Page 5 - Module 2_The_Human_Element

Module 2 -Lesson 1 – the human element

Goal not only is the area
representing
achievements much
smaller than the circle The following is extracts from the book “The
representing Psychology of Technical Analysis” written by
‘expectations’, but it also Tony Plummer
lies partly outside of that To counteract the problems of fear and stress, it is necessary to
circle. adopt both an attitude and a lifestyle, which are conducive to
regular trading.
There is an old proverb,
which says: if you aim at First, a trader must be quite clear about his or her objectives, or
nothing, that’s exactly goals, when making a commitment to trade markets regularly.
what you will hit! The Second, the trader must be able to sustain the effort necessary
implication is that it is vital to maintain that commitment.
to aim at something
specific. And third, the trader must have a suitable method for achieving
the pre-determined objectives. These three requirements may be
There is, however, very referred to collectively by the mnemonic gem. Namely, goals,
little general effort, method.
understanding about how
this should be done. The
most effective way of
establishing objectives is known as goal-setting which will be introduced in the next lesson.

2. the psychology behind fear & greed

Psychology is one of the basic components of technical analysis along with mathematics and
geometry. Psychology is a subject that best helps us understand human nature and emotions. It
helps us to know why people feel, think and act the way they do. One of the main reason why
technical analysis works is that human nature and emotions remain the same irrespective of era one
is in. People were greedy and fearful even a hundred years back as much as they are now.

Trading psychology is as important as other attributes such as knowledge, experience and skill in
determining trading success. While trading emotions often clouds our decision-making. And it is very
difficult to conquer our inherent emotional biases.

But we can understand the range of emotions we may experience as a trader and how it affects our
interaction with the stock markets. Greed, fear, hope, euphoria, panic among others are the range
of emotional biases that every trader comes across while trading. To be successful trader we need
to keep these emotions in check.

When talking about psychology, there are two words that are often thrown out in the open. Fear and
Greed!

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