Technical & Psychological Aspects of Trading

Connecting the Technical and Psychological Aspects of Trading

How does a trader integrate the technical & psychological aspects of trading?

In our weekly Deep Practice program, traders come together to actively learn and practice trading the markets.  Often, we will look at a specific market principle in some depth.  We did that in Thursday’s Deep Practice.  We looked at comparative strength and weakness among related markets and how the hourly telegraphs specific market ‘tells’ in advance of the next intraday move.  It’s a part of understanding how to use multiple time frames in the Wyckoff Method.

One of the market tells occurred the next morning.

The Next Day: The Technical and Psychological Aspects of Trading

Shortly after the US open on Friday, the S&Ps (ES) started to fall.  The Nasdaq 100 (NQ) also fell, but the Dow 30 (YM) did not.

The Dow was saying that the leading blue-chip stocks were not going down.  If leading stocks weren’t going down, it wouldn’t be long before the market would want to turn up.  This it did.

There is a psychological principle working here called “non-confirmation.”  Typically, we seek to confirm what we already know.  For example, when the market is falling, we tend look to validate our judgement by finding other aspects that support our judgement.  We might say to ourselves, “the heavy volume to the downside indicates selling is dominate.  Let’s find a short opportunity.”

But heavy volume can also mean stopping volume, and the trader needs to know the difference.  In this case, the non-confirmation to the downside by the Dow helps the astute trader know that this was likely stopping volume and not the continuation of the down move.  Astute traders understand our susceptibility to want to rush and confirm what is initially seen; they take a step back to connect the technical with the psychological to make better trading decisions.

George Soros has said that the ability to develop and employ non-confirmation skills is not only very rare among traders and investors, but can be very profitable.  In Deep Practice, we work to integrate the psychological with the technical for deeper understanding of the markets, for better understanding of ourselves as traders, and for our better trading.