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Trading Psychology -Quotes

  
  Education
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  • To be a successful trader/investor, your intellect and emotion must work as a team, which is easier said than done.”

– James Dalton

  • ” Successful traders accept and expect losses. Losses are endemic to trading; they are the cost of doing business. The consistently successful trader accepts deep in his heart that his winnings will be tempered with inevitable loss. But the trader anticipates his ultimate triumph because he has structured the probabilities in his favor”.

-LBR

  • “To be a successful trader you need to trade without fear. When you use fear as a resource to limit yourself, you will create the very conditions you are trying to avoid. Or to say this another way, you will experience your fears.”

-Mark Douglas

  • “The man who insists upon seeing with perfect clearness before he decides, never decides.”

– Henri-Frederic Amiel

  • “…to be a successful trader, I must love to lose money and hate to make money…The first loss is the best loss; there is no better loss than the first loss…Trading is a discipline.”

– EEK

  • “One of the critical criteria I use in judging my traders is their ability to take a loss. If they can’t take a loss, they can’t trade.”

– John Mack

  • “If you have bad inventory, mark it down and sell it quickly.”

– Alan “Ace” Greenburg

  • “Never meet a margin call. (In other words, if the market is going against you, concede defeat quickly and liquidate before you really lose your shirt.)”

– James Grant

  • “Fail Often but never quit.”

Focus

  
  Education
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75% of the price movement in most stocks takes place in 20% of the time.The rest is notingbut noise withing a range.Relevant information that causes repricing doesn’t change quickly and frequently.This is why trends exist .Higher prices often attract more buyers and lower prices attract more sellers untull the rules of the game change.Focus on the main drivers and forget the rest.

How Randomness Affects Trading Profitability.

  
  Education
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1)  If you ramp up your trading size, the increased risk over a random series of losing trades can devastate your account.  Your trading size should not be a function of some high target return that you hope to make, but rather a function of the random strings of losers that you can survive.

2)  Just because you’re going through a losing period doesn’t mean you’re trading a losing methodology.  Changing sound methods in the middle of a random string of losing trades would be like a batter changing his swing after striking out a few times.  That is what helps turn normal setbacks into prolonged mental and performance slumps.

The bottom line is that we can read far too much into short-term trading outcomes.  Losing trades don’t necessarily mean we’re trading poorly and winning trades don’t necessarily suggest that we have a hot hand.  We can gain knowledge from analytical mistakes and creative insights, but it’s also important to retain the wisdom that sometimes we will trade well and lose and other times we can trade poorly and win.  

Not every move–of markets, or of profit/loss–is meaningful.

Fear, Greed & Trading Profits

  
  Education
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Over the years we’ve noticed a remarkably consistent pattern. A very high percentage of our trainees can trade brilliantly in the simulation program; steady consistent profits, sharp entries and exits, excellent grasp of market conditions and a clear, rational plan for exploiting them

And then they start trading real money.

It’s like somebody turned out the lights. Almost immediately things turn sour; they jump in too soon, get scared out of good positions, hang on to losers and cut their winners short … the exact opposite of what they should be doing, and the exact opposite of what they were doing in the simulation program.

WHAT HAPPENED?

The only difference between real and imaginary – and between good and horrid – is the emotional impact on new traders of having real money at risk. They succumb to the two emotions that drive the market: greed and fear.

Nothing cranks up our emotional responses faster than money. And trading is about nothing else. But successful trading requires a kind of cold, calculating rationality, and any emotion – giddy joy as well as bitter despair – is fatal.

So we see trainees doing things they know are dumb: 

  • They jump on the long side of an uptrend because “they don’t want to miss the trade,” even as the trend is ending.
  • They cling tenaciously to losing  positions hoping the price will come back – an attempt to avoid admitting you made a dumb trade that usually turns a small loss into a big one.  
  • They pull their stops so they won’t get hit. Really! 
  • They become so traumatized by losing that they take excessive risks hoping to get back even.
  • Finally, they quit in despair, close their trading account, burn the computer, and retreat into a dark place to lick their wounds.

None of this is necessary. All of it can be avoided. Here are some things that help. (more…)

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