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Trader’s Emotions

  
  Education
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The hardest thing about trading is not the math, the method, or the stock picking. It is dealing with the emotions that arise with trading itself. From the stress of actually entering a trade, to the fear of losing the paper profits that you are holding in a winning trade, how you deal with those emotions will determine your success more than any one thing.

To manage your emotions first of all you must trade a system and method you truly believe will be a winner in the long term.

You must understand that every trade is not a winner and not blame yourself for equity draw downs if you are trading with discipline.

Do not bet your entire account on any one trade, in fact risking only 1% of your total capital on any one trade is the best thing you can do for your stress levels and risk of ruin odds.

With that in place here are some examples of emotional equations to better understand why you feel certain emotions strongly in your trading:

Despair = Losing Money – Trading Better

Do not despair look at your losses as part of doing business and as paying tuition fees to the markets.

Disappointment = Expectations – Reality (more…)

Traders Make Decisions based on Probabilities

  
  Education
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Most traders take price swings personally. They feel very proud when they make money and love to talk about their profits. When a trade goes against them they feel like punished children and try to keep their losses secret. You can read traders’ emotions on their faces.

Many traders believe that the aim of a market analyst is to forecast future prices. The amateurs in most fields ask for forecasts, while professionals simply manage information and make decisions based on probabilities. Take medicine, for example. A patient is brought to an emergency room with a knife sticking out of his chest – and the anxious family members have only two questions: “Will he survive?” and “when can he go home?” They ask the doctor for a forecast.

But the doctor is not forecasting – he is taking care of problems as they emerge. His first job is to prevent the patient from dying from shock, and so he gives him pain-killers and starts an intravenous drip to replace lost blood. Then he removes the knife and sutures damaged organs. After that, he has to watch against infection. He monitors the trend of a patient’s health and takes measures to prevent complications. He is managing – not forecasting. When a family begs for a forecast, he may give it to them, but its practical value is low. (more…)

10 Mental Errors

  
  Education
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The weakest link to any trading strategy is the trader that is suppose to be executing it. It is usually the mental and emotional errors of the trader that cause the 90% of unprofitable traders to lose money. Trading success is determined more by the mindset of the trader than their skills with math, economics, or macro knowledge.

  1. The ego takes over the trader and being right becomes the #1 priority. This causes the trader not to take losses becasue they don’t want to be proven wrong.
  2. Greed causes traders to trade too big because they want to make a huge amount of money in one trade.
  3. Fear causes a trader to exit to early with a very small profit because they are afraid it will disappear.
  4. Discouragement causes a trader to quit before they have given themselves or their systems enough time to win.
  5. Coat tailing is when a trader follows a guru’s trades instead of learning to trade correctly themselves.
  6. Style drift is when a trader changes their method instead of sticking to it and letting it play out when the right market environment emerges.
  7. Arrogance leads a trader to trade too big and take on too much risk, this usually happens after a big winning streak or outsized win. (more…)

Trading Psychology Quotes

  
  Education
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Psychology matters more to trading or investing than perhaps any other income-producing activity. Here are some quotable quotes from some well known industry participants highlighting that reality…

 Anyone who claims to be intrigued by the “intellectual challenge of the markets” is not a trader. The markets are as intellectually challenging as a fistfight. Ultimately, trading is an exercise in self-mastery and endurance.

Ralph Vince (money management expert)

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.

Victor Sperandeo (master Wall St trader) (more…)

Trading Thoughts

  
  Education
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The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you, you hope that every day will be the last day — and you lose more than you should had you not listened to hope — to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out — to soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.

When you’re in a losing streak, your ability to properly assimilate and analyze information starts to become distorted because of the impairment of the confidence factor, which is a by-product of a losing streak. You have to work very hard to restore that confidence, and cutting back trading size helps achieve that goal.

When I get hurt in the market, I get the hell out. It doesn’t matter at all where the market is trading. I just get out, because I believe that once you’re hurt in the market, your decisions are going to be far less objective than they are when you’re doing well. If you stick around when the market is severely against you, sooner or later they are going to carry you out.

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”

BELIEFS

  
  Education
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What you believe, consciously or unconsciously, propels your trading in its many directions.  It might be so simple a matter as whether you believe a market is going up or down or nowhere.  Traders have biases that distort their perceptions and effect their actions, and they need to guard against these with various protections and bias detectors.

Other beliefs are more veiled and ubiquitous.  For example, you may consciously intend to make money, but you have a counter impulse that thwarts you due to unconscious beliefs that go against that intention.  Perhaps you unconsciously believe that money is the root of all evil, or that rich people are corrupt, or that there isn’t enough to go around and so you shouldn’t be greedy, or that you should be laying up your treasure in heaven, and not on this earth.  Perhaps on some level you believe you shouldn’t make more money than your parents.

When you want something, you have to really want it and not be ambivalent about it.  It has to be your desire, and not some alien value set by your parents or society.  The flower loves the sun, and stretches to receive its rays.  The plant loves water and digs its roots deep seeking the object of its desire.  If you want to make money trading, you really have to admire money and have good purposes for its use.  If you want to be a master trader, you have to be comfortable with that role, and not see trading as wasteful gambling, or an unworthy profession.

Perhaps you believe that you don’t deserve to make money trading, or that you have to work hard for your rewards.  Maybe you believe that only the big boys win, that the market is stacked against the ordinary trader.  Maybe you believe that it’s impossible to make money in the futures markets or, worse, any market.  Maybe you believe it’s possible to make money trading, but it’s not probable that you can keep your winnings.  All such ideas run in opposition to easy and effective trading.

Just as insidiously you may doubt that your system really works, or that it won’t work this time.  Some traders get superstitious: for example, they believe that they always, or tend to, lose money on Fridays, and so, of course, they do.  When any of their superstitious factors occur, somehow they manage to lose.

Trading Lessons

  
  Education
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The market is a tough battle.  Each day there are chances and opportunities to make money though, it is the greatest form of free market capitalism known to man.  It’s a vast ocean with treasures; we just have to be able to unearth them at the right moment.  We have the ability to navigate carefully through markets, put our bets out there and see where the chips fall.

But if we are too loose with our capital then we are headed for a bad ending.  Discipline is one of the keys to success:  learn your craft and practice.  Each day that passes is one more great learning experience – capture it, analyze it and grow from it.  Use a trading system, pay attention to the timeless patterns of price/volume and believe in what you see and not what you hear. (more…)

GAMBLING ADDICTION with trading

  
Economy, Education
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how many of you never seem to win consistently?

how many of you hold on because you did have some winning days which means you have potential?

how many of you tell yourselves that its not an addiction,its just a passion you have?

how many of you keep on replenishing your trading accounts because just like any business,you always lose money at the start?
how many of you tell yoursleves your losses are the BEST THING that ever happened because thats the best way to learn?

how many of you think of crafty ways to get some extra money wired into your trading accounts?

how many of you say you would have won if you only “stuck to your discipline”?

how many of you are just waiting FOR THAT SPECIAL DAY WHEN EVERYTHING FINALLY CLICKS AND YOU’VE FINALLY FOUND THAT EDGE?

how many of you fall into a depression and feel as if someone has hit you in the heart with a hammer aftr a big loss.

how many of you cannot wait for the next day to make some money back?

my favorite: “tomorrows a new day and i will start fresh, a new trading style that will be disciplined”.

there are many guys that make lots of money trading for a living..really,you seriously believe that?

Expectations vs Reality

  
  Education
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expecˈtation – noun

1. belief about (or mental picture of) the future
2. anticipating with confidence of fulfillment
3. the feeling that something is about to happen

I think all of us initially come to this subject with expectations (or as stated above, confidence in the fulfillment of our mental pictures of the future). Obviously having goals is one thing, but expectations are another – the problem is the time lines we set and the source of our expectations.

For instance, what if you expect to make money trading in two years, but in actuality (and unknown to you) it will take five? Surely after two years a thought will enter your head such as “this is not working out how I hoped…”

No wonder – your hopes had no connection to reality.

Even more bizarre, considering the above, is that I imagine almost everyone that gets involved in this subject expects to make money immediately. If you expect to make money immediately, but in reality it takes five years to learn to trade with consistency, then of course blown accounts and negative emotions are virtually guaranteed.

Non of us that wash out are smart – we are dumb. If we were smart, we would demo trade (or make use of facilities such as micro accounts) UNTIL we could actually trade profitably, no matter how many years it took.

Are you able to demo trade for five years? I can hear you now – “no freekin’ way!!!”

Why not? Of course, because you have PLANS don’t you? You have OTHER THINGS that you need to press on with that are dependent on your success in trading; in fact these plans of yours are already LATE due to the unexpected delays you hit with this little ‘ole thing called the Stock Market.

What was it? Quit your job, pay off a debt, new car, beach house by the sea, exotic holiday, help your parents in their old age, total financial freedom from the wage slave arena?

These two things combined, unrealistic expectations + unrelated desires are pure poison to any chance of success you have. I can see that now – I have actually looked within and SEEN the cobwebs of unrelated desires and unrealistic expectations that in fact have nothing to do with the reality of trading. Thats the truly amazing thing; these issues are actually NOT CONNECTED to the subject, they are things that are hanging around it in your head like moths around a flame.

So what to do? Somehow, this subject and this practice of trading needs to be mentally separated out into its own space and be unconnected to anything else, otherwise we are dragging all of this dead weight behind us. The term “mental purity” was a phrase coined by the West Coast trading desk by the Enron traders used to describe the state whereby they have nothing unconscious infecting their trading decisions (such as morals and a conscience in their case! See the book Smartest Guys in the Room – a brilliant read).

Its a good term – somehow we need to achieve mental purity (be free from murky motives and unconscious unrealistic expectations).

Cut your losses short, no questions asked

  
  Education
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The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.”

William O’Neil

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”

Victor Sperandeo

Some people say, “I can’t sell that stock because I’d be taking a loss.” If the stock is below the price you paid for it, selling doesn’t give you a loss; you already have it.

William O’Neil

When I became a winner I went from ‘I figured it out, therefore it can’t be wrong’ to ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.’”

Marty Schwartz

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