Archives of “psychology” tag

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Intentions

  
  Education
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“Intention = Result. The thing you state as your intention may not be your real intention. In that case, you intend to not manifest your statement intention as part of a larger (secret) intention. For example, you promise to show up on time and show up late. Your intention may be to gain attention by making people wait for you.“

So many people fixate on rules and techniques, but forget “intentions”. As you approach your daily life, contemplating how you will find the big score, have you thought about your true intentions? The trading psychology part of the equation is just as important as the quant side of the equation.

Confidence, Discipline and Consistency

  
  Education
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While day-trading is a great way to make a living when you are consistently profitable, it can also be the worse career choice if you consistently lose. Continue forward with system development, or working towards effective risk management, money management, or mastery of your trading psychology. Trading psychology means the big 3: discipline, confidence and consistency.The trading psychology takes precedence because it is needed to make sure that the other two are followed.

It takes a skilled trader to understand execute all of the things that are needed to be successful and earn a significant amount of profit doing this alone. Money Management is essential to preserve your trading capital and is simply a set of rules that governs how much money you have at risk. Take control of your trading Psychology and adhere to strict discipline in trading your developed and refined Trading System.

Building confidence on the system is extremely important as that is the only reason why you stick to the system during bad times. Day trading requires focus and discipline on the part of the trader with a high degree of risk tolerance since losing trades are numerous. (more…)

A Bird’s Eye View of Yourself

  
  Education
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When did position management enter my consciousness?  I think it stems from experiences that gave me an appreciation for the psychology behind our behavior.  Sure, I had read the classic from Edwin Lefevre, and believed in William O’Neil stop-loss rules.  The image that still sticks with me comes from a tiny book I read in 1994 that doesn’t get the pub it deserves.

In his tiny 1930 classic, Fred Kelly gives the example of the farmer who had 12 chickens in a cage, and one slipped out.  So he propped open the door and set food out in an attempt to lure the chicken back.  Of course, 2 more chickens now escaped.  Surely, he can’t accept having only 9 chickens when he just had 11.  His repeated efforts to get back to “breakeven” left him panicking to salvage 2 at the end…sound familiar with anyone’s early trading efforts?

The lessons stayed personal until managing an order desk stamped those lessons as universal.   Seeing these episodes play out over and over among traders led to a true appreciation of the human wiring that wreaks havoc with our trading.  These observations led me in the late 90′s to step outside of myself on every trade and ask if I was that person.  Am I holding a short against a wave of strength that will sweep me away tomorrow anyway? If so, why not cover now instead of panicking with my fellow (wrong) shorts later? It was in those moments that I realized the power of anticipating group emotions.  I already had a respect for taking losses, but I gradually moved from exiting in panic, to exiting in fear, to exiting when the slightest bit of hope creeped in.

Remember this…if you’re hoping a position bounces back to being a winner, you’re not alone at that moment.  Hope is said to be a good companion, but a poor guide.  Turn that on its head by realizing that you have a chance to act in defense of your equity by taking your loss before the other “hopers” are forced by emotions to act.  Sure, you’re putting yourself in a position of huge regret if the position then recovers, but you’re also preventing the possibility of acting in a panicked state later.  Stops can be great teachers…if you find yourself repeatedly getting stopped out just before your idea gets recognized, then you need wider stops.  Been there…I now operate with smaller positions and wider stops, giving myself room to be right but not putting my equity at undue risk.

If the image of the farmer doesn’t do it for you, consider 2 traders, Roger and Andy.  Both are caught in a bad situation, hoping for the best.  Andy decides to come clean and admit his mistake.  Roger decides to dig in and show he’s right.  Bad idea.  A small lie today will be a bigger lie tomorrow…rip the band aid now.  Any idea who played that trade right?

It’s OK to be wrong, not OK to stay wrong…that’s the difference between champ and chump.  The longer we stay in a trading range, the more explosive the resulting trend will be, and there will be no place for hope.  Be ready to trade today’s ego hit for a chance to play again tomorrow, and you give yourself a chance to replace any negative episode with your best one yet.

The Need To Be Right – Common Psychological Traps For Stock Traders

  
  Education
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Some thoughts on what characterizes great and successful traders:

  • Great traders graciously accept losses. They don’t need to be right all the time.
  • Great traders focus on proper execution not on the outcome of a single trade.
  • Great traders concentrate on good risk management. They constantly manage their open positions.
  • Great traders are emotionally detached. Single trades do not affect their mood.
  • Great traders don’t compare themselves to others. They isolate themselves from the opinions of others. 
  • Great traders are not afraid to buy high and sell low. 

As you probably know by now the single biggest mistake a trader can make is to hold on to a losing position. Failing to cut losses quickly and letting them develop into huge losses is mentally and financially devastating. The underlying psychology which is responsible for this behavior is the ‘need to be right’ and the fear to sell at a loss. What aggravates the situation is adding to a losing position.Dennis Gartman says: “Do more of the things that work and less of the things that don’t.“

Conclusion:
Isolate yourself from the opinions of other people. Make trading decisions your own. Focus on proper execution. Have the courage to do the right thing because it is right.

36 Points For Traders

  
Analysis, Education
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  1. You absolutely have to find a vent to release pressure and adrenaline – sports, drinking, painting, anything that helps.
  2. If you can manage to find a mentor in which you believe, you will make it much faster.
  3. Your trading style has to fit your personality and your lifestyle, or cognitive dissonance will get the better of you.
  4. Meditation sucks, doesn’t work for me.
  5. Overtrading is your death.
  6. Once you are comfortable missing a move, you will be able to trade profitably.
  7. Not trading the news does not make sense at all – during news there is real liquidity and a real interest to push prices in one way or another. Let the market show its hand, then get in.
  8. Let it turn, let price create structure, THEN get in, with the structure as protection in your back.
  9. Don’t system hop, but adapt the system of your choosing to your needs.
  10. Don’t trade overleveraged.
  11. Yes, it is possible to turn a small account into a huge account, but don’t expect it to happen overnight, and don’t expect to be able to do it before your fifth (or so) year of trading.
  12. Some are faster, some are slower, some will never get it.
  13. Risk per trade is a function of the volatility of your strategy and your psychological ability to deal with swings in your equity.
  14. Know exactly why you are trading, and what you want to achieve – which career path will be yours?
  15. Daytrading is not easier than swingtrading or vice versa. They both simply require different skillsets, different abilities (yes, some people are just too slow for daytrading) and different preparation routines.
  16. Trust your gut. Absolutely love the trade? Get in. Don’t love it? Just stay out.
  17. No pain, no gain. Demo trading is ok, but don’t do it for too long. Risk micro amounts of money, get used to losing money. Because you will lose for the rest of your life if you want to be a trader. It’s part of the game. You “just” need to win more than you lose.
  18. Listening to music while trading can be a good thing – just know yourself. If I listen to aggressive music in the car, I will push the pedal to the metal. The same happens when trading.
  19. Have a trading journal and review, review, review.
  20. Work on your psychology, but don’t underestimate the power of knowledge. Fear stems from not knowing. Work hard, know more, be more confident. Most psychological issues will dissolve into thin air.
  21. Yes, I said: don’t system hop. But for the first year or two, try out everything you can. Every market, every strategy, every trading style. How can you know what fits your personality if you don’t know what’s out there? Finally, decide and take the leap of faith.
  22. Screen time alone won’t help you. Again: review. REVIEW! You need an effective feedback loop or you will repeat the same mistakes again, and again, and again. There is no learning by doing in trading.
  23. You don’t need to be hyper intelligent to be a trader. The best traders I know are “simple” minds. They do what works, they have no ego, and they disregard what does not make sense to them.
  24. Do not have monetary goals. Have process-oriented goals.
  25. Do not look at your P&L during your trading session or you WILL trade your P&L. Before and after a trading session, the money in your account is money, yes. During the session, however, the money in your account is ammunition that has to be spent in order to acquire more ammunition, if that makes sense.
  26. Trading with the trend is not easier than trading against the trend. Trading with the trend is the last thing I learned and every single trader I know seems to have the hardest time following a trend.
  27. If you want to pay for education, do your research. It is very possible to differentiate the scammers from the real traders. If something sounds too good to be true, run as fast as you can.
  28. Never forget to be grateful at the end of the day. You are given the chance to make money by clicking a mouse from the comfort of your home. How many people on earth can say the same?
  29. Trading fulltime is often romanticized but can quickly turn into a social nightmare. Keep up that work-life-balance.
  30. Find other mental challenges for your brain than trading. Feeding your body McDonalds everyday will, and nothing else, will kill you. Trading every day without reading a good novel once in a while will make you braindead.
  31. Likewise, there are lots of videos on Youtube with quite good content. You need to find a way to distinguish the goodies from the baddies.
  32. Don’t be mistaken, trading is gambling. You want to be a professional gambler? Make up your mind.
  33. A structured pre-trading routine is one of the best things you will ever do in your career as a trader. Take your time to create and establish it.
  34. Learn your basic and classic price patterns such as Head & Shoulders, Wedges, Triangles, etc. It takes a week to get them all into your head and you will profit from that knowledge for years to come.
  35. Never pick tops and bottoms. Take the middle of the moves and your results will improve.
  36. Believe in your abilities and trust your strategy or you will be destroyed.

That’s it for now. I have plenty more of these in my tattered and very, very old notebook. Which do you agree with, which not? Do you want more of my wartime wisdoms? Let me know in the comments below!

H + W + P = E

  
  Education
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Understanding your own trading psychology is critical to being a successful portfolio manager. 
Are you focused on trying to make money? Or are you more focused on trying not to lose money?
The truth is that making money is the easy part. It is keeping it that is so hard.
Statistically, you are going to make money half the time anyway as I have found that discretionary traders make money on approximately 45-55% of their trades. That is not my opinion – that is what the data say.
The difference between being profitable and not profitable or modest and substantial returns is not about the frequency of being “right.” It is about how much do you MAKE when you are right and how much do you LOSE when you are wrong.
Don’t trade to be right. Trade to make money. In order to make money, you have to lose less.
As a trading psychology coach, the formula I use with my clients is as follows:
H + W + P = E
Hoping + Wishing + Praying = EXIT THE TRADE! 

Are Great Traders Born or Bred?

  
  Education
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In a recent speech to a class at Harvard Business School Mark Sellers, founder of Chicago-based hedge fund Sellers Capital, argues that great traders are born and not bred. He believes that there are seven “structural assets” that cannot be taught, adding, ” They have to do with psychology. You can’t do much about that.”

The traits:

1) The ability to buy when others are panicking, and vice versa

2) An obsession with the trading game

3) A willingness to learn from past mistakes

4) An inherent sense of risk based on common sense

5) A confidence in your convictions and a willingness to stick with them

6) An ability to have “both sides of your brain working” (i.e. to go beyond the math)

7) The ability to live through volatility without changing your investment thought process

I  think that some of the concepts discussed here are spot on (and I spend a great deal of time hammering home the importance of #7) , but I disagree with the overall idea that great traders are born, not made. I believe success in trading is not about a specific style, but rather about understanding your personality traits and then developing a trading style (and which product – i.e. stocks, commodities, fx) that fits you best.

We are who we are. That does not change throughout our life, but we can learn to wait for times when the market is paying our personality type and then generate successful returns when that window of opportunity appears.

4 Rules for Traders

  
  Education
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1. Average Winners Not Losers.  It is not “don’t frown, average down”; it is applying the discipline to cut losers short and adding to winners that separates the successful from the unsuccessful.  If you have a winning stock then add to it.  If you have a losing stock then get rid of it. 

2.  Never Let a Winner Turn Into A Loser.  Greed is the cause of this mistake.  Let the market tell you when to exit a trade, not whether you have a profit or not.  “If your trade is acting well, as defined by key indicators, and the market activity is supporting your position, stay in.  If not, its go time!” Do not let a good profit vanish into thin air because you want more than the market is willing to give.

3. Never Mix Disciplines.  If you day trade then day trade and do not let a day trade turn into a swing trade.  If you swing trade do not let your swing trade turn into an investment. Follow the rules based on the discipline of your time frame.

4.  Never Try To Trade Back A loser.  In other words, each trade is a new one and should not be used to win back money lost in the last trade.  Always trade in the present not in the past where too many emotional and psychology factors can affect the current trade.  Revenge does not pay in or out of the market. 

Why Trading Is A Performance Sport

  
  Education
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MB-TEAM

Learn about various trading software
Learn how to interpret candlestick charts and patterns
Learn Fib extensions and retracements
Try-out various time frames
Learn trade executions
Learn how to manage trades
Learn about emotional control and psychology
Learn about risk control
Devise a precise trading method
Learn about money management
Backtest set-up for several months
Internalize set-ups by paper trading
Have to be adequately capitalized
Specialize in gap trading
Learn about creating a daily watch list
Learn how to prioritize a daily hit list
Set up blog for recording daily diary of ideas and thoughts
Devise a system to analyze trading results – daily and monthly
Develop a daily precise routine

 

Controlling your Emotions

  
  Education
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Emotions-controlThe fact is, the majority of traders lose because they cannot control their emotions – and their emotions cause them to make irrational trades and lose.

Trading psychology is one of the keys to investment success, but its impact is not understood by many investors, who simply think they need a good trading method, but this is only part of the equation for winning at Stock market  trading.

The influence Of Hope and Fear

In trading psychology, two emotions that are constantly present are:

Hope and fear. One of the traders who recognized this was the legendary trader W D Gann. (more…)

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