Trading Psychology

[Simon]

Julianj, one of our members has asked us to start a new thread about trading psychology.

This must be the least talked about subject in trading, but is really one of the most important.

Sticking to your system is vitally important. As the old saying goes, "a bad trader can lose money with a good system, a good trader can make money with a bad system".

What makes a good trader? Psychology.

My approach to the subject is simple (I trade off H4, H8 and Daily charts). Place the trade and walk away. My auto-trailing stop will either kick in or it won't.

We would love to hear your thoughts on the subject.

Simon.

[julianj]

Thanks Simon.

I am going to read Trading in the Zone, it's winging its way from Amazon as I post this, and will write a review.

I hope there will be plenty of contributions to this thread because it seems to me sometimes that the actual method of trading chosen by somebody is less important than discipline and not making poor decisions based on psychological pressures, the famous "Fear and Greed" I keep hearing about.

[capsmart]

I see it in another way.
I would say that there are factors.
So psychology has a factor from 0-9 and trading system a factor from 0-2.
So if you have an excellent system (=2) and a crap psychology (=1) you will get a 2 as a result.
If you have an excellent psychology(9) and a crap system (1) you will get a 9 as a result.
Of course if you have no system (0) or you are just a gambler (0 psychology) the result will still be a 0.
Of course there is no scientific research behind those numbers but this is how I see it.

[Simon]

Capsmart,

I think your analysis is correct and another way of putting the expression I used in the first post.

This also ties in with getting in tune with the market, i.e. you should try and follow what the market is doing, not trade based upon what you think the market ought to do.

This seems obvious but fits in perfectly with my favourite trading quotation:

"Markets can remain irrational a lot longer than you and I can remain solvent."
John Maynard Keynes

It's also more cheery than my favourite economics quote, from the same man:

"The long run is a misleading guide to current affairs. In the long run we are all dead."

[julianj]

Trading in the Zone Book by Mark Douglas



This is an important book. I don't feel able to give it a full review, because things haven't sunk in yet. It is a book about the psychology of trading and winning and losing.


The positives for me were the explanation of consistency and a kind of "zen calm" about winning or losing would mean that any system that's halfway decent will give you profits in a longer perspective. Douglas talks about people who are knowledge junkies who think that even more knowledge will just give them the edge, then there's that bit more knowledge...etc etc. I recognised myself immediately.


He also writes about bad trading habits and how making losses feels. There's a lot of what I thought was cod psychology relating to a boy who acquires a fear of dogs.


One good idea on page 196 explains about trading in samples of 20 trades or more, which avoids the knife edge feelings when you lose a single trade. It expands the definition of success or failure.


I think the underlying philosophy of this book is very good. I'm less sure about how to put it into action in my regular trading. However, we shall see. I have often done self-development courses, and felt great when I did them but the effects wear off and habits are hard to shake.


All in all I recommend this book, as long as you understand its not a book giving trading tips, indeed it scarcely mentions forex at all - that's not its purpose. It is trying to get your philosophy beyond fear and greed to become a much more focussed trader.

[robsam]

Trading Psychology is a term which is really important for traders. The patterns you see, the strategies you follow and the system you use, i all depends upon your trading psychology. I am not saying that everything depends upon it but at places where you need to take important decisions like buying and selling, it becomes very important.


----------------------------
"gOING hIGH"
forex broker

[sfx1971]

Working on yourself is THE most important aspect of trading yet the most overlooked. If you don't know who you are and what your beliefs about the markets are then there is an excellent chance that you will fail! This, for example, is why a winning system (perhaps marketed on the internet) in one traders hands turns out to be a losing system in another traders hands. The system goes against some or all of your market beliefs and you will find a way to lose (subconsciously). So it is vitally important that the system fits you in order to make it work!

Try TraderFeed which I think is the most comprehensive resource for trading psychology out there. Brett Steenbarger who blogs on the site has three excellent trading psychology books that you can apply to every day trading scenarios. Search for him on Amazon and take a look, you won't regret it.

I also like 'Super Trader' by Van Tharp which is another superb 'useable' resource that you will come back to time and time again.

Put a trading psychology section in your business plan and allocate some capital and time to working on yourself. I did and it turned my trading around!!!

Regards,

Richard