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Thought For A Day
10 Ten Reasons Traders Lose Their Discipline
Losing discipline is not a trading problem; it is the common result of a number of trading-related problems. Here are the most common sources of loss of discipline, culled from my work with traders:
10) Environmental distractions and boredom cause a lack of focus;
9) Fatigue and mental overload create a loss of concentration;
8) Overconfidence follows a string of successes;
7) Unwillingness to accept losses, leading to alterations of trade plans after the trade has gone into the red;
6) Loss of confidence in one’s trading plan/strategy because it has not been adequately tested and battle-tested;
5) Personality traits that lead to impulsivity and low frustration tolerance in stressful situations;
4) Situational performance pressures, such as trading slumps and increased personal expenses, that change how traders trade (putting P/L ahead of making good trades);
3) Trading positions that are excessive for the account size, created exaggerated P/L swings and emotional reactions;
2) Not having a clearly defined trading plan/strategy in the first place;
1) Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality.
The 14 Stages Of Trading Psychology
1. OPTIMISM – It all starts with a hunch or a positive outlook leading us to buy a stock.
2. EXCITEMENT – Things start moving our way and we get giddy inside. We start to anticipate and hope that a possible success story is in the making.
3. THRILL – The market continues to be favorable and we just can’t help but start to feel a little “Smart.” At this point we have complete confidence in our trading system.
4. EUPHORIA – This marks the point of maximum financial risk but also maximum financial gain. Our investments turn into quick and easy profits, so we begin to ignore the basic concept of risk. We now start trading anything that we can get our hands on to make a buck.
5. ANXIETY – Oh no – it’s turning around! The markets start to show their first signs of taking your “hard earned” gains back. But having never seen this happen, we still remain ultra greedy and think the long-term trend is higher.
6. DENIAL – The markets don’t turn as quickly as we had hoped. There must be something wrong we think to ourselves. Our “long-term” view now shortens to a near-term hope of an improvement.
7. FEAR – Reality sets in that we are not as smart as we once thought. Instead of being confident in our trading we become confused. At this point we should get out with a small profit and move on but we don’t for some stupid reason.
8. DESPERATION – All gains have been lost at this point. We had our chance to profit and missed it. Not knowing how to act, we attempt to do anything that will bring our positions back into the black. (more…)
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Best Thing Read About Democracy
Psychology in Trading and investing. After all, it's people that are behind everything.
Quotes From Jesse Livermore (Must Read Every Day )
Averaging Buys/Sells: “When I’m bearish and I sell a stock, each sale must be at a lower level than the previous sale. When I am buying, the reverse is true. I must buy on a rising scale. I don’t buy long stocks on a scale down, I buy on a scale up.”
Discipline: “The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.”
Price Action: “The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements.”
Stock Picks/Following People: “The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.”
Cutting Losses: “A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does damage to the pocketbook and to the soul.”
Timing: “It isn’t as important to buy as cheap as possible as it is to buy at the right time.” (more…)