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...
  • Hammond says Brexit deal should not harm economy - Telegraph
    Hammond says Brexit deal should not harm economy - Telegraph Reuters - 15 minutes ago

    LONDON (Reuters) - British controls on immigration following the country's referendum decision to leave the European Union must not be damaging for the economy, Finance Minister Philip Hammond was quoted ... … More »

  • Trump vs Miss Universe: White House race hits new low
    Trump vs Miss Universe: White House race hits new low AFP News - 36 minutes ago

    Donald Trump urged voters on Friday to check out the supposed "sex tape" of a former Miss Universe backing his rival Hillary Clinton, provoking the Democrat to label him "unhinged" in a surreal new turn to the White House race. In a pre-dawn … More »

  • IMF leader cites 'historic milestone' for China Associated Press - 36 minutes ago

    Christine Lagarde, the managing director of the International Monetary Fund, is calling the inclusion of China's renminbi as the fifth currency in an elite group of the world's reserve currencies an "important ... … More »

  • Data storage provider Nutanix soars in market debut
    Data storage provider Nutanix soars in market debut Reuters - 38 minutes ago

    After getting strong encouragement from investors, the company kept nudging up the asking price for shares from the $11 to $13 range set early last week, co-founder and Chief Executive Officer Dheeraj Pandey said in an interview on Friday. … More »

  • Municipal-bond week in review: Yields sag then finish strong Associated Press - 40 minutes ago

    Yields on municipal and Treasury bonds sagged this week on concerns about the health of Germany's largest bank, before retracing their steps on Friday. The 10-year yield on the AP Municipal Bond index ... … More »

  • Investigators question engineer in deadly train crash
    Investigators question engineer in deadly train crash Associated Press - 49 minutes ago

    Federal investigators trying to figure out the cause of the deadly rail crash at the Hoboken station questioned the engineer Friday and hoped to lift clues from the train's black box recorders, though ... … More »

  • The Latest: NTSB says probe into train crash is progressing
    The Latest: NTSB says probe into train crash is progressing Associated Press - 4 minutes 29 seconds ago

    The Latest on a commuter train that crashed into a station in New Jersey, killing one person and injuring more than 100 others (all times local): 5:30 p.m. Federal investigators say the probe into a train ... … More »

  • Nutanix exceeds expectations in upsized IPO Reuters - 1 hour 13 minutes ago

    San Jose, California-based Nutanix's share price exceeds the $13.40 value last placed on its shares in a 2014 funding round, an upgrade encouraging for the many unprofitable technology companies that, like Nutanix, have been weary of testing public … More »

  • US stocks rally on Deutsche Bank deal AFP - 1 hour 16 minutes ago

    US stocks rose strongly Friday as financial shares surged on news that Deutsche Bank was near a settlement with US regulators over its sale of toxic mortgage bonds before the financial crisis. US-traded ... … More »

  • How the Dow Jones industrial average fared on Friday Associated Press - 1 hour 19 minutes ago

    U.S. stocks climbed Friday as banks made a rapid recovery following a steep fall a day ago. Investors hoped Deutsche Bank and the financial system in general were in better shape than they had feared. ... … More »

  • Global stocks jump, euro edges up as Deutsche Bank rebounds
    Global stocks jump, euro edges up as Deutsche Bank rebounds Reuters - 1 hour 33 minutes ago

    By Richard Leong NEW YORK (Reuters) - Stock prices across major markets rose on Friday, while the euro stabilized as Deutsche Bank's shares recovered from record lows on a report it is close to a deal ... … More »

  • Dutch summon Russian ambassador over MH17 comments
    Dutch summon Russian ambassador over MH17 comments AFP News - 1 hour 33 minutes ago

    Dutch Foreign Minister Bert Koenders has summoned Russia's ambassador over "unacceptable" comments by Moscow criticising a report into the downing of flight MH17, officials said on Friday. "Responding to the presentation of the initial findings... … More »

  • Oil up second straight month on OPEC-fuelled rally
    Oil up second straight month on OPEC-fuelled rally Reuters - 1 hour 34 minutes ago

    Oil prices settled mixed on Friday while posting their second straight monthly gain on OPEC's planned output cuts, even as scepticism about the cartel's pledge grew after data suggested another record high in its production. Brent crude settled up … More »

  • Stocks jump, euro edges up as Deutsche Bank rebounds
    Stocks jump, euro edges up as Deutsche Bank rebounds Reuters - 1 hour 36 minutes ago

    By Richard Leong NEW YORK (Reuters) - Stock prices across major markets rose on Friday, while the euro stabilized as Deutsche Bank's shares recovered from record lows on a report it is close to a deal ... … More »

  • Oil rises in New York, buoyed by OPEC cheer
    Oil rises in New York, buoyed by OPEC cheer AFP News - 1 hour 47 minutes ago

    Oil prices finished higher in New York on Friday, two days after producing countries reached the consensus needed for a production cut. On the New York Mercantile Exchange, a barrel of West Texas Intermediate for November delivery gained 41 cents … More »

  • US stocks rally as Deutsche Bank surges AFP - 1 hour 52 minutes ago

    US stocks rose strongly Friday on news that Deutsche Bank was close to a settlement with US regulators over its sale of toxic mortgage bonds before the financial crisis. US shares of Deutsche surged 14.1 ... … More »

  • Markets Right Now: Bank stocks lead a rebound on Wall Street Associated Press - 1 hour 54 minutes ago

    The latest on developments in global financial markets (all times local): 4:00 p.m. Stocks are closing higher on Wall Street, led by big gains in bank stocks. Financial stocks were bouncing back Friday ... … More »

  • Grain higher, livestock lower Associated Press - 2 hours 5 minutes ago

    Grain futures were lower Friday on the Chicago Board of Trade. Wheat for Dec. rose 3 cents at $4.02 a bushel; Dec. corn advanced 7.50 cents to 3.3675 a bushel; Dec. oats was up 2.25 cents at $1.7825 a ... … More »

  • Chinese yuan set to join IMF's elite currency basket
    Chinese yuan set to join IMF's elite currency basket AFP News - 2 hours 22 minutes ago

    China's yuan is poised to enter the International Monetary Fund's elite SDR basket of currencies, elevating Beijing's banknotes into a family long exclusive to global reserve assets. A symbolic coup for policymakers in Beijing, the move represents … More »

  • Canada's Fiera buys Charlemagne Capital, eyes more deals Reuters - 2 hours 30 minutes ago

    Canadian asset manager Fiera Capital (FSZ.TO) announced it has bought London-based Charlemagne Capital (CHAR.L) for 40.7 million pounds ($52.8 million) and said it is in talks with several other targets. The Montreal-based firm wants to have C$200 … More »

  • IMF sets new SDR currency amounts to reflect Chinese yuan entry
    IMF sets new SDR currency amounts to reflect Chinese yuan entry Reuters - 2 hours 39 minutes ago

    The International Monetary Fund said on Friday it set new relative amounts of the currencies in its Special Drawing Rights currency basket, reflecting the entry of China's yuan for the first time on Saturday. The IMF said each SDR, the Fund's unit … More »

  • Colorado gives marijuana candy a new look to avoid confusion
    Colorado gives marijuana candy a new look to avoid confusion Associated Press - 3 hours ago

    Wondering if that brownie contains pot? Colorado has you covered. A requirement that edible marijuana products come with a diamond-shaped stamp and the letters T-H-C — not just on the packaging but on ... … More »

  • Lagarde Urges China to Deepen Reforms as Yuan Joins Elite Group Bloomberg - 4 hours ago

    “The renminbi’s inclusion reflects the progress made in reforming China’s monetary, foreign exchange, and financial systems, and acknowledges the advances made in liberalizing and improving the infrastructure of its financial markets,” Lagarde said … More »

  • Q&A: Will Deutsche Bank become the next Lehman?
    Q&A: Will Deutsche Bank become the next Lehman? Associated Press - 4 hours ago

    Germany's biggest bank is looking shaky and some investors fear it could collapse and endanger the wider financial system. Some even wonder whether it might become the next Lehman Brothers, the U.S. bank ... … More »

  • Here’s how dramatic BlackBerry’s fall has actually been
    Here’s how dramatic BlackBerry’s fall has actually been Business Insider - 4 hours ago

    BlackBerry is done making phones. The Canadian telecoms … Continued The post Here’s how dramatic BlackBerry’s fall has actually been appeared first on Business Insider. … 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
    0.152-0.008-5.00%
    N21.SI
    0.12+0.01+12.15%
    40F.SI
    0.115+0.003+2.68%
    40E.SI
    0.113+0.007+6.60%
    43E.SI
    3.97-0.05-1.24%
    Z74.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.186+0.025+15.53%
    AWS.SI
    0.12+0.01+12.15%
    40F.SI
    0.164+0.016+10.81%
    40N.SI
    1.35+0.11+8.43%
    U19.SI
    0.475+0.035+7.95%
    NC2.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.36-0.24-40.00%
    AWG.SI
    0.20-0.06-23.08%
    AWI.SI
    0.27-0.03-11.48%
    BQO.SI
    0.30-0.03-9.09%
    5VP.SI
    0.265-0.025-8.62%
    BKA.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3618-0.0022-0.16%
    USDSGD=X
    1.5296-0.0004-0.03%
    EURSGD=X
    1.7640-0.0041-0.23%
    GBPSGD=X
    74.1220+0.051+0.07%
    SGDJPY=X
    5.6879+0.0039+0.07%
    SGDHKD=X
    3.0355+0.0126+0.42%
    SGDMYR=X
    9,608.6318+65.9189+0.69%
    SGDIDR=X
    4.8930+0.006+0.12%
    SGDCNY=X
    1.0424+0.0015+0.14%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,318.80-7.20-0.54%
    GCZ16.CMX
    19.25+0.06+0.30%
    SIZ16.CMX
    94.00-1.01-1.06%
    ^XAU
    2.21+0.02+1.07%
    HGZ16.CMX
    43.85+0.41+0.94%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.16+0.04
    ^FVX
    1.61+0.05
    ^TNX
    2.34+0.06
    ^TYX