Lecture seven, trading psychology Part One man, as we know him today has been on this planet for circa 35,000 years. But when we compare this to the primitive years before this period, you can see that modern man only represents a tiny fraction, almost one 150 of the total period. And, as a consequence, our brains haven't yet developed to fully cope with the modern world. Now, if you consider man's evolution, and the development of his brain, you will understand why we still function in a primitive way, as quite simply, our brains haven't had the time to catch up and develop The homosapien man has only been on the planet for Sir 35,000 years. However, when you consider a primitive man who has been around for 5 million years, you will see why our brains are still heavily influenced by this extensive period of time. This is important because it does have a profound effect upon your trading.

Well, to be blunt, we still behave like cavemen because a fair proportion of our behaviors today are influenced by 5 million years of conditioning. So we're now entering the psychology side to trade in. And this is where the rubber hits the road. They say you can give a winning system to a trader with poor psychology, and he will lose money. But if you give a mediocre system to a professional trader, he can still make money from it. Why is that?

Well, the biggest difference is down to their psychological state. A bird Actually function like three individual brains or working together. And they describe this as the triune brain. However, each part is responsible for their own unique functions, that the other two parts play no role. At times, you will find yourself doing things you shouldn't. And as soon as you do it, you then kick yourself because you realize that this is completely the wrong thing to do.

It is difficult to break a bad habit, because this is your basic, caveman instinct at play, which takes place in the core part of your brain known as the reptilian brain. The middle part is called the limbic system, and that covers your emotions, while the neocortex, the outer part is responsible for your thoughts. So let's have a look at how that plays out in your trading. So for example, you went too long here. Right where the blue arrow is, at the break of structure above the high of the red candle in the middle. Because you think that this is a breakout and price should continue rising.

And then price does this, it starts to fall. So what do you do? You panic, thinking that this is a false breakout and you close the trade at a loss. And then price does this. How does this make you feel? annoyed, I'm guessing, because you should have stayed in the trade.

So what do you do? You really want to go long and get into the party again. But this time, you are a little more cautious. Once bitten twice, sigh so you wait for confirmation and see what happens to the next candle. In this instance, it's another green bullish candle. So you went along again.

Phew. You're in profit. bullish candle. So you close the trade with a small profit, recovering your earlier losses. So you're now at breakeven you're feeling much better thinking that it was the right thing to do. As you now see a doji candle.

So you think to yourself, good job I close the trade it plays to be cautious as this is a reversal candle, so we must be at the top. So you enter again, but this time you go short expecting price to fall only for price to make a strong break higher and stop you out again at another loss. So you change your mind again and jump straight in entering long again with a tight stop hoping to recover this previous loss. They would actually call this or evade each trade. But what happens you're stopped out for third time and this is not uncommon. And if these were one minute candles, you could have suffered three losses in 10 minutes.

Plus the fact that you probably knew that you should have walked away at breakeven after the second trade. Now, I'm not going to lie to you and say this has hasn't happened to me in the past. Because, you know, when I first started out, it did. Psychologically, trading like this can rip you apart. So how do we prevent it? But we'll look at these things in the next lecture.

And what we'll do is analyze the psychological aspect in the next lecture to show you exactly what's going on in your mind.