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Readers reviews of The Psychology Of Trading

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Daryl Guppy

This book brings a unique perspective to the psychology of trading. It is written by a psychologist and this is both an advantage and a disadvantage. The psychologists’ world is dominated by the belief that almost everybody should have therapy and this is the lens through which they view the world. Trading problems are an extension of personal problems which would require therapy.

 

This is a valid approach for some traders, and Brett draws on a range of case studies to highlight the connection. He includes many therapy examples which he then relates to either problems other traders   have experienced, or problems that he has experienced himself as a trader.

 

It has become a cliche to say that a trader loses in the market because he is really using the market to reinforce his fathers belief that he is not good enough. Brett avoids the clich? and provides a range of good examples to show how this type of psychological problem can impact on trading performance. This is the psychology of selected traders. The book does not deal with the psychology of trading crowds.

 

I found him more useful when he discusses the psychology of trading. We all have these destructive behaviors. I now resist the temptation to open new trades in the days before I conduct a workshop series. This was a destructive behavior that almost inevitably ended in a  failed trade. Early recognition, not therapy, provided a solution.

 

Intuitively we accept that to some degree we act differently when we plan a trade and again when we manage the trade. Many traders talk of the difference between paper trading and trading with money. This highlights the difference in the way our emotions impact on the execution of our trading plan.  This is part of the psychology of trading, and becoming more aware of these behavioral factors will help traders to develop better responses that reinforce trading discipline.

 

Traders understand this is not a call for therapy but at times Brett is not successful in making this distinction between the process of learning and abnormal behavior.

 

I found the book fell into three main, informal sections. In the first part of the book there is a great deal of useful information about the psychology of trading. In the middle section of the book there is a subtle slide into a focus on the psychological problems of specific traders. Like any collection of case studies, these are revealing and offer some innovative strategies. Readers can use the key points in italics to locate the relevant case study examples when re-reading the book.

 

The third part of the book drifts towards extremes. The case studies selected show more extreme behaviors. They slip towards the cliche versions of the relationship between psychology and trading. I suspect that those traders who exhibit these extreme behaviors are the least likely to read the book. Traders who do not require therapy may end up reading these sections with the same morbid fascination they bring to the detailed autopsy reports of Patricia Cornwell novels.

 

Brett is a firm believer in the relationship between body and mind – or biometrics. Readers interested in exploring these relationships further as applied to trading will find the third section of the book useful. It contains some interesting and challenging ideas, but again I found them towards the extreme edge of trading behavior.

 

This is an interesting book. I found interesting nuggets and ideas spread throughout. The last chapter is particularly good and thought provoking. Experienced traders will find much to ponder. New traders are more likely to dismiss it because they often have yet to appreciate the role psychology plays in our trading success.

 

 

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