By M. William Scheier, a futures trader and analyst in the E-mini Index contracts*
Posted: November 14, 2008
No matter how clever your trade entries are, successful trading is mostly a mental game. This treatise on trade psychology is appearing in a series of installments (and modified for use on this site) and has been excerpted from chapters of the book Pivots, Patterns and Self Recognition. The excerpts appear here by permission of the publisher, valhallafutures.com .
This is the eighth installment in this series, whose purpose is to examine the internal decision environment the trader faces within his mind. On the assumption that a better understanding of the mental conflicts we face will improve our trading results, the three modes of conflict are personified in separate "voices" inside of us. These are the Trader, the Accountant and the Analyst.
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Volume’s Influence
When futures prices are moving, the amount of pressure being applied to the move is certainly worthwhile information for the trader to know. In futures trading, that pressure is volume, the number of contracts traded during a specific period, and is directly related to the psychology of the marketplace.
The key question is this: How many contracts are traders willing to push in the direction of the price? In other words, how much confidence – or how much fear – do they have in what prices are doing? If they have strong convictions, a logical move would be for them to back up their belief by trading more heavily.
