No issue so pervades the trading psychology literature as that of “discipline”. It is very common for traders to lay their plans and define their setups, only to find that their actions undermine their careful preparation.
A good deal of the advice dispensed by trading coaches and psychologists addresses this discipline problem.
But what if the lack of discipline is not a problem? What if we view departures from trading plans and intentions as *information*, not as weakness? As it turns out, those departures can be quite informative.
You see, we naturally gravitate toward the nexus of our values (interests), talents (native abilities), and skills (acquired competencies). On average, we tend to enjoy doing what we’re good at and we tend to build skills when there is a foundation of talents to support them. The artist who spends long hours at the canvas doesn’t have to draw upon “discipline” to sustain an interest in painting. The hard work is hard play: the discipline stems from a devotion to a craft–and to the ability of that craft to crystallize the artists’ interests, talents, and skills. (more…)
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rssTwo Types of Traders
In general, I find there are two kinds of traders. The first kind trades visually, from patterns that are evident on visual inspection. Those include chart patterns, oscillator patterns, Elliott waves, and the like. Their trading decisions are discretionary, in that they elect to buy, hold, and sell based upon their perception of patterns and their judgment as to their meaning.
The second kind of trader distrusts visual inspection. Such traders are more likely to buy into the behavioral finance notion that unaided human perception and judgment are subject to a variety of biases. Accordingly, these traders use some form of historical/statistical analysis and/or system development to test ideas and trade only those that test out in a promising way.
Now here’s the interesting part: The first group of traders almost universally asks me to help them tame their emotions. They have problems with impulsive trading, failing to honor risk limits, failing to take valid signals due to anxiety, etc. The second group of traders, having researched successful strategies, almost universally asks me to help them take maximum advantage of their edge. They want help taking *more* risk and trading larger positions. (more…)