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What Is Traders Psychology


Part of my Newsletter sent on 09-Sep-2016.

Tip for my paid subscribers: [Hidden from free for all content. This part is sent only to my paid customers.]

Refer my yesterday’s email Looks Like Nifty Has Reached Its Resistance.

Today as of now NSE is at 8,887.10 which is -65.40 or 0.73% below yesterday’s close.

So Was This Some Kind of Technical Analysis Dilip?

This is what most of you must be thinking. I have said this many times and I say this again – I do not even know even “A” of TA (Technical Analysis).

So How I Came To The Conclusion That Nifty May Fall?

This is plain experience. The problem is experience cannot me written in words it comes only through hard work and knowledge. A huge run of almost 10% in 2 months and its clear that somewhere those who are short term traders will start taking out profits and I felt this is a great time to take out profits as psychology wise there is a huge difference between 8900 and 9000.

But there is not much difference between 7900 and 8000 as Nifty was above 8000 for a long time. Traders psychology plays a huge role here. Most of them remembered that Nifty had a great fall from 9000 levels to 7600 levels. So its apparent that crossing 9000 is a bit difficult and it’s obvious that 80% of traders will book their profits once Nifty will reach 8900.

Now see how it worked. 🙂

Was any Technical Knowledge involved? No. Only logic and human psychology and the way they behave made me to reach the conclusion that at least for now resistance has come.

It does not mean that 9500 will never be reached. One day or the other it will be there, but right now that great fall from 9000 to 7600 levels is still fresh in most traders mind. As time passes and new traders join in the mindset will change. These new traders will not remember much the fall from 9000 to 7600 levels and keep buying even at 9000 levels. This is how stock markets work all over the world. It depends more on traders psychology rather than economy of a country.

India has improved a lot in terms of economy and quality of life since the last 2 years still Stock Markets are there in the same place as they were two years ago. Technically isn’t the Stock Markets should have also been at least 5% higher since 2014? No, its just because traders have a role to play here not economists. Stock Markets is a cash exchange business not a real business that gives any service or products. Yes the companies listed here do give either service or products, but stock markets have an indirect role to play, not direct.

So Why Don’t I Trade Nifty Futures With This Knowledge?

After losing my entire savings a few years back I went into a shock. I promised to myself and my wife that if I ever trade I will try to make the least possible profits and will try my best to protect the losses. That’s the reason hedging knowledge attracted me a lot. Most of you look at 10% profit a month not realizing that not a single trader in the world in the history of derivative trading or even equity trading has ever clocked that returns. So if you do it, you will enter into the record books like Warren Buffett has done. All the media persons will make you a star and take your interview everyday and you will be shown in TV channels every day. But remember one month return will not make you a star. It has to be done for at least 10 years. So 120% return or more continuously for 10 years. Do you this its possible? If you think it’s possible go ahead and try but remember that those 95% of traders who lose money trading stock markets are exactly those who are trying to make 10% return a month. Result? They lose money big time. So it’s your call.

That’s the reason since I became a conservative trader I am happy even with 1% return a month. At least I am not losing money I am growing it. You are trying to make 10% a month and lose 5%, and I am trying to make 3% a month and made 1%. Technically who is a better trader?

So How Do You Use This Knowledge Dilip?

Hey there is another way to trade stock markets even more peacefully. Mutual fund trading. Yes you may not have heard about it but if you have knowledge you can even trade mutual funds. Remember there is no expiry there so there is ZERO tension trading them. In fact now my mutual fund portfolio has become bigger than derivative trading portfolio. I still trade options but I am taking mutual fund trading very seriously now. Those who are my old newsletter subscribers may remember that when I met with an accident in April 2016 and was in hospital for 15 days and in bed rest for next 15 days I was not even able to see where Nifty is. In that month I still made almost 2.5% return while lying in hospital. I am sure many aggressive traders may have lost money working from 9 am to 3.30 pm. I was in hospital battling for life and made a better return. This impressed me a lot. From May 2016 I have taken mutual fund trading very seriously. In the last 10 days itself I booked a profit of more than a lakh. And what I did. Nothing I just decided to book the profits that’s all. I logged in my account online and clicked the switch button and switched the money to a liquid fund. How simple is that? That liquid fund too is making 9.7% return a year. What more does a non-greedy conservative trader want? For people like us returns of more than inflation itself is a great return.

Hope in this article you got some idea of how traders psychology effects the movement of stock markets.

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Hi, I am Dilip Shaw, owner of this website. I am a trader like you. I have been trading since 2007, but lost a lot of money till 2010. I then stopped trading and studied options like college exams. Started trading again from 2011 and never looked back since. I did a lot of research, read books and did countless paper-trading before being profitable. You can read about me here.

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FED May Increase Rates Next Week
Looks Like Nifty Has Reached Its Resistance

About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

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