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You are not your Trade

  
  Education
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Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible. -Ed Seykota

Traders can make psychological mistakes when trading that can end a trading career very fast. Here are a few examples:

  • They take on more risk than they can deal with, stress takes over and they start making bad decisions.
  • They become married to a trade, they become stubborn and ignore their stop losses, wanting to be “right” they wait while losses mount.
  • Their egos take over their trading. They are more concerned about proving how smart or clever they are than making money. They begin to be more concerned with bragging about their winners than managing their losing trades. It becomes an ego trip that will not end well.
  • Their system does not match them, someone who likes fast paced action should not be a long term growth investor and someone who loves investing in growth stocks they believe in should not day trade.
  • A trader loses many times in a row so they change systems right before the big pay off. If you have a proven system trade it for the long term benefits.

Here are some solutions: (more…)

Believe you can win

  
  Education
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If other traders can do well in the market, so can you. However, if you don’t have enough courage and confidence in yourself, you will never achieve success. The events over the past few years have tested many people in this way and many now believe the game is rigged against them and, even worse, that no matter what they do, in the end they will ultimately fail in the markets. In my experience, nothing could be farther from the truth and those who will win in the markets first start by believing they can do it. Of course, those who do create success also must back up that belief in themselves by working hard and show consistent determination to find, develop and exploit their trading edge.

The bigger fool theory

  
  Education
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Cartoon inspired by this article written by Peter Tasker in the Financial Times
“The inconvenient truth is that gold is not really an investment at all. Since it generates no return and thus has no fundamental value, the same arguments can be used to justify any price – $500 an ounce or $5,000. Gold buyers are simply trusting in the bigger fool theory – that someone else will take it off their hands at a higher price. They are speculating, not investing, and like all speculators what they are speculating on is the speculations of other speculators. Packaging it in an exchange-traded fund makes no difference.“

G. C. Selden Trading Psychology – Hunches And Gut Feelings

  
  Education
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Recently most traders probably have spent a great deal of time managing risk and emotions. I know I have. When it comes to correctly gauging and dealing with emotions it is paramount to analyze your reactions in a detached way. The best way to get objective insight is to imagine taking a step back and then ‘watching yourself.’ It’s as if you were your own mentor or trading coach. This is not an easy task. Good results require emotional detachment, a lot of experience and the ability to honestly assess the degree of trading proficiency you have attained. Ultimately it will tell you what those gut feelings you are occasionally experiencing really are worth. That’s exactly what G.C. Selden addresses at the end of his classic trading book : ‘Psychology of the Stock Market’ which was first published in 1912. Here’s an excerpt dealing with ‘hunches and gut feelings.’ Lots of additional and valuable insight for traders is provided. Enjoy! 

An exaggerated example of “getting a notion” is seen in the so-called “hunch.” This term appears to mean, when it means anything, a sort of sudden welling up of instinct so strong as to induce the trader to follow it regardless of reason. In many cases, the “hunch” is nothing more than a strong impulse.

Almost any business man will say at times, “I have a feeling that we ought not to do this,” or “Somehow I don’t like that proposition,” without being able to explain clearly the grounds for his opposition. Likewise the “hunch” of a man who has watched the stock market for half a lifetime may not be without value. In such a case it doubtless represents an accumulation of small indications, each so trifling or so evasive that the trader cannot clearly marshal and review them even in his own mind. (more…)

Epitome of A Professional Trader

  
  Education
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“The cheetah, while the fastest animal on the African plain and can outrun any of the prey it feasts upon, always chooses to go for the young, weak, or sick.  Once identified, he attacks with laser-guided focus and effectiveness.  It is only then that the kill is most likely.  That is the epitome of a professional trader.”

Fear & Greed

  
  Education
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When trading there are two emotions that are more common, and more dangerous, than all the rest; fear and greed.

Fear and greed can ruin even the best trading strategies

One moment of fear or greed can lead to a moment of madness and months of hard won profits going down the drain

Uncontrolled emotions should not be an excuse for losses and losses should not be an excuse for uncontrolled emotions

Remember!! Trading affects psychology as much as psychology affects trading

Greed

“You can’t feed on greed” (more…)

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