikes. Fed Chair Janet Yellen said on … More »

  • Wall Street flat as investors look for clues on rates
    Wall Street flat as investors look for clues on rates Reuters - 1 hour 3 minutes ago

    Federal Reserve Chair Janet Yellen painted a rosy picture of the U.S. economy at an economic symposium on Friday and said the case for a rate hike was strengthening, but gave little indication on when the central bank could move. Fed Vice Chairman … More »

  • VW reviews supplier strategy after dispute hits production
    VW reviews supplier strategy after dispute hits production Reuters - 1 hour 7 minutes ago

    Volkswagen Chief Executive Matthias Mueller has vowed to review the German car giant's procurement strategy to avoid any repetition of the crippling supplier dispute that hit production at six plants this month. Disputes like this one, resolved by … More »

  • Volkswagen reviews supplier strategy after dispute hits production
    Volkswagen reviews supplier strategy after dispute hits production Reuters - 1 hour 10 minutes ago

    Volkswagen Chief Executive Matthias Mueller has vowed to review the German car giant's procurement strategy to avoid any repetition of the crippling supplier dispute that hit production at six plants this month. Disputes like this one, resolved by … More »

  • Markets Right Now: A mixed open for stocks on Wall Street Associated Press - 1 hour 19 minutes ago

    The latest on developments in global financial markets (all times local): 9:35 a.m. Stocks are wavering between small gains and losses in early trading as a summer slowdown continues on Wall Street. Hershey ... … More »

  • France's Macron expected to resign in step towards presidency run
    France's Macron expected to resign in step towards presidency run Reuters - 1 hour 24 minutes ago

    France's Economy Minister Emmanuel Macron will resign on Tuesday, sources close to him said, clearing the way for a presidential bid by one of the country's most popular politicians. A run by the man polls say is the most-liked minister in Francois … More »

  • Bank Rakyat appoints one of board members as acting chairman New Straits Times - 1 hour 42 minutes ago

    KUALA LUMPUR: Bank Rakyat’s board of directors, at its special meeting, has appointed one of its members as Acting Chairman. In a statement today, Bank Rakyat said, the appointment was made after getting an approval from Minister of Domestic Trade, … More »

  • Uganda grants 8 oil production licenses to Total, Tullow Associated Press - 1 hour 43 minutes ago

    Uganda's government on Tuesday issued eight oil production licenses to two foreign companies, moving the East African country closer to becoming a producer of crude. Five of the licenses were granted to ... … More »

  • China's big banks set for hard slog as margins shrink
    China's big banks set for hard slog as margins shrink Reuters - 1 hour 49 minutes ago

    SHANGHAI/BEIJING (Reuters) - Four of China's so-called 'Big Five' state-owned banks have warned that profits will continue to be pressured in the second half of the year, as slowing growth in the world's second-biggest economy hits borrowers and … More »

  • France urges halt to EU-U.S. trade talks
    France urges halt to EU-U.S. trade talks Reuters - 1 hour 54 minutes ago

    Trade talks between the European Union and the United States should be halted and a new set started, France's trade minister said on Tuesday, adding his voice to calls from within Germany for an end to the negotiations. Three years of talks on a … More »

  • Mitsubishi says overstated mileage for more vehicle models
    Mitsubishi says overstated mileage for more vehicle models Reuters - 2 hours 1 minute ago

    Mitsubishi Motors Corp said on Tuesday more of its vehicle models were involved in a mileage cheating scandal than initially stated, and that it would temporarily stop domestic sales of affected vehicles and compensate owners. Earlier in the day, … More »

  • Oil rebound slightly after sharp losses AFP - 2 hours 5 minutes ago

    Oil prices rose Tuesday, a day after sliding on the strong dollar, but fears over the supply glut kept gains in check before a key producers' meeting next month. The market had tumbled Monday after Federal ... … More »

  • Slowing German inflation puts pressure on ECB
    Slowing German inflation puts pressure on ECB Reuters - 2 hours 16 minutes ago

    German annual inflation slowed unexpectedly in August, preliminary data showed on Tuesday, suggesting price pressures in Europe's largest economy remain weak despite the European Central Bank's ultra-loose monetary policy. The euro zone has … More »

  • Fed bets boost dollar, EU tax bill bites Apple Reuters - 2 hours 21 minutes ago

    U.S. interest rate rise expectations pushed the dollar up for a seventh time in eight days on Tuesday, while Wall Street dealers braced for a bruising session for Apple after it was hit by a record $14.5 billion European tax bill. The dollar … More »

  • Iowa at center of debate over 'shadow insurance' deals
    Iowa at center of debate over 'shadow insurance' deals Associated Press - 2 hours 34 minutes ago

    For cash-strapped life insurance companies, the deal sounds almost too good to be true: A state law allows them to create complex financial instruments to transfer liabilities to new subsidiaries, instantly ... … More »

  • Irish finance minister says EU Apple tax ruling bizarre, political Reuters - 2 hours 36 minutes ago

    DUBLIN (Reuters) - An order by European Union antitrust regulators for Apple (AAPL.O) to pay up to 13 billion euros ($14.5 billion) in taxes is a bizarre exercise in politics, Ireland's finance minister ... … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.123-0.001-0.81%
    N21.SI
    0.3550.0000.00%
    E5H.SI
    0.235-0.005-2.08%
    5ME.SI
    0.725-0.010-1.36%
    G13.SI
    0.315+0.005+1.61%
    5OT.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.55+0.12+27.91%
    BJZ.SI
    0.45+0.09+25.00%
    BFK.SI
    0.46+0.06+15.00%
    M05.SI
    0.23+0.03+12.20%
    BTJ.SI
    0.525+0.055+11.70%
    BQD.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.13-0.02-13.33%
    5TI.SI
    0.20-0.03-13.04%
    AWI.SI
    0.176-0.024-12.00%
    A04.SI
    0.166-0.022-11.70%
    AWS.SI
    0.155-0.020-11.43%
    5WD.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3642+0.0049+0.36%
    USDSGD=X
    1.5207+0.0001+0.01%
    EURSGD=X
    1.7859+0.0044+0.25%
    GBPSGD=X
    75.3590+0.442+0.59%
    SGDJPY=X
    5.6849-0.0175-0.31%
    SGDHKD=X
    2.9704-0.0049-0.16%
    SGDMYR=X
    9,733.8350-18.6689-0.19%
    SGDIDR=X
    4.8930-0.0213-0.43%
    SGDCNY=X
    1.0248-0.0051-0.50%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,321.40-5.70-0.43%
    GCZ16.CMX
    18.64-0.13-0.71%
    SIU16.CMX
    95.28-1.65-1.71%
    ^XAU
    2.06-0.01-0.51%
    HGU16.CMX
    46.27-0.71-1.51%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.170.00
    ^FVX
    1.560.00
    ^TNX
    2.220.00
    ^TYX