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Inside the Mind

  
  Education
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When I impulsively take the first type of countertrend trades (i.e. missed a good trend), here’s what is going through my mind:

  1. Woah, the move has already gone quite a distance.
  2. Sigh, I should’ve taken that entry earlier. I shouldn’t have followed my trading plan so strictly.
  3. Should I get in now? No, I cannot get in any more, I cannot chase the market, it’s too risky, I have no logical stop nearby, you don’t know when it might reverse down quickly.
  4. I have already missed the move. I need to wait to enter in the opposite direction when the trend ends.
  5. The trend has gone too far, it must turn soon
  6. Look! There’s a bit of resistance, the trend is about to turn, go short! (for an uptrend)

And the countertrend trade is made! Below are what I think are the psychological process at work: (more…)

Madame Market

  
  Education
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If you have the feeling that the market has a split personality, one day out to shower you with peace and blessings and the other to punish mercilessly, it can only mean that on some level you are still taking it personally.

Think of it this way – there are too many players with too many conflicting ideas about market direction for it to ever form one cohesive personality. The only exception I have witnessed to this rule is when fear clearly dominates the scene, and ironically these are times that are the easiest to trade.

The highest attainment for a traders developing psychology is to achieve what has been called “intellectual purity” – that is the state free from emotional reactiveness to market behavior; the ability to accept both reward and punishment with equanimity and understanding.

That said, we know that big players perform ‘market sweeps’ to take out stops at sitting duck levels, so we can at least attempt to protect against that. The main point though is to struggle against any dimly forming impression of the market being a single entity with a personality.

That is an illusion.

The Power of Regret

  
  Education
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Everyone knows that chasing price is usually not beneficial, we either end up catching the move too late, or we get poor trade location, which makes it more difficult to manage the trade.

However, there are other forms of chasing that are just as common, maybe more common, and just as counter-productive.   As a trading psychologist I see these all the time.

Traders who are not profitable are often too quick to chase after new set-ups and indicators, or a different chat room, if that’s your thing.  Obviously, we need to have a trading edge, whether it is from the statistical perspective of a positive expectancy, or simply the confidence in a particular discretionary strategy such as tape reading, following order flow, market profile, etc.

Chasing a trade is the fear of missing out. The fear of missing out is associated with various emotions, including regret. In my work with traders and in my own trading, I’ve seen the incredible power of regret. There’s a lot of talk about fear and greed in trading, but the power of regret is often overlooked. Some of my own worst trades, and those of my clients, often have a ‘regret from missing a prior opportunity’ component. When I finally finish my book on the psychology of financial risk taking, I will include much about this overlooked but very powerful emotion.

Somewhat related to chasing a trade, is impulse trading.  They both have in common the underlying feeling of the fear of missing out.  It’s tempting for me to talk about impulse trading here, but it really deserves its own piece.

Reid Hoffman: 16 Lessons Learned

  
Analysis, Education
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16 Lessons Learned (Among Many!)

-People are complicated and flawed. Root for their better angels.

-The best way to get a busy person’s attention: Help them.

-Keep it simple and move fast when conceiving strategies and making decisions.

-Every weakness has a corresponding strength.

-The values that actually shape a culture have both upside and downside.

-Understand someone’s “alpha” tendencies and how that drives them.

-Self-deception watch: even those who say they don’t need or want flattery, sometimes still need it.

-Be clear on your specific level of engagement on a project.

-Sketch three possible outcomes for a project: the likely upside, likely ‘regular’, and likely downside scenarios.

-A key to making good partnerships great: Identify and emphasize any misaligned incentives.

-Reason is the steering wheel. Emotion is the gas pedal.

-Trade up on trust even if it means you trade down on competency.

-Tell the truth. Don’t reflexively kiss ass to powerful people.

-Respect the shadow power.

-Make people genuine partners and they’ll work harder.

-Final: The people around you change you in myriad unconscious ways

Emotional Resilience & Creativity -Qualities of Successful Traders

  
  Education
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Emotional Resilience – The very successful traders have a great attitude about losing. They know it’s going to happen. They don’t take it personally. If anything, they try to find learning experiences from losses. Elsewhere I have written about how good traders view a losing trade as “paying for information”. A trade with an edge that doesn’t go their way either tells them something important about the market, or it tells them something about their execution. Either way, it’s a potential learning experience. Resilience means that the excellent traders trade well out of a hole. They can be down money for day, week, or quarter and continue to make the same good trades they would normally make. 
Creativity – We normally think of creativity as a trait that belongs to artists, but it also is quite noticeable among traders who have been successful over many years. They find edges in the most unlikely places. They look at interesting relationships within the market they’re trading, and they find unique relationships from one market to another. One trader very recently told me of a strategy that exploited the way one market was priced related to a similar market at certain time periods. I would have never thought of that idea in a million years. He was making consistent money from the concept.

Improper Trading Psychology

  
  Education
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How do you know you have an improper trading psychology?  Here are a few things to look out for:-

1. Feeling too much stress
2. Successful ‘paper trading’, but not successful when trading the real markets
3. Getting mad or too joyous, depending on your trading outcomes or results (excessive highs & lows)
4. Feeling fear
5. Can’t ‘pull the trigger’
6. Fail to exit trading positions at stop loss points
7. Exit trades to relieve anxiety
8. Impulsive trading, etc.

When ‘paper trading’, you are apt not to feel the psychological impacts of real trading.  Thus, ‘paper trading’ will not generate most of the above psychological feelings.  However, when making the transition from ‘paper trading’ to real trading, the psychological issue may be felt and have to be dealt with just like when you learned the skills of your trading system. 

When you hear that trading is both an ‘art’ and a ‘science’, it often refers to the combination of psychology and feelings, with that of a technical trading approach.

In order to be successful, the psychology has to be mastered and managed.

Trading psychology

  
  Education
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  • Trading psychologyStop trying to outsmart the market. NO ONE knows exactly where it will go.
  • With each decision you make comes stress:
    • The more decisions you make, the more likely you are to be wrong.
    • The more decisions you are used to making, the more pressure you’ll put on yourself to make even more decisions.
    • No one can be that right.
  • Forget about the “whys’ of the market. After all is said and done, the reasons will be known.
  • Don’t apply logic. Markets move on emotions — period!
  • Plan your trade and trade your plan.
  • Reduce the amount of decisions you make.
  • Make decisions and live with them (also a life lesson!).
    • Good decisions come from experience.
    • Experience comes from bad decisions.

    • Trading Psychology

      
      Education
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    TRADING-PSYCHOLOGYIf any trade makes you feel like “kicking yourself,” then you’re likely trading for emotional satisfaction and that’s a problem. In other words, if every trade you make has the purpose of trying to make you feel good, prove you are right, feed your ego, eliminate pain from a prior mistake you refused to deal with early on, or something other than just making money for you, you need to learn how to put trading in the proper frame of mind if you desire to become a better trader and investor.

    MARK DOUGLAS -On 5% Successful Traders

      
      Education
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    douglasquote

    There is a reason why so few traders succeed.  It is not for lack of study or effort or passion.  It is not for lack of education or a Bloomberg platform subscription.  It is not because only a select few have access to technical “secrets” (a.k.a. indicators).  No.  So few succeed at trading for the same reason that so few succeed at living an abundant life.

    The unsuccessful refuse to think differently when faced with difficulties believing that luck has passed them by.  They do not succeed because the want of instant gratification and its fleeting rewards has replaced the need for sustainable, hard fought, earned rewards indicative of a mindset prepared to tackle failure as nothing but a mathematical equation: here is the problem now let’s find the solution.

    The mediocre search for easy answers to difficult problems believing that the right answers to their questions are found somewhere “out there”.   The successful make difficult decisions where there are no easy answers, questioning whether their perception of what is out there is a distorted reflection of what is inside of them.

    The best traders, according to Mark Douglas, think differently than others because they know that what is most important is “how they think about what they do and how they’re thinking when they do it.”

    Psychology by Michael Jordan

      
    Education, LINKS, Video
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    Hi,

    I like these commercials, because it very similar with trading. Commercials are not new, but i hope, that it can somebody give some more motivation.

    1st one: YouTube – Michael Jordan “Simple Math” Nike Commercial
    It says – stop looking for holy grail, there is no math formula, there is only training!

    2nd one: YouTube – Maybe – New Michael Jordan Commercial
    It says – stop looking for excuses!

    3rd one: YouTube – Michael Jordan “Failure” Nike Commercial
    It says – Success it not about winning, it is about loosing and deal with it!

    4th one: YouTube – Look Me In The Eyes – Jordan Commercial – Become Legendary
    It says – very nice courage and patience… I am scared what i wont become, you are scared what you could become..

    5th one: YouTube – Michael Jordan “Become Legendary #1” Nike Commercial
    It says – It is not about indicator/shoes/etc!!

    Good luck, goal is closer, than you think..

     

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