It's All About Psychology
A friend of mine, and would like to be trader, reads my blog regularly and called last evening to complain that I had spent too much time on "that psychology thing" when I should be talking about trading.
After listening to his spiel for a time, I finally had a chance to respond and told him, "If you ever want to learn to be a trader the first thing that you need to know - and never forget - IT IS ALL ABOUT PSYCHOLOGY!"
Obviously, he needed elaboration so I gave him my full basic course on trading - Trading 101:
The market is moved by the mass psychology of all market participants. All the technical indicators in the world are devised in an attempt to predict what that market psychology might do in the near future - based on what it has done in the past. There are no magic indicators that always tell you, with absolute accuracy, what the market is going to do next. But there are technical indicators that reliability indicate to you what the market has done in the past under similar conditions. For the trader that is as good as it gets. So never forget that the market is moved by psychology - and psychology is controlled by human nature and the more you understand about what human nature does in given situations the better you will be at interpreting technical indicators while trading.
A friend of mine, a bestselling author of books about trading, is Dr. Alexander Elder. The "Dr" stands for medical doctor - more specifically - psychiatrist. Professionally, before he became a well known trader and author he was a master of human psychology analysis. Alex once said, "The crowd may be stupid, but they are stronger than you are." It is one of my most memorable quotes from anyone, ever. Hardly a day goes by that I do not remember that quote, because I tend to be a rational thinker and the market is so often irrational - for a time.
So if you want to learn to be a great trader you need to understand as much about human psychology as possible - both of the herd - and of yourself.