The Psychology of Trading

Prepared by Lance Breitstein for use in the Undergraduate Investment Club.

 Friend and Foe

Rational
Emotions
Thought
Let’s Play Double or Nothing!
The Rules!

Heads – I WIN

Tails – You WIN

 Flip 1

Tails – You WIN

 Flip 2

Tails – You WIN

 Flip 3

Heads – I WIN
 Flip 4

Heads – I WIN
 Flip 5

Heads – I WIN
 Flip 6

Heads – I WIN
Play Poker!
Ears Closed, Eyes Open
Where Is This Stock Going?
 What The Experts Say…….
William O’Neil David Ryan
• Founder of Investor’s Daily newspaper • 1985-1987 U.S. Investing Champion
• 40% Annual Returns over 10+ Years • 161% Annually Each Time

1. The public loves to buy declining stocks because they are “cheaper”.
Odds are these stocks are cheaper for a reason.
2. The public is afraid to buy stocks they haven’t heard off. The public
sticks to name brands for comfort. These are the most efficient
stocks.
3. The public invests too much too fast, worrying about taxes and
commissions rather than making a net profit.
4. The public loves to listen to tips and rumors rather than buy on their
own research.
5. The public loves to wish and hope a stock will go up, taking large
losses while they wait for their position to breakeven.
 Pre-Trade Checklist
 - Why are you entering this trade? Are these reasons
rational or emotional? Did anyone or the media influence
this trade? Playing with tilt?

 - Is your position size rational? Or are you betting too

much because “this is a sure-fire trade”?

Are you making this trade for the sake of trading? Will this
same opportunity really not be there tomorrow?

When and why do you plan to exit the trade?