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The Psychology of Trading

  
  Education
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There is an old saying that the market is driven by fear and greed. Anyone that has placed more than a couple of trades will surely have experienced these two emotions. All traders experience emotion. The distinction between a successful trader and an unsuccessful trader comes down to how they deal with that emotion. Let’s look at how these emotions affect a successful trader and an unsuccessful trader in various scenarios.

You go long and the market immediately goes down – you go short and the market immediately goes up. That’s 2 consecutive losses, and you are getting a little ‘anxious’ so you don’t take the ‘next’ trade. Of course, this trade is a winner. Now to make the situation worse, you then ‘chase’ the move, and as soon as you enter the trade it immediately reverses, thus giving you another loss – this is now 3 in a row. Ok, one more ‘try’ – this can’t happen on every trade can it? (more…)

Confidence in Trading: The Approach

  
  Education
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CONFIDENCE01
Have you ever seen a gorgeous goddess?  A woman so magnificent you just are beeming energy inside to go talk to her?  But as you walk over you start to notice how you’re walking, what facial gestures you’re making, where your hands are, confidence fading… You’re becoming self-conscious and that wonderful feeling of excitement has now turned into fear.  Do you remember the last time you talked to a woman in this energy? In this self-conscious / fear mentality?  Didn’t go so well did it?  Why is a stock any different?

It’s all about the approach and mental confidence prior to the trade.  When you approach an event with fear that energy gets transferred into it.  I’ve talked about how The Energy of Fear is Consumption in this prior post.  So if you’re feeling nervous before a trade take note of this.  Where is this fear coming from? Is it related to money? Lack of confidence in yourself? Lack of self worth? It could be a million different things but you need to find and focus on the one that resonates with you.  I’m currently working on a meditation that will assist you through the process of finding this fear and making it your ally.

Remember the emotion will come during the “approach.” Keep track of how you feel, as this will set the course of how the rest of your interaction with the trade will go.  Keep in mind that magnificent woman: Do you approach her as nervous, not confident, and fearful of reject or strong, confident and full of love?

Trading Losses

  
  Education
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Those who have chosen this very unique career of “trader” face a mountain of challenges each day based on ever-changing market conditions. Added to the market challenges are emotions, which can be 90% of the game. You can have a great method, strategy and be taught by the best, but if fear, apprehension or hesitation come up the trader won’t take the trade…..this is an emotional block. All successful and experienced traders learn quickly to become the masters of their emotions. To accept and manage their weaknesses and leverage their strengths.

At first most traders start by researching and determining a method to trade. They do little to emotionally prepare for what’s to come. Yet they quickly find out that their emotions come into play early on, especially if they experience immediate losses. Losing money coupled with one’s own emotional “baggage” can impact the minds thought process and outcome.
My work focuses on the power of the mind and in particular the power of thought. These three problems and solutions do too. Nothing happens without the some form of thought, be it sub-conscience or conscience. After all, isn’t this what we’re left with when sitting in front of our monitors trading? What comes into our minds, as we trade can be avalanches of different thoughts. These thoughts then have the ability to assist us and add to our success or become our worst nightmares resulting in multiple losses.

Traders over time, come to the realization that trading will force them to face ALL their old and current emotional baggage and blocks. And that NOT being able to manage or “dump” the baggage, can hit the bottom line quickly.
When a trader’s plan doesn’t work they tend to blame it on the method, when in reality it usually comes down to an emotion causing them to react inappropriately. We can pick up automatic emotional blocks that prevent us from implementing a method effectively. Many try to get over these emotions on their own, but few master the changes needed.

But lets get specific and to the heart of these three trading problems. The first reason traders lose may seem obvious but in reality it stems from long term social conditioning. It’s their inability to ACCEPT LOSS. Losing generates powerful emotions, such as fear, uncertainty, apprehension, and self-doubt especially with men. And while women today can also be as affected, the data is supported mostly by men as they represent a larger portion of the client base.

Men are socially conditioned to succeed from the time they enter the world. From little boys being read, “The Little Train That Could” to the environments that surround them as they grow up. They are guided to be become achievers. Influenced by family, friends, education, and career environments they are encouraged to seek professions of Doctors, Lawyers, and Bankers. Images and social metaphors reinforce them. Striving to be right, number one, the breadwinner, and the best, always seeking perfectionism. They are socially conditioned to be the family providers. Add to this various cultural pressures and demands and men have a built-in fundamental obligation to succeed. (more…)

10 Trading Mistakes

  
  Education
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1. Under capitalization – One of the first mistake I made when beginning to trade was being under capitalized. I started with a $10K account without any idea on how to trade. You need enough capital to learn and gain the experience. Some like to call the initial stake “market tuition.” If you can avoid paying your dues, great for you. But most new traders will lose their money. Just make sure you learn from every loss.

2. Having the approach to trading as a “learn as you trade” – Big mistake. “Learn as you trade” = losing money. Losing money can lead to emotional and financial stress and may even create enough fear in you making it hard to trade. Make sure you come prepared to the battlefield. Be a strategist. Sun Tzu said, “The battle is won before it is fought.” Think about it.

3. Trading as a hobby – Take a look at your hobbies. Do they make money? Hobbies in general are entertainment that cost money. Do not approach trading as a hobby. Treat it like a business. Develop a business plan, have goals, and understand what you want out of trading.

4. Thinking that you know it all – The moment one thinks he knows it all is the moment he has become a fool. Its impossible to know everything about the markets. This is a lifetime learning process. Find your niche…. find your speciality and be an expert in it. In other words, find your edge. One thing I learned in trading is that niche = money.

5. Trading without a plan – One of the worst things you can do as a trader is to trade without a plan. Trading without a plan is like driving in a new area without a map or a navigation system. You are lost. (more…)

Trading Commandments

  
  Education
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Trading Commandments

 

“Opportunities are made up easier than losses”: Trade-Ideas’ alerts show hundreds of opportunites from which to choose every day. Take your time and find the right ones using The Odds Maker. There is no reason to rush or force anything – every trade arms you with an informational edge.

“Emotion is the enemy when trading”: Trading is ruled by fear and greed. Those two sinners thrive on a lack of enough information or trade expectations. The Odds Maker readout collars these guys by revealing a strategy’s odds of success (%) as well as average winners and losers and net gains or losses.

“Adapt your style to the market”: It is so important to know what kind of foe you are facing. Do breakouts follow through or do they pull back? Are you in a trending or range bound market?

“Keep Your Eye on the Bigger Picture” :No matter what time frame you are trading on, it’s good to know what is happening on the daily charts. Understanding the larger trends in the markets will allow you to be more decisive about your trades in the lower time frames and will help you maintain a more clear perspective. Trading with the overall trends will increase your odds for success.

 

5 Characteristics of Successful Trader

  
  Education
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Knowledge – A trader must put in the time and effort to study and learn the proper skills in order to be successful. Whether that is through technical or fundamental analysis, one must invest in their education. They must completely understand their market, and its ideal as a beginner to focus on one market and be a specialist. A part of the knowledge and education is devising a game plan or strategy for trading. Writing down your rules and sticking to your trading plan is a key to success.

 Controlling your emotions – The ability to control your fear and greed is paramount to success. A successful trader will have a balanced emotional state regardless if he/she is winning or losing. Ensuring the trader has a clear head and is able to pull the trigger and take trades every time an opportunity presents itself.

  Patience – A successful trader can sit on the sidelines for days waiting for the proper setup. They don’t jump into a trade just for the sake of trading. Yes there may be opportunities, but the smart trader waits for trades that meet their trading rules and system. Over trading by beginner traders is a big obstacle to overcome. A need to always be in the market will lead to taking trades that are likely too risky. Learn patience, it’s a key to success. A winning trader usually has an extraordinary amount of self control, and often the best trade is no trade.

 Discipline – There are no 100% winning traders and taking losses are part of the trading profession. It is about finding high probability opportunities and managing the risks on each trade. A trader must stick to their trading plan and discipline is the key to success.

Confidence – Having the confidence in yourself and your system to make your profit or take a loss when your method tells you to is a winning trait. Confidence usually comes from experience and knowledge.

Use discipline to eliminate impulse trading

  
  Education
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  • Have a disciplined, detailed trading plan for each trade; i.e., entry, objective, exit, with no changes unless hard data changes. Disciplined money management means intelligent trading allocation and risk management. The overall objective is end-of-year bottom line, not each individual trade.
  • When you have a successful trade, fight the natural tendency to give some of it back.
  • Use a disciplined trade selection system: an organized, systematic process to eliminate impulse or emotional trading.

  • Trade with a plan – not with hope, greed, or fear. Plan where you will get in the market, how much you will risk on the trade, and where you will take your profits.

    • Psychology and Gaining Confidence

      
      Education
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    Hi All,

    There has been a lot of talk on the  psychology of trading and getting rid of fear etc. I think that one way to help is to understand the performance parameters of your trading system and this means extensive
    backtesting and changing the way you think when entering a trade.

    Now whenever I have placed a trade I have assumed that I was wrong and so if the market did not immediately prove my position correct I would be taking measures to reduce my position and, if necessary,
    get out. This kept my losses small and when correct I was able to do nothing and just move my stop up. This is contrary to the way most people trade in that they place a trade assuming they are right and wait
    for the market to prove them wrong.

    IAlso if you have backtested a system thoroughly you will know what percentage of profitable trades you can expect. From this you can also determine the number of consecutive losing trades that you can
    expect for a given number of trades. The formula is quite straight forward and is:
    Consecutive losses = LN(N)/-LN(S) where
    N = Number of expected trades
    S = (100-strike rate %)/100

    Now if you place say 30 trades a month and you have a 50% success rate, you can expect to have 5 consecutive losing trades.

    But the more trades you place the bigger the chance of consecutive losing runs. So if our trader has 12 x 30 trades a year = 360 they can expect to have nearly 9 consecutive losing trades.

    Of course the opposite is also true in that you could expect to get 9 consecutive winning trades as well. The problem is that I have seen many systems that have only a 40% success rate and in the same
    example above this would result in 12 consecutive losing trades. Psychologically this is very difficult to handle yet if you had backtested your system thoroughly it is easily seen that this is to be expected and
    means that your system is operating within normal parameters.

    Food for thought I hope

    7 Stages of Trading Wisdom

      
      Education
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    1)  You feel no pressure to do anything

    2) You have no feeling of fear

    3) You feel no sense of rejection

    4) There is no right or wrong

    5) You recognize that this is what the market is telling me, this is what I do.

    6) You can observe the market from the perspective as if you were not in a position, even when you are.

    7) You are not focused on the money, but on the structure of the market

    31 Precepts for Traders

      
      Education
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    These precepts are trading and investing guidelines that give a compass heading to trading integrity.

    I offer them to you in their raw form. Some may make sense, others not. Please feel free to question, challenge, refine and edit with your responses.

    1. We are who we are and we start from where we start
    2. Each of us brings unique strengths to the markets
    3. Every morning we agree to play as delighted beginners
    4. Reality Pays. The more our minds model the market, the more in synch we get
    5. We build on our strengths and manage everything else.
    6. The outcome we have is the outcome we want
    7. If what you are doing isn’t working over and over again, re-examine your internal models
    8. Our internal process is more important than anything else because it drives everything else
    9. You have the resources to improve your mental trading game. Coaching just helps find them
    10. We begin our trading practice slowly and build it with flow and grace
    11. Lean into fear. Fear is a primary cause of failure
    12. If you are frustrated with the markets, that means they aren’t following the internal model you have projected on them
    13. We increase the level of our awareness rather than the intensity of trading
    14. As we expand our awareness, our interventions will happen sooner and be more creative and effective
    15. We respect ourselves and celebrate our profits no matter how large
    16. If we can experience a new behavior for a moment, we can experience it for a minute, an hour, a week, a year.
    17. Change happens when we experience a new behavior that is aligned with who we are, feels emotionally satisfying in the moment and takes us to where we want to go
    18. Avoidance is buying pain on credit with interest
    19. If self-criticism made us trade better we would all be rich
    20. We allow the markets to breathe through us
    21. The markets are messy, our information is imperfect, our systems will fail and we can still make money
    22. All trading systems are successful in some markets, all trading systems will eventually fail in all markets
    23. The markets don’t care about you or your position
    24. We seek the practice rather than the result
    25. Learn about yourself with the delight of an anthropologist finding a lost tribe
    26. We make internal maps of the market, but our maps are always distorted
    27. Our negative responses are created by our maps, not the market
    28. By changing our map, we change how we respond to the markets
    29. All our trading errors have an ultimate positive purpose or intention
    30. There is no “failure” just feedback
    31. You have all the resources you need, although some may be out of your awareness
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