3) Focus on the psychology and mental skills that are necessary to succeed in the market. Learn to read the market charts in terms of the pscychology of the other traders. 2) Learn about risk control in depth. What this really means, options available to you, how you can marry it up with your financial objectives in the market place etc. 1) Only when you have the above dialled in should you investigate ways of putting trades on in the most advantageous positions to generate the returns you are looking for. I think if people were to count down 3, 2, 1 there would be many more successful traders. |
Archives of “psychology” tag
rssThe Confident Trader
Confidence overcomes fear. Confidence also overcomes greed because a component of greed is an underlying sense of scarcity. To be confident doesn’t mean that every trade or trading day will be profitable. What it does mean is that when you look to where you want to go, you know that you can figure out a strategy that will get you there. And you know you can execute that strategy in a consistent manner. A successful strategy doesn’t mean anything if you don’t or can’t or won’t employ it.
Theoretically we should be as successful at trading and investing as our trading and investing strategies. Unfortunately the vast majority of traders and investors fall far short of the results of their strategies. They trip over themselves again and again on the way to employing their methods. My work as a trading coach is to enable traders around the world to become as good as their methods.
Confidence need not waver when you have dips and troughs and plateaus in your trading. Confidence is developed when you realize you can correct mistakes and learn from failures. You don’t persist in failing. You learn and move on. You don’t fear repeating the failure either, you simply anticipate correcting it.
Self esteem is basically the sum total of all the thoughts we have about ourselves. This is quite important because we do tend to become what we think about ourselves. The noted philosopher and psychologist, William James, said, “People, in general, become what they think of themselves.” Not only did he say this but he added that this was the essence of all we had learned in psychology in the prior 100 years. (more…)
This Brilliant Pyramid Outlines The 6 Steps To Financial Success
You’ve probably heard of Maslow’s hierarchy of needs.
It’s the ranking of primary human needs for psychological well-being as described by American psychologist Abraham Harold Maslow, and is usually illustrated not unlike the old-school food pyramid:
The financial blogger known only as Mister Squirrel recently shared his own version of Maslow’s hierarchy: the path to financial success.
Here’s what it looks like:
Are You Taking Trading Too Seriously?
Here’s a great video about trading psychology, even though it’s not directly about the stock market, futures or Forex, and doesn’t reveal any day trading tips. But it does contain a secret most traders are violating every day.
Trading is a great business. I love it, I’m passionate about it, and it is so much fun that I’d do it even if there were no money involved.
But it’s not just me. We traders are a passionate bunch.
We spend a LOT of time reading, studying, trying different indicators, tweaking indicators, testing various strategies and looking at chart after chart after chart.
And then you add the money factor – and well, we can get to be a bit obsessive (just ask any trader’s spouse!).
Work ethic is good, and it does take a certain amount of experience in the markets to become successful. The problem arises when you take things TOO seriously. That causes a block of your mental and emotional energy. And in extreme cases, it can have negative consequences in the rest of your life.
This video isn’t about trading. It’s about life. And therefore, it is about trading.
Enjoy, and leave a comment below with your reaction to the video.
22- Books Everyone Should Read on Psychology and Behavioral Economics
In no order and with no attribution:
- Risk Savvy: How to Make Good Decisions by Gerd Gigerenzer
- The Righteous Mind: Why Good People Are Divided by Politics and Religion by Jonathan Haidt
- The Checklist Manifesto: How to Get Things Right by Atul Gawande
- The Darwin Economy: Liberty, Competition, and the Common Good by Robert H. Frank
- David and Goliath: Underdogs, Misfits, and the Art of Battling Giants by Malcolm Gladwell
- Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions by Dan Ariely
- Thinking, Fast and Slow by Daniel Kahneman
- The Folly of Fools: The Logic of Deceit and Self-Deception in Human Lifeby Robert Trivers
- The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust by John Coates
- Adapt: Why Success Always Starts with Failure by Tim Harford
- The Lessons of History by Will & Ariel Durant
- Poor Charlie’s Almanack
- Passions Within Reason: The Strategic Role of the Emotions by Robert H. Frank
- The Signal and the Noise: Why So Many Predictions Fail–but Some Don’tby Nate Silver
- Sex at Dawn: How We Mate, Why We Stray, and What It Means for Modern Relationships by Christopher Ryan & Cacilda Jetha
- The Red Queen: Sex and the Evolution of Human Nature by Matt Ridley
- Introducing Evolutionary Psychology by Dylan Evans & Oscar Zarate
- Filters Against Folly: How To Survive Despite Economists, Ecologists, and the Merely Eloquent by Garrett Hardin
- Games of Strategy (Fourth Edition) by Avinash Dixit, Susan Skeath & David H. Reiley, Jr.
- The Theory of Political Coalitions by William H. Riker
- The Evolution of War and its Cognitive Foundations (PDF) by John Tooby & Leda Cosmides.
- Fight the Power: Lanchester’s Laws of Combat in Human Evolution by Dominic D.P. Johnson & Niall J. MacKay.
No Risk-No Gain
Trading is ALL about managing risk and probability. The risk part is easy, you can quantify your risk by setting a stop on all your trades. Yes, a stock can gap through your stop overnight, so we can’t know are risk 100% for certain, but setting aside major overnight announcements and earnings, we can get a pretty good idea. The probability part is a little more difficult. I don’t have empirical evidence to support the patterns I trade on both the long and shorts side, other’s have done a decent amount of research, and I have read some, but at the end of the day I have always believed that so called voodoo of technical analysis is a different religion for everyone. Technical analysis, being little more than the study of the psychology of the market, is interpreted by everyone differently, and therefore should not be seen quantitatively to a large extent, but as more of an art. It’s just like a psychologist, you can go to 4 different guys and get 4 different answer to your issues, they will approach you in different ways, ask you different questions, it’s a feel thing.
Anyway, I want to make the point in this post that you’ve got to understand and accept the risk you are putting on when you make a trade. I will review a trade of mine where I made a terrible mistake and foresake this principal, and it has cost me quite a good deal of profits over the last few weeks, especially give that my thesis was correct. It’s not enough to have good ideas, you must execute them properly.
Emotions
Emotions are at the root of trading problems. Yes, emotions can interfere with concentration and performance, but that doesn’t mean that they are a primary cause. Indeed, emotional distress is as often the result of poor trading as the cause. When traders fail to manage risk properly, trading size that is too large for their accounts, they invite outsized emotional responses to their swings in P/L. Similarly, when traders trade untested patterns that possess no objective edge in the marketplace, they are going to lose money over time and experience an understandable degree of emotional frustration. I know many successful traders who are fiercely competitive and highly emotional. I also know many successful traders who are highly analytical and not at all emotional. Trading is a performance field, no less than athletics or the performing arts. Success is a function of talents (inborn abilities) and skills (acquired competencies). No amount of emotional self-control can turn a person into a successful musician, football player, or trader. Once individuals possess the requisite talents and skills for success, however, then psychological factors become important. Psychology dictates how consistent you are with the skills and talents you have; it cannot replace those skills and talents.
Essentials of a Winning Psychology
Four fears that block a winning psychology:
- Fear of Loss
- Fear of being wrong
- Fear of missing out
- Fear of leaving money on the table.
Realize that trading is based on probabilities, as such, every trade is unique. In other words, the past does not equal the future.
Probability thinking manifest other states and beliefs:
- Because we know that we will succeed in the long run and because we know we will protect ourselves no matter what the market does, we acquire the state of “self trust” and the state of being “carefree”.
In turn these states allow us to remain…. (more…)
Unavoidable Disappointment
If you’re trading for emotional satisfaction, you’re bound to have lots of problems and continue to struggle, for two reasons. First, often that what feels good is often the wrong thing to do. Second, the game of trading, and it is a game in many respects, involves being disappointed fairly often.
Even for profitable traders a certain number of trades will lose money, and even the winners don’t always work perfectly or match your exact expectations.
As a trader, it’s impossible to avoid disappointment, not every trade is going to work. You get stopped out and then see the trade go on to work without you, or you hesitate and miss the move, or you exit early to book profits and watch the move continue without you. When you think about it, trading involves a lot of disappointment. I cannot think of any other job that involves disappointment on such a regular basis. Even the most successful traders experience this. No way to escape it.
When you experience a lot of disappointment you’re going to experience a high degree of stress. And when stress overwhelms you…and by the way, stress can masquerade as performance anxiety or pressure to succeed, the emotional part of your brain will run right over the logical analytical part of your brain. You’ll know when that happens because that’s when your rules go out the window or you veer from your plan and you take a revenge trade or an impulse trade or you freeze up and hesitate. (more…)
9 Rules For Traders
1. Don’t Fight the Tape – the trend is your friend, go with Mo (Momentum that is)
2. Don’t Fight the Fed – Fed policy influences interest rates and liquidity – money moves markets.
3. Beware of the Crowd at Extremes – psychology and liquidity are linked, relative relationships revert, valuation = long-term extremes in psychology, general crowd psychology impacts the markets
4. Rely on Objective Indicators – indicators are not perfect but objectively give you consistency, use observable evidence not theoretical
5. Be Disciplined – anchor exposure to facts not gut reaction
6. Practice Risk Management – being right is very difficult…thus, making money needs risk management
7. Remain Flexible – adapt to changes in data, the environment, and the markets
8. Money Management Rules – be humble and flexible – be able to turn emotions upside down, let profits run and cut losses short, think in terms of risk including opportunity risk of missing a bull market, buy the rumor and sell the news
9. Those Who Do Not Study History Are Condemned to Repeat Its Mistakes