Before we take a deep dive into trading in the stock market, it is important we understand the environment and the people in the stock market. Hence, 5th habit of Highly Effective Trader is First Seek to Understand.
In order to be effective in the stock market, we must know how stock market mechanics and the market psychology of the traders and investors. There is a saying, the stock market is filled with none other than greed, hope and fear. We must be able to master and understand how greed, hope and fear affect fellow trader’s buying or selling decision.
No doubt that a stock market is just a mechanical process that faciliate the transaction between willing buyer and willing seller. However, undertanding how the market works is just not enough. The buying and selling are created by human, who has emotion. So, people psychology actually dominates the whole market because it is people that make the final decision to buy or sell.
For example, a popular concept of “Support turns resistance” and “Resistance turns support”, why is that so?
When a market broke the support and head downward, some short player will bet the market going down and they will rush in to buy short. When the market touchs a low and rebound to almost the same price level as the recent peak which is near the support level. People remember this is the favorable price level and they rush in to short by selling again, therefore earlier support now becomes the resistance a level as selling forces build up.
Remember, we must understand how the market mechanics and how the market psychology works together. Doing thing right, it will definitely bring you the reward naturally.
7 Habits of a Highly Effective Trader
- Be Proactive
- Begin with End in Mind
- First Thing First
- Think Win Win
- First Seek to Understand
- Synergize
- Sharpen The Saw
7 Habits of a Highly Effective Trader - First Seek to Understand
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