The film "The Wolf of Wall Street" is based on the true story of the legendary Wall Street figure Jordan Belfort. As a prominent stockbroker, Jordan once made $12 million in just three minutes, and had hundreds of millions of dollars in assets at the age of 31. However, under the temptation of profit and money, he succumbed to the dark side of human nature and ultimately could not escape the punishment of the law. This can be regarded as the most brilliant tragedy, and the human nature issues it exposes make it a classic work, serving as a warning to future generations.
Exposing the Five Trading Psychologies of Different Traders
Whether it is a stockbroker or an investor, the temptation of money is always challenging their moral bottom line, and they must always struggle with the weaknesses of human nature during the trading process. Investors with different trading strategies also have slightly different mental requirements.
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1. Trend Traders
In trend trading, profit-taking is very common. However, many traders are anxious about this, especially for beginners. After experiencing a few rounds of profit-taking, they usually try to predict the highs or lows, which leads to losing their positions in the big trend and missing the rare opportunity to make a profit.
Therefore, trend traders must have the mentality to accept consecutive losses. The biggest taboo in trend trading is to regret the profit-taking during the trade. Patience and persistence are their most important qualities. Even after experiencing consecutive losses, they must be patient and wait for the next trend to come, or accept a long period of capital consolidation.
Trend traders must have the mentality to adhere to trading principles and accept buying high and selling low when necessary. The win rate of trend traders is below 50%, because trends are not common, and most of the time the market is trendless. They make 95% of their profits from 5% of their trades.
2. Mean Traders
Mean trading includes arbitrage trading, hedging trading, and traders who use swing indicators such as KDJ and RSI. They all take orders when the market fluctuates to extreme values or deviates from the mean, and close positions when the market returns to the vicinity of the mean.Mean traders must have a calm mindset. Sometimes a significant loss can offset several profits, such as shorting when the market is overbought, which may result in a large loss due to a significant gap-up in extreme cases, or in arbitrage, the price difference may exceed the maximum historical fluctuation range due to forced warehouse reasons and other factors.
Mean traders have a higher win rate, but they must endure a lower profit-to-loss ratio. Compared with trend traders, mean traders have more flexible time, while trend traders need to have the psychology to wait after experiencing consecutive losses. Mean trading is not about catching the market's top and bottom; they try to grasp the unstable parts of the market. If the trend continues to develop, the assumption of instability is wrong, and they must immediately close their positions and admit their mistakes.
3. Intraday traders
Intraday traders provide sufficient liquidity to the market. The selection of trading varieties is particularly important, as they must have enough liquidity and volatility. There are many intraday trading methods, including pattern trading, momentum trading, programmed trading, high-frequency trading, intraday arbitrage, and intraday hedging.
Intraday trading has flexibility and subjectivity, and it should not be rigidly thought that intraday trading cannot be held overnight. For example, in a bull market, a low opening often leads to a high closing. At this time, buying a successful position, even if held overnight, can also yield substantial profits. Should intraday trading be excessively frequent? It is obviously a matter of circumstances. If there are many opportunities, of course, it is possible under the premise of adhering to discipline. But if your commission rate is not low enough, please give up intraday trading.
A skilled intraday trader has a decisive trading style and a comprehensive ability to detect the overall situation. They usually do not let profits and losses affect their mentality and principles. They know that a good trade does not represent anything, and a bad trade may ruin the entire account or life.
A hesitant trader often turns a loss into a significant loss. Some traders, after experiencing a few losses, violate their trading principles to trade frequently in order to recover, or after making a profit, they stop to protect the fruits of victory, giving up the opportunity for greater profits on the same day. These are all things that need to be broken through in the trading process.
4. Pattern traders
Relying on one's own judgment and experience to trade is called pattern trading, which is completely opposite to programmed trading, which hands over buying and selling signals to the computer. It usually requires a lot of post-market analysis and even references to the fundamentals. Trend-type programmed trading will not miss any major market trends, but pattern traders may miss the market. Therefore, the psychological pressure they bear is far greater than that of programmed traders, so they must have a strong psychological repair ability and need to have enough patience.Morphological trading includes continuous patterns and reversal patterns. The flexibility of trading allows them to use loose capital management to gain profits. For example, in programmed trading, 20% of the funds are used for each single product, and if it is suddenly increased to 40%, it may lead to a system crash. However, morphological traders may take a heavy position to fight under certain specific conditions, such as on a contraction day, profit addition, and so on.
5. Psychological Aspects of Fundamental Trading
Fundamental traders aim to judge the future trend of the financial market, and their analysis of the economy and fundamental data is generally based on long-term investment. Data serves as the biggest basis for analysis here, but it often cannot be used as the final investment decision. This is because fundamental analysis does not have a fixed pattern and can be said to be very subjective. However, in addition to data, there are many things that cannot be measured by data.
Most fundamental analysts focus on buying, because the price of a commodity will not reach zero, but there is no upper limit. The supply and demand relationship of commodities is the foundation of fundamental analysis, because rarity is valuable. Value investment largely relies on fundamental analysis, and traditional value investment completely relies on fundamental analysis. Traditional value investment is generally like a daughter getting married, and it is carried out with the attitude of "committing oneself," advocating long-term holding after buying.
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