Munger-Psychology-Human-Misjudgment
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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.
What do you think of yourself as a trader? Do you believe that your dream of excelling as a trader is possible? Do you have a set of philosophies that support your dream? Are you as good as your methods? If not, it’s time to do something about it.
Consider my coaching program. I speak for an hour on the phone each week with the traders I coach. We review your trading, beliefs, attitudes, habits, and philosophies. I help you do more of what works and stop doing what doesn’t work. Through exercises, assignments, and repetitive listening to the CD’s I send, you can become as good as your methods. The money you invest in yourself—especially in difficult times—is truly the best investment you can make. It will pay you exponentially because you never leave yourself. Call me at 800-692-0080, and we’ll discuss it.
Perceptions in Trading -Anirudh Sethi
Perceptions are a normal part of daily life. It is normal to have a perception of someone, something or a situation, but this perception is often judgmental. One tends to allow feelings, emotions and looks to affect the perception. Despite being a normal and inherent part of human psychology, perceptions can be highly problematic if left uncontrolled in the case of traders.
A trader cannot allow perceptions to cloud his/her judgement and decisions. Perceptions can be deceiving and they thus need to be kept in check as they could lead to erroneous decisions.
In a perfect world, a trader will manage to be completely rational. He/she would be able to assess all facts so as to base decisions and choices on sound information and data. Such a perfect scenario would not allow emotions, perceptions and feelings to come into the picture. As a result the decision making process and the resultant decisions should be ideal. However this is an unreal scenario as we all know that this is not possible in a real world. This is what makes trading psychology so interesting, and yet so complicated and complex. However one should consider this in a positive way as it after all lies at the foundation of why the market and the life of a trader is so challenging and exciting.
The basic idea is to try to keep perceptions under control as much as possible. Despite all efforts though, even seasoned traders may find it hard to be veyr rational at times. One cannot forget that there is tension, pressure, emotion and various other aspects which come into play while a trader is trying to make up his/her mind about the best and the safest course of action. (more…)
Trading Success
“Trading success is a function of possessing a statistical edge in the market and being able to exploit this edge with regularity. Trading failure is most likely to occur when you trade subjective, untested methods that possess no valid edge or when you are incapable of consistently applying edges that are available. Improving your psychology as a trader by itself will not confer an objective edge. Developing or purchasing a valid trading system will not in and of itself make you a great trader. The development of trading methods and the development of yourself as a trader thus must proceed in concert. You are only as good as the methods you implement and your ability to implement the methods.”
Fear & Greed
When trading there are two emotions that are more common, and more dangerous, than all the rest; fear and greed.
Fear and greed can ruin even the best trading strategies
One moment of fear or greed can lead to a moment of madness and months of hard won profits going down the drain
Uncontrolled emotions should not be an excuse for losses and losses should not be an excuse for uncontrolled emotions
Remember!! Trading affects psychology as much as psychology affects trading
Greed
“You can’t feed on greed” (more…)
10 Trading Lessons
- Trading affects psychology as much as psychology affects trading.
- Emotional disruption is present even among the most successful traders.
- Winning disrupts the trader’s emotions as much as losing.
- Size kills.
- Training is the path to expertise.
- Successful traders possess rich mental maps.
- Markets change.
- Even the best traders have periods of drawdown.
- The market you’re in counts as much toward performance as your trading method.
- Execution and trade management count.
Trading is all about YOURSELF
Trading has to do a lot with yourself. Trading is not about the market.
You have to get your emotion and psychology right before you go to trade. Without the good emotion or feeling of the day, you will be most likely be losing during that day.
Do Not Trade, If …
– You cannot afford to lose the money. (Prepare to lose)
– You have a Bad day (quarrel with wife/child/boss).
– You are Sleepy
– You are Not comfortable in trading
– Technology failed You
Do not be afraid that you will lose the opportunity for the ride up or down. There are plenty of opportunity out there in the market everyday.
Remember: If you trade, you will lose money. If you don’t trade, at least you wont lose money.
The funny thing that i found out … People will lose money if they care about their money but people will make money if they don’t care about the money.
Get yourself right first and the money will come to you.
The emotions of trading
When trading there are two emotions that are more common, and more dangerous, than all the rest; fear and greed.
Fear and greed can ruin even the best trading strategies
One moment of fear or greed can lead to a moment of madness and months of hard won profits going down the drain
Uncontrolled emotions should not be an excuse for losses and losses should not be an excuse for uncontrolled emotions
Remember!! Trading affects psychology as much as psychology affects trading
Greed
“You can’t feed on greed”
- Many people think that greed is thinking that the sole aim of trading is to make money.
- This is NOT what greed is
Greed is trying to make money too quickly
There are lots of ways to be greedy in trading;
- Trading in sizes that are too large
- Trading too frequently
- Having unrealistic expectations
- Dreaming of the big hit trade, rather than steadily building your equity
Fear
Fear in trading has two faces;
- Fear of loss
- Fear of missing out
The fear of loss compels traders to close profitable trades prematurely, meaning they miss out on potential profit
The fear of missing out compels traders to abandon their trading strategy so they do not miss a major price move
Fear is NOT good as it leads to overtrading and miss-timed entry and exit points
So
DON’T BE SCARED!!
How Stress Produces Trading Losses
- Nothing is stressful unless it is perceived as being a thread (losing money)
- Worry has a great effect on human performance, because it represents conscious mental activity. Since it is conscious, it takes up processing capacity.
- Often, the trader is too preoccupied with the potential results of what he id doing, rather than the process of being a trader.
- Losses scare me. The model calms me. Trade your plan.
- Concerned about losses. Preoccupation. Tunnel vision
- View losses as negative because fear of not having money. A loss is a character building exercise that is needed to go through to obtain positive expectancy.
- Low Volatility/High Volatility Multiple Intra-weekly signals
- Close at a profit/Close at stop
- Nightly distractions (Family, Businesses, Work, Vacation, Lack of Internet)
- Greed leads to confirmation bias, other bias in holding position
- Money motivated, need results for success, freedom for family
- Need to evaluate relationships with parents/money deeper to get to depths of self-esteem
- Tasks
- Daily Self-Analysis
- Daily Mental Rehearsal
- Focus and Intention
- Developing a Low-Risk Idea
- Stalking
- Action
- Monitoring
- Take Profits/Abort
- Daily Debriefing
- Be Grateful for What Went Right
- Periodic Review
The Power of Focus
Let’s take a break and look at some trading psychology tips. Today our ideas are coming from one of my favorite books that’s not really trading-oriented. We’re going to be looking at a few highlights from a book called “The Power Of Focus”, by Jack Canfield, Mark Hansen, and Les Hewitt. While there’s no way to do the book justice in our limited space here, hopefully you’ll take away some of the more important pieces of the book. And best of all, you’ll be able to apply them immediately.
Your habits will determine your future. This is not news to any of us, but what I found interesting was something of an aside in the book. The book contends that the results of bad habits don’t show up until well after the habit has been learned. That’s unfortunate too, as we all know that it’s incredibly difficult to unlearn something. The implication is that that you’ll be engaging in a destructive behavior, but you may not know it until it’s far too late to actually do anything about it. In fact, up to 90% of your everyday behavior is based on habits. Have you made it a habit to spend an hour a day preparing and doing trade research? Have you committed to waking up an hour earlier to plan your trading or work day? Or do you hit the snooze button a few times, and miss out on reviewing the news and charts of your positions? Habits are the key to success.
Your goals must have a number. And this doesn’t just mean the total returns on your trades, as an overall goal is still too ambiguous to actually use in making daily plans. You need to know how many trades per day, week, or month it will take to achieve your goal. Of course, you’ll also need to know what type of return you need to average on each trade to reach that goal. As the book states so accurately, “a goal without a number is just a slogan.”
Take decisive action. They say 80% of success is showing up, and that’s probably a pretty good rule of thumb. So how does one “show up” to be a trader? By taking trading action! And if you’re not taking the action you know you should be taking, you absolutely must understand and admit that you’re procrastinating. Stings, doesn’t it? But recognizing the truth is the first step to attacking any problem. The book explains six reasons for procrastination; think about which ones apply to you.
1) You’re bored.
2) You’re overwhelmed.
3) Your confidence has slipped.
4) You have low self-esteem.
5) You don’t enjoy what you do.
6) You’re easily distracted. (more…)