Welcome to Safe Option Strategies presentation of:

The Psychology of Trading

Part 1

Better Education Leads to Better Trades

Better Education Leads to Better Trades

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losses you may incur as a result of trading.

The Psychology of Trading - 1

Better Education Leads to Better Trades

DEFINITION of 'Market Psychology'The overall sentiment or feeling that the market is experiencing at any particular time. Greed, fear, expectations and circumstances are all factors that contribute to the group's overall investing mentality or sentiment.

BREAKING DOWN 'Market Psychology'While conventional financial theory describes situations in which all the players in the market behave rationally, not accounting for the emotional aspect of the market can sometimes lead to unexpected outcomes that can't be predicted by simply looking at the fundamentals.

Technical analysts use trends, patterns and other indicators to assess the market's current psychological state in order to predict whether the market is heading in an upward or downward direction.

The Psychology of Trading - 1

Better Education Leads to Better Trades

DEFINITION of 'Investment Philosophy'A set of guiding principles that inform and shape an individual's investment decision-making process. Examples of investment philosophies, or styles, include:

• Value Investing: Seeking relatively undervalued stocks and believing they will eventually produce strong returns.

• Fundamentals Investing: Identifying companies with strong earnings prospects.

• Growth Investing: Buying into companies that have promising emerging products or services that hold promising growth potential.

• Socially-Responsible Investing: Looking for companies that adhere to certain set of moral and/or ethical business standards.

• Technical Investing: Examining past market data to look for hallmark visual patterns in trading activity to make buy and sell decisions.

• Contrarian Investing: Making investment decisions in direct opposition to the market majority (selling when others are buying).

The Psychology of Trading - 1

Better Education Leads to Better Trades

DEFINITION of 'Market Psychology'The overall sentiment or feeling that the market is experiencing at any particular time. Greed, fear, expectations and circumstances are all factors that contribute to the group's overall investing mentality or sentiment.

DEFINITION of 'Investment Philosophy'A set of guiding principles that inform and shape an individual's investment decision-making process.

The Psychology of Trading - 1

Better Education Leads to Better Trades

What Makes a Good Trader Good?

• Control of Emotions

• Discipline

• Systematic Approach

• Mentor

• Profit

The Psychology of Trading - 1

Better Education Leads to Better Trades

Controlling Emotions

• Greed• Get excited about profit, but don’t be unrealistic. • Profit is profit is profit.

• Fear• If a trade is scary to you, don’t get in.• Virtual trade until you have it down.

• Panic• Don’t do it!• Learn from your mistakes.

The Psychology of Trading - 1

Better Education Leads to Better Trades

Discipline

• Once you know what to do, do it!

• Don’t try and get too creative too often.

• Don’t get too attached to a stock or to a trade strategy (collar trades being the one exception.

• Act when it is time to act!

The Psychology of Trading - 1

Better Education Leads to Better Trades

Systematic Approach (Habits)

• Create Habits and Schedules you Know you can Follow.

• Be realistic with the time you can, and want to spend in the markets.

• Tweak your style of trading to what fits your priorities and lifestyle habits.

• Stay consistent, but be flexible.

The Psychology of Trading - 1

Better Education Leads to Better Trades

Mentor

• Follow someone you trust.

• More than one mentor is ok, but be careful of information overload.

• Make sure they can back up what they are telling you.

The Psychology of Trading - 1

Better Education Leads to Better Trades

Profit

• Do not worry about winning and losing percentages.• Only worry about a growing portfolio.

Most Investors Re-Invest Their Returns for Faster Growth

Trade 1 – 11% return $5000 $550 ProfitTrade 2 – 13% return $5550 $722 ProfitTrade 3 – 7% return $6272 $439 ProfitTrade 4 – 2% return $6711 $134 ProfitTrade 5 – 12% return $6845 $821 ProfitTrade 6 – 14% return $7666 $1073 ProfitTrade 7 – 9% return $8739 $786 ProfitTrade 8 – 5% return $9579 $479 ProfitTrade 9 – 12% return $10057 $1206 ProfitTrade 10 – 60% loss $11263 $6758 Loss

Net after 9 of 10 trades work is now -$495 or 10% loss

The Psychology of Trading - 1

Better Education Leads to Better Trades

Profit

• Do not worry about winning and losing percentages.• Only worry about a growing portfolio

Most Investors Re-Invest Their Returns for Faster Growth

Trade 1 – 11% return $5000 $550 ProfitTrade 2 – 13% return $5550 $722 ProfitTrade 3 – 7% return $6272 $439 ProfitTrade 4 – 2% return $6711 $134 ProfitTrade 5 – 12% return $6845 $821 ProfitTrade 6 – 14% return $7666 $1073 ProfitTrade 7 – 9% return $8739 $786 ProfitTrade 8 – 5% return $9579 $479 ProfitTrade 9 – 12% return $10057 $1206 ProfitTrade 10 – 0% loss $11263

Net after 9 of 10 trades work is now 6263 or 125% profit

The Psychology of Trading - 1

Better Education Leads to Better Trades

Summary

Good traders stay disciplined to things they know work. They follow the advice of successful traders they trust. They never let their emotions get too high or too low, but they appropriately celebrate their successes, and learn from their failures.