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Are You A Subjective or Objective Trader?

  
  Education
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Subjective: Based on or influenced by personal feelings, tastes, or opinions.Proceeding from or taking place in a person’s mind rather than the external world.

Subjective traders they are intertwined with their trades.Their signals are generally entering out of greed and exiting based on their own internal fear. The believe in their opinions more than the actually price action. They base trades off of whether they are feeling good or bad about a particular trade. A subjective trade comes out of the imagination of the trader, from their own beliefs, opinions, and what “should” happen in their view. Many times reality is not even cross checked as a reference, and if it is the subjective traders sees what they want to see instead of what is really going on. Their compass is their emotions and they have internal goals other than making money.

Objective: (Of a person or their judgment) not influenced by personal feelings or opinions in considering and representing facts. Having actual existence or reality. (more…)

Trading Psychology

  
  Education
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Your biggest enemy, when trading, is within yourself. Success will only  come when you learn to control your emotions. Edwin Lefevre’s

 Reminiscences of a Stock Operator (1923) offers advice that still applies  today.

 Caution
 Excitement (and fear of missing an opportunity) often persuade us to enter the market  before it is safe to do so. After a down-trend a number of rallies may fail before one  eventually carries through. Likewise, the emotional high of a profitable trade may blind  us to signs that the trend is reversing.

 Patience
 Wait for the right market conditions before trading. There are times when it is wise to  stay out of the market and observe from the sidelines.

 Conviction
 Have the courage of your convictions: Take steps to protect your profits when you see  that a trend is weakening, but sit tight and don’t let fear of losing part of your profit  cloud your judgment. There is a good chance that the trend will resume its upward  climb.

 Detachment
 Concentrate on the technical aspects rather than on the money. If your trades are  technically correct, the profits will follow.

 Stay emotionally detached from the market. Avoid getting caught up in the short-term  excitement. Screen-watching is a tell-tale sign: if you continually check prices or stare at  charts for hours it is a sign that you are unsure of your strategy and are likely to suffer  losses.

 Focus
 Focus on the longer time frames and do not try to catch every short-term fluctuation.  The most profitable trades are in catching the large trends.

 Expect the unexpected
 Investing involves dealing with probabilities ? not certainties. No one can predict the  market correctly every time. Avoid gamblers? logic.

 Average up – not down
 If you increase your position when price goes against you, you are liable to compound  your losses. When price starts to move it is likely to continue in that direction. Rather  increase your exposure when the market proves you right and moves in your favor.

 Limit your losses
 Use stop-losses to protect your funds. When the stop loss is triggered, act immediately  – don’t hesitate.

 The biggest mistake you can make is to hold on to falling stocks, hoping for a recovery.  Falling stocks have a habit of declining way below what you expected them to.  Eventually you are forced to sell, decimating your capital.

 Human nature being what it is, most traders and investors ignore these  rules when they first start out. It can be an expensive lesson.

 Control your emotions and avoid being swept along with the crowd. Make consistent  decisions based on sound technical analysis.

FEAR

  
  Education
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FEAR-Fear is a misunderstood emotion, and one that gets a pretty bad rap these days. We owe our survival as a species to the hard-wired fear that kept us safe from physical threats for hundreds of thousands of years. 
But what about the litanies of fears that plague traders every day? Fear of losing, of watching profits disappear, of making mistakes, of missing out? 
Perhaps the larger question is this: If almost every trader feels fear, why do millions of people continue to trade? The answer lies in the way that fear is perceived.
For many, fear is a predator that’s constantly lurking, sneaking up on them, ready to attack at any moment. In this mindset, they’re always running away from fear, crouching in a corner, or looking for a safe place to hide. Fear blinds them to opportunity. 
For others, fear is the prey. They move steadily and with discipline in the direction of the fear — always keeping it in front of them. As they approach the fear, they see it for what it really is. 
F.E.A.R.: False Evidence Appearing Real. They see fear as something to go through in order to get what they desire — better trades and more profits.  (more…)

The Pain is Unjustified…

  
  Education
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Think about this clearly. Breaking your rules or being impulsive in trading causes loss. Loss causes PAIN. REAL PAIN. We are responsible for the pain we create for ourselves.

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I’ve always said, you don’t have to blow out an entire account before we figure out the significance of being disciplined. You don’t need to feel pain to learn that lesson. You just have to commit to the process of becoming disciplined. It poses a more fundamental question, are you willing to do what it takes to become consistently profitable? (more…)

12 Habits of Highly Successful Traders

  
  Education
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Successful Trader– Preparedness
– Detachment
– Willingness to Accept Loss
– Taking Controlled Risk
– Thinking in Probabilities
– Being Comfortable with Uncertainty
– Consciousness of Abundance
– Optimism
– Open Mindedness and larity of Thought and Perception
– Courage
– Discipline

Ten Powerful Psychological Traits of the Rich Trader

  
  Education
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Ten Powerful Psychological Traits of the Rich Trader

  1. They have the ability to admit they were wrong and get out of a trade. They know the place where price proves them wrong.
  2. They have the ability to not only close a losing trade but reverse and go in the other direction when it is called for.
  3. The rich trader is not trying to prove anything about themselves they are focused on making money.
  4. They do not fall in love with an idea, currency, commodity, or stock they will make trades based on price action.
  5. Rich traders know that the market action is their ultimate boss regardless of their opinions.
  6. No matter how sure they are about a trade they still ALWAYS manage the risk.
  7. Rich traders get more aggressive when winning and trade smaller or take a break during a losing streak.
  8. A great trader is one that can admit to anyone that they were wrong.
  9. Rich traders do not believe their own hype, they know they can not really predict the future they can only react to current reality and the probabilities.
  10. Rich traders love what they do, win or lose.

When you are trading like that, it is hard to be beaten. Time is your friend.

Risk:Reward

  
  Education
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The typical trader is not profitable, and I suggest that one must learn to operate differently than the typical trader.  One example is how the typical trader looks at risk versus reward. I’m not talking about probabilities or risk:reward ratios, I’m referring to something entirely different.  One of the things I do in my work with traders is teach them to look at it the following way: The trader determines the risk, but any potential reward is determined by the market. Thinking about risk versus reward in this fashion has a number of benefits.

It helps operationalize what I mean when I talk about focusing on what we can control and letting go of the rest.  It is also a good example of one of my rules in action, that we must be rigid with risk but flexible with expectations. This is part of the bigger picture of focusing on doing the right thing versus focusing on being right. And as I talked about in my recent webinar, a specific technique is for a trader to continually ask the following question at each point during the trading process when a decision or action is about to made: “Am I acting in my own best interest right now”.

Trading well over time requires that we control the risk and must be flexible with expectations by accepting the fact that we must adapt to what the market is doing regardless of our wishes.  It also serves as a reminder that upon entry, a trader is essentially assuming that if they go long/short they believe (and need)  other buyers/sellers are going to step in afterword and move the market even further by paying worse prices.

More on this extremely important idea of accepting risk and managing expectations in future posts.

What Mistakes do most people make in the market ?

  
  Education
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No Money Managment and no trading plane and not trading the plan if they have one.Losers think how much can I win-Winners think how much can I lose.The reason this is so important is because risk is the only thing a trader can control.Losers habitually focus on how much profit they are going to make winners correctly focus on exectuing the trading plan and thinking in probabilities !

One of the best Trading Psychology books I've ever read!

  
  Education
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“Psychology of Intelligence Analysis” by Richards J Heuer, Jr., published by the CIA’s Center for the Study of Intelligence, 1999.

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Available as a pdf download from this webpage
 

Ok, so it’s a CIA book written for Intelligence Analysts, not a trading book written for traders. However, the information available in this book is superb. Well written and easy to follow. This is an excellent source of information on how we think, and the cognitive biases which undermine our ability to process information and conduct market analysis.
 

VERY APPLICABLE TO TRADING. HIGHLY RECOMMENDED.
 

Here’s what’s it covers:

 

Part 1 – Our Mental Machinery

  • Chapter 1: Thinking About Thinking

  • Chapter 2: Perception: Why Can’t We See What Is There to Be Seen?

  • Chapter 3: Memory: How Do We Remember What We Know?

Part 2 – Tools for Thinking

  • Chapter 4: Strategies for Analytical Judgment: Transcending the Limits of Incomplete Information

  • Chapter 5: Do You Really Need More Information?

  • Chapter 6: Keeping an Open Mind

  • Chapter 7: Structuring Analytical Problems

  • Chapter 8: Analysis of Competing Hypothesis

Part 3 – Cognitive Biases

  • Chapter 9 – What Are Cognitive Biases?

  • Chapter 10 – Biases in Evaluation of Evidence

  • Chapter 11 – Biases in Perception of Cause and Effect

  • Chapter 12 – Biases in Estimating Probabilities

  • Chapter 13 – Hindsight Biases in Evaluation of Intelligence Reporting

Part 4 – Conclusions

  • Chapter 14 – Improving Intelligence Analysis

 

Available as a pdf download from this webpage

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