- Every trader will do different chart analyses of the same chart.
- Two different traders will see the same charts from different points of view even though they are given the same chart pattern to trade.
- This happens because of the psychology of a trader.
- One main fact about the stock market is that at every moment one is buying the stock and the other one is selling the stock, and both will think that they are right.
- Now, irrespective of the same trading knowledge, trading experience, and skills, why do traders see the chart differently?
- There are several reasons behind the same.
Traders get emotionally attached to their position
- This is the most common reason behind this fact.
- Many of the traders will get emotionally attached at the moment when they enter the position.
- This will happen because when the traders put more money at stake, then the fear of losing the money will arise.
- As a result, they will get more emotional.
- When you risk more than what you cannot afford to lose, then you will automatically want that particular trade to become profitable.
- But when the trade goes against your view, it will also become difficult to book the loss.
- So, when 2 traders are looking at the same chart but are having an opposite point of view, then the trader who has risked more tends to panic or commit more mistakes than the trader who is trading with the correct position sizing.
- So, the main point in this is when you are trading with heavy quantities, you tend to get more emotional.
- When you will get emotional, you will start reacting on every candle on the chart, and because of this fear, you may end up closing your trade.
- By doing this, you may be at a small profit or a break-even, but it is not at all good for your trading mindset, which will also lead to more mistakes.
- On the other hand, the trader who has the correct position sizing can hold his trade, and he may also be at good profits.
- Thus, it is also essential to trade with correct position sizing.
A trader with a position and without a position
- When you are in a position, you will start to look at the charts differently as compared to the trader who has no position.
- Even if you are following risk management and other things, you are going to be slightly influenced by the mere fact that you have been risking your hard-earned money.
- Thus, we can say that trading is a very tough business.
- When you are trading in a demo account, you are probably going to get more profits as compared to trading in a real account.
- The main key to becoming a profitable trader is to understand that money is just a by-product of your own actions.
- If you are focusing on the right things, such as psychology, risk management, trading systems, etc., you will automatically make real money.
- So, from today, you should start looking at the charts as if you have a position in the market even though you have no position in the market.
Recency bias will play an important role when it comes to the psychology of a trader
- Recency bias is a psychological state where traders will give more importance to the recent trades but will neglect older but important pieces of the information.
- Two traders observing the same charts can have a different opinion due to recency bias.
- So, it is absolutely possible that one trader may have seen the same situation and lost money and another trader may have gained money.
- As human beings, our minds and thought processes will give more importance to recent events.
- Recency bias can be both advantageous and disadvantageous.
- With this, even if you keep on entering the pullbacks in a certain trend, then you will make money.
- However, when the trend reverses and the market starts to move sideways, you are likely going to get chopped up if you will not analyze the price action and conclude that conditions are changing.
Overconfidence is an important factor because of which two different traders can see the same charts from a different point of view
- Traders can become attached to the chart or their initial view on the charts due to many of the reasons.
- We will understand this with the help of an example. Consider a trader who has studied and analyzed a certain chart or market very deeply, and by doing this, he has made an initial view.
- Now, when he sits in front of his trading desk, he thinks that he has spent so many hours studying the markets, so his view can never be wrong.
- When the market goes in his favour, he will start to look at the news and other videos to support his view.
- But actually, this is an egoistic approach.
- You will become overly attached to your position because you are unable to accept the fact that your view has gone wrong.
- This problem will occur because of over-analyzing the market.
- You should be able to accept the fact that your view can also go wrong irrespective of how thoroughly you can analyze the market.
- When this happens, you should just quickly get out of your position without any sort of ego; otherwise, you will have to pay a big amount for committing this mistake.
Charts flooded with indicators
- This is another reason why traders have different opinions about the same charts.
- Indicators are present to merely simplify the process, but many of the traders are using a lot of indicators that will ultimately complicate the process.
- A trader with a clean chart without any indicators or a limited number of indicators generally has a clear option and a more accurate one too.
- So, it is also beneficial to trade with just a limited number of indicators.
Different trading styles
- Different trading styles will suit different traders.
- For example, one trader can be a scalper and will want to trade small reversals in uptrending markets because he has previously made money by doing this.
- At the same time, another trader will want to trade in the direction of the trend because he had previously made money by following the same.
- Now the main question here is, whose approach is correct?
- So, the answer is neither of the approaches is specifically right or wrong.
- There can be different types through which you can trade.
- However, it is always safe to go with the trend rather than just going the same.
- The key point here is that two traders can see the same chart with different mindsets because of their trading style and other factors as discussed above.
Conclusion
Every chart analysis can be different, and it is also possible that two traders can see the same chart from a different point of view.
Frequently Asked Questions
Q1) What is the psychology of a trader chart?
It is the ability to quickly find patterns and key levels on a chart.
Q2) Is trading 90% psychology?
A professional trader knows that in the stock market, trading is just for 10%, and the remaining 90% is just psychology.
Q3) Which is the best chart for trading?
Line and bar charts are the best charts for trading.
Q4) Which chart pattern is most powerful?
The head and shoulders chart pattern is the most powerful.
Q5) Which chart is best for technical analysis?
A column chart is the best for technical analysis.
About Us
Nifty Trading Academy is our academy where we teach you about the stock market as well as technical analysis. We also provide live trading sessions and upload blogs for the same.