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Is Trading Psychology a Hoax?
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Is Trading Psychology a Hoax?

  #131 (permalink)
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aligator View Post
I think most everybody who is defending Psychology are so fixed on their views that totally miss the point. What really was said is this: " If you know how to run your business you don't need psychology." They all seem to be missing that big "If." ... ...

Not true. Many execs 'know' how to run their business but ask their employees if their boss' alpha-male tyrant style, with low wages and fear in the workplace, is appropriate for example.

Most big businesses treat employees (ie people) as disposable. Right for business, wrong for many other reasons. Being self-aware through psychology will help these guys just as it will traders. Psychology is key and if you do not think so, it just shows how well you are being run in your comfort zone by your own brain programming (ie totally mindless)!

Richard
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Last edited by RichardHK; April 7th, 2013 at 02:22 AM.
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  #132 (permalink)
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DionysusToast View Post
... ...In fact, there is evidence that beyond psychology, biology plays a part. In the book "The Hour Between Dog & Wolf", the hormonal changes of being on top of your game are discussed and their is evidence that this causes rash behaviour that causes performance degradation too. Fascinating book... ...

Yes, but biology comes before psychology. Our 'mind' is derived from chemical reactions within the brain and is subservient to ancestral 'programs' that are primarily fear-based.

Trading simply calls up the same biological functions when faced with an uncertain situation (ie most of trading) and our programmed response is to freeze, fight, or flee. We need to get 'behind' and command these biological programs to trade in the zone. Easier said than done, of course, hence the endless debate on topic here and elsewhere.

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  #133 (permalink)
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Big Mike View Post
"Control emotions", again -- does anyone think having out of control emotions would be a plus in trading? ...

Most definitely not Mike. Out of control emotions are akin to facing a sabre-toothed tiger in our distant past. The brain's programmed response is to survive, fearing death itself. Translated to trading we would hesitate to place trade, bail out of a perfectly good one, or cut a fine runner, for example.

Trading psychology is not a hoax. Kidding ourselves otherwise is simply an effective egotistical defense to tackling the demons/dragons within.


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  #134 (permalink)
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RichardHK View Post
Yes, but biology comes before psychology.


I believe that external environment will have an impact on your psychology more than your biology.
Assume you work with limited funds as a trader, and you place small stops because you cant afford to lose a lot.

Let's assume the next day you win the lottery, and now you have the financial security behind you.
This will change the way you trade instantly, your fears and your greed.
Now you will not place stops that are based on financial situation, and possibly have the patience for your targets to hit. External environment has a tremendous impact on our bottom line and trading plan implementation.

Matt

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  #135 (permalink)
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mattz View Post
I believe that external environment will have an impact on your psychology more than your biology.
Assume you work with limited funds as a trader, and you place small stops because you cant afford to lose a lot.

Let's assume the next day you win the lottery, and now you have the financial security behind you.
This will change the way you trade instantly, your fears and your greed.
Now you will not place stops that are based on financial situation, and possibly have the patience for your targets to hit. External environment has a tremendous impact on our bottom line and trading plan implementation.

Matt

Although the external environment is a very important factor I can't see how can it be above the "internal environment" (ie. emotions).
We are ruled by our emotions. We need our emotions to survive.
Emotions warns us when things are wrong and when things are right.
The problem with emotions is that we are not taught to control them.

It's not a question of trading without emotions but trading with your emotions controlled.
Dr. Steenbarger in his book The Psychology of Trading says something very true:

Most of the surveyed traders did have a set of trading rules to guide themselves, based on their reading of market trends, momentum, and the like. Under emotional conditions, however, their attention became self-focused to the point where they were no longer attentive to their rules. Often, it wasn't so much a case that under emotional conditions they doubted their rules, rather, they simply forgot them.


I'm the living proof of this.
Until I'm able to internalize some new rule I'm being governed by my emotions and his is the worst thing that can happen. Always second guessing, always thinking and in the end I simply forget the rules and trade without any reason for it.

The way to control emotions is through rules, a plan. If you cannot stick to your rules your emotions will run you.

So even if you win the lottery, yes, you will have a complete different setup for your trading strategy but in the end, if you're not able to control your emotions, if you're not able to stick to your rule/plan, you will not be able to succeed.

It's very easy to talk about this stuff, but living it day by day, it's a challenged.
Trading is in fact a psychology "game", not a technical "game".

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  #136 (permalink)
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Dr Brett
That being said, I continue to believe that the majority of emotional overreactions among traders are attributable to poor trading practices. Traders use the same setups and methods across different kinds of markets and inevitably run into periods where those methods stop working. The inability to adapt to shifting market conditions creates frustrations which then fuel (further) poor trading practices. A good example would be traders relying on momentum or trend trading methods in low volatility regimes. The usual advice in such a situation, "Trade your plan", "control emotions", etc is off the mark, IMO.

Omni, thanks for posting your conversation here. I think it's very telling that one of the most respected trading psychologists who has worked with hundreds of traders and who is a trader himself attributes most emotional overreactions among traders to poor trading practices, not past experiences, not childhood trauma, not hidden fear of success, not feelings of unworthiness, not lack of discipline, nor any of the other things commonly mentioned as issues with poor performance.


omni72 View Post
As for trading plans, I no longer buy into 'any plan is better than no plan'. I used to, but it no longer makes sense to me. A crappy plan will lead to crappy results which will PROBABLY amplify any emotional or mental issues the trader is dealing with. Does he deviate from his plan because he's an emotional wreck or is he an emotional wreck because his plan was crap to begin with?

I think even a crappy plan is better than no plan, but only if the trader then is willing to examine and modify the plan as necessary. At least there is a target there he is aiming for, even if it's 180 degrees off the mark, whereas no plan will yield more random results, and even if the results are good, they cannot be replicated in a non-random way, because there is no model to follow to try to repeat those good results.

Your last sentence really says it all--many people assume that any plan/method/approach/system/etc will work, and that the trader is more or less the determining factor, when in fact both are quite important.

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  #137 (permalink)
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arnie View Post
.Trading is in fact a psychology "game", not a technical "game".

I liked your reply, but to end a post with it's a "in fact" and "not" shows slight bias.
Our opinions are a reflection of our experience, and if you think that in this point in your life you need to focus on the psychology part the more power to you.
Now, no one said that the psychology does not play a role, but the entire focus of beginners on this topic and this self mass agreement on this topic might lead many in the wrong direction.

I am a very well read guy, and like yourself I did read Brett Steenberger's book among many other books about phobia, anxiety, stress outside the realm of trading. All I can say is that making you self aware of issues does not always help you overcome them, unless you are involved directly with the professional in a session.

I think that you should should go back in this thread and read someone like @tigertrader : https://futures.io/psychology-money-management/23552-trading-psychology-hoax-7.html#post297688
This is a guy with practical experience in the pits, and went on to successfully trade on the screen.
From what I understand about his statements: psychology will enhance one's trading edge, but having a bad program with discipline leads nowhere.

Like I said, we all perceive differently what we need at different stages of our trading, and at the moment my research is dedicated to the % randomness that occurs, spoofing, etc which is part of the algorithmic trading that has taken over.

Lastly, Since I have dealt with the public for many years, I can say that a change in one's P&L was a result of a method and comprehension of of market interaction.
This has been my experience, but someone could have a different experience.

I find psychology such a growing academic field that I doubt we will understand what is going inside our head. I can only improve what I can observe and control.

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  #138 (permalink)
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Trading psychology- link goals to services

@mattz and @josh I love the discussion. Gets me thinking

I believe each person will have their own perception of psychology so maybe a lot of the discussion is about what we have seen or experienced (directly or indirectly).

One common image of psyhchology is that of a leather couch and talking about some past memory.

The reality is is that this is one small part of what psychology MAY offer.

Psychology is much broader than a leather couch and your mother
  • Sports psychology - training, performance, goals, planning to reach the goals. training times
  • The psychology of crowd behavior - media, advertising, trading theories
  • Conflict resolution and understanding the the rationale processes of the people involved in the incident
  • Educational psychology - schooling systems are built around developmental psychological theories
  • Management of people with mental health issues - support (taking and medication) and also institutional (some people are a danger and need to be in a secure environment - a risk analysis).
  • Parole reports and assessments

The American Psychological Association (APA) recognizes 54 distinct divisions, each representing a specialized field within psychology.

Is trading psychology a hoax?
For me its a resounding NO if there are streams/divisions that help understand crowd behaviour. Can pshchology help us understanding buying and selling behaviour?

Reaching the next level of trading - talking what you do that is stopping progress (practical things like consistent movement of stops), barriers, goals and steps to get there. If you don't believe in talking about the past find someone who has the same view. There are many future focussed (leave the past alone) psychologists. Behavioural and cognitive approaches... Also a good coach or mentor that has a similar more advanced approach than you may be just as good, if not better.....they will have worked through barriers to success and if they are willing to talk about what works...future focussed outcomes.

Do I believe a trading psycholgist is necessary for trading development? No - a good mentor or coach that has a similar approach to you (but more refined) is my goal. I would take that over a psychologist.

Can some people use psychology as a scam/hoax? Yes - there are people that want you repeat business and to have you on a couch talking about past issues over many years is a great money making venture. Same as trading I suppose - some great services and some services that are scams preying on goals people have.

Just my 2c. I work in schools with kids who are in a lot or trouble (on the way to smaller living quarters if there is no change). I have only seen change occur IF they WANT/ need to change and are serious about new goals. The process can involve talking about their past IF it is hindering their future. Most kids I work with don't want to talk about the past and thats excellent. They know what they want and and are working through how to get there. Some people need to talk about what happened in the past to help them in the future (coping with X abuse that results in them now using the same coping pattern to deal with teachers at school).

Some pics related to these ideas


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  #139 (permalink)
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@Disciple. Nice post.

You hit the nail on the head. The topic of Psychology is so complex and people/traders throw it around like we have full comprehension if it.

I have read a book by Robert Cialdini called "Influence" just to realize that us as the masses have very little control over certain inherent behaviors. Although mostly a marketing book or intended for marketers, I was shocked (yep) to see the crowd and mass psychology. I believe that trading has a mass psychology as well, and the only thing i can do in an attempt to educate customers and/or help myself is develop a plan that I believe in and implement it.

On a personal note: I give you a medal working with children. You will be remembered by these children, as I remember my role models. Kudos to such an effort and I hope good things will come your way as a result both financially and spiritually. They will visit you one day, and remind you how you believed in them.

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  #140 (permalink)
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mattz View Post
I liked your reply, but to end a post with it's a "in fact" and "not" shows slight bias.
Our opinions are a reflection of our experience, and if you think that in this point in your life you need to focus on the psychology part the more power to you.
Now, no one said that the psychology does not play a role, but the entire focus of beginners on this topic and this self mass agreement on this topic might lead many in the wrong direction.

I am a very well read guy, and like yourself I did read Brett Steenberger's book among many other books about phobia, anxiety, stress outside the realm of trading. All I can say is that making you self aware of issues does not always help you overcome them, unless you are involved directly with the professional in a session.

I think that you should should go back in this thread and read someone like @tigertrader : https://futures.io/psychology-money-management/23552-trading-psychology-hoax-7.html#post297688
This is a guy with practical experience in the pits, and went on to successfully trade on the screen.
From what I understand about his statements: psychology will enhance one's trading edge, but having a bad program with discipline leads nowhere.

Like I said, we all perceive differently what we need at different stages of our trading, and at the moment my research is dedicated to the % randomness that occurs, spoofing, etc which is part of the algorithmic trading that has taken over.

Lastly, Since I have dealt with the public for many years, I can say that a change in one's P&L was a result of a method and comprehension of of market interaction.
This has been my experience, but someone could have a different experience.

I find psychology such a growing academic field that I doubt we will understand what is going inside our head. I can only improve what I can observe and control.


Aren't we all slightly biased towards the way we think?

Anais Nin wrote:

"We do not see things the way they are, we see things the way we are"

This is so telling, and when applied to the markets it enhances even more the significance of it.
We see things the way we are, the way we were taught, the way we live, the way certain values were passed to us from our parents, relatives, friends, teachers, many of them not in sync with how markets work.
This is probably the biggest hurdle for us traders. Be able to overpass all those barriers that were "imposed" to us and see in fact how things really are.
Naturally the question is, is it possible for us to know how things really are? Sincerely I don't know but I trying to achieve that, looking at a chart and see only what is in front of my eyes, trying not be biased, trying not assume things without any type of signal, indication. Controlling my emotions through a ruled plan.

I have this phrase wrote on top of my screens and every time I looking for a trade I read this, close my eyes, breath in and out slowly and look at the charts again. It really calms me and makes me, for example, not chasing prices when they start to run from me.

I agree with all you said, specially regarding how we perceive things differently at different stages of our trading. That is a good thing, it's tell us that we are evolving... well... at least that is our goal, to evolve as a trader as time goes by.

If I become half a percent smarter each year, I'll be a genius by the time I die
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