Psychology matters more to trading or investing than perhaps any other income-producing activity. Here are some quotable quotes from some well known industry participants highlighting that reality…
Anyone who claims to be intrigued by the “intellectual challenge of the markets” is not a trader. The markets are as intellectually challenging as a fistfight. Ultimately, trading is an exercise in self-mastery and endurance.
Ralph Vince (money management expert)
The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.
Victor Sperandeo (master Wall St trader) (more…)
“If you lack a solid trading plan and are stressed out when you trade, you’ll naturally tend to cut your profits short and hold on to losers.” – Van K Tharp
“Without a proper mental approach to trading, someone trading a “Holy Grail” system could produce mediocre results or even large losses.” – Van K Tharp
“A peak performance trader is totally committed to being the best and doing whatever it takes to be the best. He feels totally responsible for whatever happens and thus can learn from mistakes. These people typically have a working business plan for trading because they treat trading as a business” – Van K Tharp
“Trade with an edge, manage risk, be consistent, and keep it simple. The basis of all successful trading can be summed up in these four core principles.” – Curtis Faith
“When you really believe that trading is simply a probability game, concepts like ‘right’ and ‘wrong’ or ‘win’ and ‘lose’ no longer have the same significance. As a result, your expectations will be in harmony with the possibilities.” – Mark Douglas, trader & author
“Wharton taught you that 40 percent of a stock’s price movement was due to the market, 30 percent to the sector, and only 30 percent to the stock itself, which is something that I believe is true. I don’t know if the percentages are exactly correct, but conceptually the idea makes sense.” – Steve Cohen, hedge fund manager
“Traders fail for the same reason that most baby turtles fail to reach maturity: Many are called and few are chosen. Society works by the attraction of the many. As they are culled out, the good ones are left, and the others are released to go try something else until they find their calling. The same is true for other fields of pursuit.” – Ed Seykota
“Charting is a little like surfing. You don’t have to know a lot about the physics of the tides, resonance, and fluid dynamics in order to catch a good wave. You just have to be able to sense when it’s happening and then have the drive to act at the right time.” – Ed Seykota
“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.” – Ed Seykota, trader
“The markets are the same now as they were five or ten years ago because they keep changing-just like they did then.” – Ed Seykota (more…)
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“How do you lose money? It is either bad day trading or a losing position. If it’s a bad position that is the problem, then you should just get out of it.”
“Clear thinking, ability to stay focused, and extreme discipline. Discipline is number one: Take a theory and stick with it. But you also have to be open-minded enough to switch tracks if you feel that your theory has been proven wrong. You have to be able to say, “My method worked for this type of market, but we are not in that type of market anymore.”
“Until recently, I set goals on a monetary level. First, I wanted to become a millionaire before I was thirty. I did it before I was twenty-five. Then I decided I wanted to make so much a year, and I did that. Originally, the goals were all numbers, but the numbers are’t so important anymore. Now, I want to do some things that are not only profitable, but will also be fun.”
Dr Van K. Tharp
“The composite profile of a losing trader would be someone who is highly stressed and has little protection from stress, has a negative outlook on life and expects the worst, has a lot of conflict in his/her personality, and blames others when things go wrong. Such a person would not have a set of rules to guide their behaviour and would be more likely to be a crowd follower. In addition, losing traders tend to be disorganized and impatient. Thet want action now. Most losing traders are not as bad as the composite profile suggest. They just have part of the losing profile.” (more…)
Van K. Tharp came up with a terrific title for his latest book—Trading Beyond the Matrix: The Red Pill for Traders and Investors (Wiley, 2013). The reference, of course, is to the film The Matrix. “We live in a world of illusion shaped by our programming. And at some level, we seem to know that, and we seem to know that there is something better. At this point, you have a choice. You can take the blue pill and go back into a comfortable sleep where nothing changes. … Or you take the red pill and, as Morpheus says in the movie, ‘see how deep the rabbit hole goes.’” (pp. xxiv-xxv) (more…)
Van K. Tharp mentioned there are 3 biases that will affect one’s trading:
1) Gambler’s fallacy bias
People tend to believe that after a string of losses, a win is going to come next. Take for example that you are playing a game of coin tossing with a capital of $1000. You lost 3 bets in a row on heads and cost you $100 each bet. What will you bet next and how much would you stake?
It is likely you will continue to bet on heads and with a higher stake, say $300. You do not ‘believe’ that it can be tails consistently. People fail to realize coin tossing is random and past results do not affect future outcomes.
Traders must treat each trade independently and not be affected by past results. It is important that your trading system tells you how much to stake your capital which is also known as position sizing, so that the risk-reward ratio will be optimal.
2) Limit profits and enlarge losses bias
People tend to limit their profits and give more room to losses. Nobody likes the feeling of losing. Most investors tend to hold on to losses and hope their investments will turn around soon, and they will be happy if their holdings break even. However, chances are that they will amount to greater losses. On the other hand, if they are winning, most investors tend to take profits early as they fear their profits will be wiped out soon. Thereafter, they regretted that they didn’t hold a little longer (sounds familiar?). (more…)