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Trading Psychology: Bulls, Bears, Sheep And Pigs

There are four types of animals trading the market:

 

  • Bulls
  • Bears
  • Sheep
  • Pigs

 

Bulls and bears make money – Sheep and Pigs get slaughtered.

 

Bulls:

Like a bull who fights with his horns up, bulls are bullish, they believe markets are going up and look for triggers to trade in that direction.  

 

Bears:

Bears fight by pushing their paws down and in the market are bearish.  Bears believe markets are going down and look for triggers to sell or short the market.

 

Sheep:

Like many traders, sheep are scared.  It is far easier to follow the heard (other traders or “experts”) so that when they are wrong, they have someone else to blame.  It is often easier to blame the expert on the TV than it is to blame ourselves.

 

Following news and opinions while trading often leads to a false perception that markets will rise or fall, and we start trading what we think and not what we see.

 

Some interesting facts about sheep:

 

  • Sheep are timid animals who tend to graze in flocks and are almost totally lacking in protection from predators.
  • Sheep will run from what scares them, and band together is large groups for protection.
  • Sheep are followers. It is this strong flocking instinct that allows one person to look after so many sheep.  When one sheep moves the rest will follow, even if it does not seem like a good idea. The flocking and following instinct of sheep is so strong that it caused the death of over 400 sheep in 2006 in eastern Turkey.  The sheep plunged to their death after one of the sheep tried to cross a 15-meter-deep ravine, and the rest of the flock followed.

 

I do not watch news, however, I am aware of big news event such as NFP or FOMC and choose not to trade during those times.

 

Pigs:

Like some trader’s pigs are greedy – there is never enough or have a fear of not having enough. When we have a good run in the market, our immediate thinking is to increase our positions sizes and ignore good money management principles. In my experience it is on the next trade where the market humbles us.

 

Some interesting facts about pigs:

 

  • A pig can eat a human in 8 minutes.
  • You need at least sixteen pigs to finish the job in one sitting.  They will go through a body that weighs 200 pounds in about eight minutes.  That means that a single pig can consume two pounds of uncooked flesh every minute.  Hence the expression, “as greedy as a pig”.

 

Whether you are fine with this or not, Pigs do eat their own poop.

 

We, as traders, cannot control the market, it will do what it wants. As traders we need trade in the direction of the trend (bull or bear) and reduce fear and greed by having trusted strategies and a good money management plan.  

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