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Is Trading Psychology a Hoax?


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Is Trading Psychology a Hoax?

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  #101 (permalink)
 aligator 
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For psychology fans. here are some excerpts from Dr. Gary.

  • [while they go in tandem] "having a really good system is number 1, is not really psychology"
  • "an amateur athlete not training, practice, or don't do anything and not knowing, like an amateur tennis player playing against Nadal or Federer,...in the.....Open, it is crazy"
  • ".... so we wind up seeing a psychologist"
  • "If you don't have a good solid edge, all the good psychology in the world is not going to help you."
  • "become master of what works for you"

From Dr. Gary's May 10, 2011 Webinar on futures.io (formerly BMT), (time 57:30 to 59:00)


[To sum up: know your stuff, have an edge, master your edge, hone your skills, and most likely you don't need a psychologist]

Which brings me back to the big "IF".

Thanks you Dr. Gary!! Great webinar!!

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  #102 (permalink)
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aligator View Post
"Greedy feeds on others' fear ......" Old wisdom

Irrelevant. Fear and greed have still done well for the human species for the last two hundred thousand years relative to other species.



aligator View Post
"One can teach only what one practices ....." Zen teachings

Inconsequential. Someone may be better at coaching than trading if they practice trading and/or coaching.

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  #103 (permalink)
 aligator 
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siggyboss View Post
Someone may be better at coaching than trading if they practice trading and/or coaching.

Translation: So if that someone is better at coaching than trading, then that someone should be couching "How to Coach" not "How to Trade."

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  #104 (permalink)
 plethora 
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I'm amazed how many people out there say they wouldn't mind a trading coach who can't trade. Let's assume that person can coach, how much can they genuinely impart? If you turn into the trader you hope to be, do you then also attribute your powers to them and not yourself. And if you don't become the trader you desire it's because you didn't have enough self respect to believe you deserve someone better to guide you.

ETA: In response to this same question another time on futures.io (formerly BMT), someone responded to the tune of: "Would you have open heart surgery with a doctor who was a better teacher than a surgeon?? That comment made an impression and ended the debate. Why lesser standards for imparting the art of trading?

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 kevinkdog   is a Vendor
 
 
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There are plenty of coaches in professional sports who were far from stellar athletes. The Super Bowl was a recent case in point:

Jim Harbaugh, coach of the 49ers, was a great athlete in his day. He is also a really good coach.

His brother John, coach of the Ravens, was NOT a great athlete, but so far is an even better coach. He just won the Super Bowl.



So, I see 4 groups of people (with shades in between):

1. Great trader, great coach
2. Great trader, mediocre coach
3. Mediocre trader, great coach
4. Mediocre trader, mediocre coach


I would bet that the abundance of these folks is in reverse order: 4, 3, 2, 1. People want #1, but many times are fooled in picking for #4.

Those looking for a coach need to do a lot of due diligence, and spend time with the coach before committing big bucks. Even then, they should realize the odds of success are still stacked against them. Trading is a really hard profession.

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  #106 (permalink)
 plethora 
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The difference is that a professional player is paid to be coached unlike a trader who is not.

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plethora View Post
The difference is that a professional player is paid to be coached unlike a trader who is not.

Can you please explain the distinction?

Here is what I see: An athlete and a trader are both professional (if they take it seriously), both are paid to perform(if they do their job correctly). The people in charge have decided that an athlete absolutely needs a coach to get the most out of the athlete. Not so with traders, although some hedge funds have coaches on staff, and traders have to meet with them. Not true with retail traders, though.

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 plethora 
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No, they're not both professional. The aspiring trader desires to become a professional. He's not one yet and does not have a shot by being trained by another trader-wannabe. But it's romantic to think so.

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plethora View Post
No, they're not both professional. The aspiring trader desires to become a professional. He's not one yet and does not have a shot by being trained by another trader-wannabe. But it's romantic to think so.

Gotcha.

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  #110 (permalink)
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To trade, you need to learn how to trade. That is the baseline.

If you believe that trading is a skill based competitive endeavour, then it follows that psychology may have a part.

Like any sporting endeavour, psychology can't make up for you being crap in the first place. So, no point getting a sports psychologist to attend your first golf lesson.

On the other hand, let's say you have a 15 yard put on the 18th. Hole this shot and you win the tournament and a cool $1,000,000. Fluff the shot and share 2nd place with 5 others. As you line up for that shot, your visits to a sports psychologist could make or break you. So could beta-blockers.

Think about it - this is an easy shot you took a million times. But now there is so much riding on it, can you just saunter up to the ball and pop it in the hole? Or will you be deliberate, think things through too much, not rely on just letting your body do it's thing in taking the shot. In short - will you f*** it up?

With any skill, your performance can degrade under pressure. You need skill before this will show up in my opinion but anyone that has played a sport competitively will know that feeling of pressure that mounts as the outcome becomes more important.

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  #111 (permalink)
 Disciple 
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What a brilliant thread - gets you thinking.

Heres my take...

All people learn - including people with natural abilities and advantages
  • If a person cannot swim...we teach them to swim
  • If a person cannot write...we teach them to write
  • if a person wants to become an engineer...they attend a university and learn
  • If a person wants to play professional sports...they get a good coach and play in a good team
  • If a person inherits a family business... mum and dad take years teaching, mentoring, showing, guiding

I am not a believer that you you either have it or you don't however there are gifts, abilities and contextual advantages that help a person excel. BUT hard work and persistence are also huge factors. Consider Henry Ford i

Henry Ford, 1863-1947, automobile manufacturer, first two automobile manufacturing companies failed. The first company filed for bankruptcy and the second ended because of a disagreement with his business partner. In June 1903, at the age of 40, he created a third company, the Ford Motor Company with a cash investment of $28,000.00. By July of 1903 the bank balance had dwindled to $223.65, but then Ford sold its first car, and as they say the rest is history.

If there is no mandated formal training or a community to teach a person how do you learn?
Imagine that there were no training requirements for anything
What would surgery look like?
What about law and order?

Heres the thing - some things in life are not taught well.
Some people have grown up without good role models of behaviour and how to cope with uncertainty when making decisions.
Some people have not had parents and access parenting courses when they are older - will they be bad or good parents?

Trading is a skill that is not taught to most people from a young age by someone who know what they are doing. It does not require a mandated course to complete. So how do people learn?

If a person wants to trade
...they have access to millions of books, self promoters, strategy salespeople and sharks
...it can be a lonely journey
... what would have been spotted and challenged by a teacher in a course can take a lot longer when you work through the issue yourself
... mentors, coaches, trading peers, forums, trading psychologists are all resources that can help get your head in the game

Heres the catch though
There are so many books, systems and "help" that are actually sharks in disguise that the way forward can be harder than formal training.

Another factor is that there is stigma attached to mental health issues. Don't believe me - next time your at a party tell a group you see a psychologist and see how they react. So maybe, to avoid confusion, the word psychologist should not be used as people see it mean weakness and failure. Working through an issue, from my perspective, is never a weakness. We all have crap to sort out.

So for trading the issue is about a career goal and and training to get there.
  • In studying to become a doctor do you think they have course content looking at coping with the death of a patient? Do you think they would have a network to talk about this issue?
  • To teach his kids about taking over the family buisiness do you think a father would have talked about what it takes to stay in the game and deal with people that don't pay their bills?

The point is I suppose is that psychology is a word that has bad connotations - mental health stigma. But what we are essientially talking about for trading (and other life choices) is the development of skills and mindset to pursue a goal. Many people have opportunities in life where "psychological skills" are discussed in a conversation with a friend, parent or mentor. Other people do not have these natural opportunities.

In my opinion psyhcohological skills CAN help skill development in areas like
  • Mindest
  • Problem solving
  • Articulating an issue
  • Goal setting
  • Netwoks to helpe pelople build skills they did not learn due to breakdown of community
  • Helping people retrain behaviour/habits that has developed over a lifetime.

There are however sharks in the psychology services as well - so be careful. Some people will take your money and create a dependence on them - its a great way to get repeat business. Avoid them.

What things can make a psychologist unnessary?
  • Maybe if traders accessed formal trading from pros
  • Training over an extended period of time at a reasonable cost
  • Training that required observing and practice (as with any career). Job placement/work exp with someone.
  • The network of peers and trained professionals to talk - down the pub, on the phone, emails...

I'm a believer in goals, learning, skill development, psychological adaptation and perseverence - again Henry Ford is a great role model for me. I wonder who he talked with after he went bankrupt? What people assited him informally?...Today maybe those informal conversations could be labeled psychology

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  #112 (permalink)
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DionysusToast View Post
To trade, you need to learn how to trade. That is the baseline.

If you believe that trading is a skill based competitive endeavour, then it follows that psychology may have a part.

Like any sporting endeavour, psychology can't make up for you being crap in the first place. So, no point getting a sports psychologist to attend your first golf lesson.

On the other hand, let's say you have a 15 yard put on the 18th. Hole this shot and you win the tournament and a cool $1,000,000. Fluff the shot and share 2nd place with 5 others. As you line up for that shot, your visits to a sports psychologist could make or break you. So could beta-blockers.

Think about it - this is an easy shot you took a million times. But now there is so much riding on it, can you just saunter up to the ball and pop it in the hole? Or will you be deliberate, think things through too much, not rely on just letting your body do it's thing in taking the shot. In short - will you f*** it up?

With any skill, your performance can degrade under pressure. You need skill before this will show up in my opinion but anyone that has played a sport competitively will know that feeling of pressure that mounts as the outcome becomes more important.

Well said. Very well said.

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  #113 (permalink)
 Silvester17 
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DionysusToast View Post
To trade, you need to learn how to trade. That is the baseline.

If you believe that trading is a skill based competitive endeavour, then it follows that psychology may have a part.

Like any sporting endeavour, psychology can't make up for you being crap in the first place. So, no point getting a sports psychologist to attend your first golf lesson.

On the other hand, let's say you have a 15 yard put on the 18th. Hole this shot and you win the tournament and a cool $1,000,000. Fluff the shot and share 2nd place with 5 others. As you line up for that shot, your visits to a sports psychologist could make or break you. So could beta-blockers.

Think about it - this is an easy shot you took a million times. But now there is so much riding on it, can you just saunter up to the ball and pop it in the hole? Or will you be deliberate, think things through too much, not rely on just letting your body do it's thing in taking the shot. In short - will you f*** it up?

With any skill, your performance can degrade under pressure. You need skill before this will show up in my opinion but anyone that has played a sport competitively will know that feeling of pressure that mounts as the outcome becomes more important.

in other words, in order to be a successful professional athlete, you have to be able to perform under pressure. and the same goes for trading.

if you struggle with psychology issues, then you're not ready or maybe never will be. as simple as that. what's the worst that can happen? you'll lose money. and if you can't afford to lose money, then this is a great clue that trading is not for you.

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  #114 (permalink)
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Silvester17 View Post
in other words, in order to be a successful professional athlete, you have to be able to perform under pressure. and the same goes for trading.

if you struggle with psychology issues, then you're not ready or maybe never will be. as simple as that. what's the worst that can happen? you'll lose money. and if you can't afford to lose money, then this is a great clue that trading is not for you.

Lots of professional golfers have used a psychologist to get them through rough patches. I am talking about world champions.

In my fathers 'sport' - Professional darts players have a condition called "dartitis" that prevents them from letting go of the darts. I am talking about world champions.

These are people at the peak of their game. It happens in many sports, people have ups and downs.

The book "Golf is not a game of perfect" is a sports psychology book but is also one of the best trading books I have ever read, even though trading is not mentioned in there once.

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.

Still - I think the baseline is knowing how to trade. Without that, psychology won't help at all. Within that, I think it has a place but is perhaps something you lean on when your hit a rough patch.

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  #115 (permalink)
 aligator 
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DionysusToast View Post
Lots of professional golfers have used a psychologist to get them through rough patches. I am talking about world champions.

Amazing how people compare traders to professional golfers. Those golfers have already done amazing things to get their professional card. They are already equivalent to the greatest traders in the world, and only the top 200 make significant money worthy of continuing as "Professional." The ones that don't make it become club professionals, caddies, or tour operators, but they are not golfing professionals, unlike many dropout traders turning psychiatrists and educators that call themselves professional traders.

The very top performers, when they go to a psychologist it is for a checkup, tune up, and if necessary minor adjustments to a machine that is already a winner (a NASCAR analogy). Not every one of 39000 drivers on futures.io (formerly BMT) and many more thousands in the world need the same tune-ups, many of whom not knowing how to drive a dune buggy.

It is misleading to compare apples to oranges. Yes, it is true that top 200 traders may need to see a psychologist once a while to relieve them from pressure, but they know their stuff. Most likely they see a psychologist for issues outside trading that are affecting their trading, like family issues, etc. But it is not to learn when hold or when to fold, they already know that.

The pressure for performing belongs in every job, so if one can't take the heat should not be in the kitchen (Dr. Gary implied the same in his webinar). Yes, he can crank up the air conditioning, but still can't cook. One can only compare Tiger, Jim Hargaugh, Roger Federer, etc. to the top 4 traders in the world. Unlike tens of thousands of want-to-be-overnight-rich Forex and futures sensations, these guy have been training with the best since they were in diapers.

We are talking about a few one-of-a-kind people at the highest level of performance. If I ever get to that level of performance in trading my worries would be unrelated to trading know how but more personal issues. I could then hire my own personal psychologist to keep my calendar and remind me of my shortcomings in the harem.

Cheers!

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  #116 (permalink)
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aligator View Post
Amazing how people compare traders to professional golfers.

Not really - it is merely an analogy used to illustrate a point.



aligator View Post
Those golfers have already done amazing things to get their professional card. They are already equivalent to the greatest traders in the world, and only the top 200 make significant money worthy of continuing as "Professional." The ones that don't make it become club professionals, caddies, or tour operators, but they are not golfing professionals, unlike many dropout traders turning psychiatrists and educators that call themselves professional traders.

The very top performers, when they go to a psychologist it is for a checkup, tune up, and if necessary minor adjustments to a machine that is already a winner (a NASCAR analogy). Not every one of 39000 drivers on futures.io (formerly BMT) and many more thousands in the world need the same tune-ups, many of whom not knowing how to drive a dune buggy.

It is misleading to compare apples to oranges. Yes, it is true that top 200 traders may need to see a psychologist once a while to relieve them from pressure, but they know their stuff. Most likely they see a psychologist for issues outside trading that are affecting their trading, like family issues, etc. But it is not to learn when hold or when to fold, they already know that.

The pressure for performing belongs in every job, so if one can't take the heat should not be in the kitchen (Dr. Gary implied the same in his webinar). One can only compare Tiger, Jim Hargaugh, Roger Federer, etc. to the top 4 traders in the world. Unlike tens of thousands of want-to-be-overnight-rich Forex and futures sensations, these guy have been training with the best since they were in diapers.

We are talking about a few one-of-a-kind people at the highest level of performance. If I ever get to that level of performance in trading my worries would be unrelated to trading know how but more personal issues. I could then hire my own personal psychologist to keep my calendar and remind me of my shortcomings in the harem.

Cheers!

A point that you seem to agree on.

One guy says


Silvester17 View Post
in other words, in order to be a successful professional athlete, you have to be able to perform under pressure. and the same goes for trading.
.

Then you show that professional athletes do actually need help.

Then the next guy on the forum says "but those are the elite, that's not a valid example"....

You gotta love these discussions...

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  #117 (permalink)
 Big Mike 
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Bottom line, discounting psychology is the same as discounting your mental health. Psychology doesn't mean seeing a shrink. It means being aware of your mind and its behaviors. Surely you aren't going to try and make an argument that mental health is unimportant.

I for one try not to be so close minded to think that I can just use willpower alone to be good at something.

Skill is composed of more things than just physical prowess. There is also mental aptitude. And in order to exercise your mind, you must at least accept that psychology is not a "hoax".

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 plethora 
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Big Mike View Post
Bottom line, discounting psychology is the same as discounting your mental health.

True, but why the unnatural premium placed on mental health in relation to the subject of trading when "mental health" is discounted in so many more important aspects of one's life?!

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 Big Mike 
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plethora View Post
True, but why the unnatural premium placed on mental health in relation to the subject of trading when "mental health" is discounted in so many more important aspects of one's life?!

Perhaps it is because people are very emotional when money is on the line?

All you need to do is read journals on futures.io (formerly BMT) to see how emotions play a major role in trading.

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aligator View Post
Translation: So if that someone is better at coaching than trading, then that someone should be couching "How to Coach" not "How to Trade."

Non sequitur. If someone is better at coaching than trading, they should coach versus trade. Nothing has been said as to whether they can coach others on how to coach traders (i.e. How to Coach), which is irrelevant in this case.

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 aligator 
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Big Mike View Post
Bottom line, discounting psychology is the same as discounting your mental health. Psychology doesn't mean seeing a shrink. It means being aware of your mind and its behaviors. Surely you aren't going to try and make an argument that mental health is unimportant.

I for one try not to be so close minded to think that I can just use willpower alone to be good at something.

Skill is composed of more things than just physical prowess. There is also mental aptitude. And in order to exercise your mind, you must at least accept that psychology is not a "hoax".

Mike

Agree with all, except one thing. The argument is not based on being close minded. The title of this thread and the jest of the discussion is: Is "Trading Psychology" is a Hoax, not Human Psychology. I am not about to challenge Sigmund Freud.

No one denies there is a human psychology component in every job, and trading is no different. If you talk to real psychology experts with credentials they will tell you that majority of the the real issues affecting job performance are not related to job itself. So, why is it that a trader under pressure deserves a unique brand of psychology and is different from a sales professional under pressure to meet his monthly quotas.

Tiger (a bad example here, because he is one of the best) is just recovering after two years of therapy for issues that had nothing to do with course management or his swing mechanics, but were affecting his performance. That is "Human" psychology not "Golfers" psychology. This is true for any job, but to make a unique distinction of "Traders Psychology" is a hoax.

Like any other job, a trader needs to gain and master the knowledge, skills, mechanics, poses experience, perform the job and deal with the human psychological aspect of trading like any other job.

Do some 4 billion workers in the world need to see a psychiatrist to perform their jobs? Not a chance, unless they have gone crazy insisting on doing a job they can't be fit for.

What is unreal here is that some claim 50 percent of trading is psychology. While that maybe the case for gambling, it is far from truth in intelligent trading. Trading is just another job, no more no less.

A quote from Wychoff:

"Anyone who buys or sells a stock, a bond or a commodity for profit is speculating if he employs intelligent foresight. If he does not, he is gambling."

Richard D. Wyckoff, American pioneer in technical stock analysis"

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Have any of you men suffered from performance anxiety in the bedroom and seen the rather deflating results?

Happens to all of us at some point, usually through wanting to impress a new partner.

Same sort of thing in my opinion. Sometimes you can do something over & over & over again but then you start making it a conscious thing and boom - the wind goes right out of your sails.

It's not unusual at all.

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 Yuri57 
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liquidcci View Post
Psychology will not fix a bad strategy but psychological issues can destroy a good strategy.

Well said. A trader should be clear-headed. If he is not he is either trading too big or inexperienced.

I have experienced my limits and I pay attention not to push myself over the edge EVER.

When I had discomfort while trading I always f#cked it up. So first I stopped trading when I had this bad feeling later I learned that I shouldn't stress myself and make trading decisions I will be satisfied with. For this you need to know your limits.

---

Talking about psychology I think it is good guess what are the bears and what the bulls are anticipating.

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 Disciple 
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Talking about psychology I think it is good guess what are the bears and what the bulls are anticipating.

I have heard this referred to as "Theory of mind" - and some believes its an edge in the markets. I am having a look at this at present - volume profile and trying to understand what others may be thinking at specific levels.

An interesting interview at topstep trader - one of the newly funded traders said that trading psychology (or awareness of self and limits and personality) was the key to become profitable (he pulled some big numbers). He also said that trading psychology is the difference between the 95% and the 5%. Everyone wants an indicator and method but few look at their routines, processes etc when it comes to decision making. Those that do he believes excel. In his journal he writes down the mistakes he makes or things that go wrong - and then looks for patterns - usually one common error can come out in a few ways in trading. So he works on that and its helped him.

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 Gary 
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I really enjoy threads like this one.

I know what I would call 'the psychological factors' were what personally held me back from consistency.

One example: take an average trader; you know the one, the one which is losing money, or is not consistently making profits, and let's say this trader has a problem with over-trading. Maybe this is you now?

Let's assume he has already identified that he over-trades often, which of course results in less than desirable results. Less than desirable because 1) he loses money in the long term because of this 'issue', and more importantly 2) because he realizes he is not able to follow a plan which dictates that he only take X trades per day/week, etc. A plan which states he should only focus on one, maybe two A+ type setups. He is not able to control himself. He cannot help but over-trade, and as soon as he does, he realizes the mistake he has made, but will continue to repeat this mistake for some time. Many times until the pain has reached some individual threshold, or the money is gone.

Now, ask this trader to only focus on taking no more than one trade per day for a few weeks. Ask him to not focus on making money, not even to focus on not losing money, simply focus on only taking at most, one trade per day.

How many of the average trader can even do this?

In my experience, very very few.

So, then, the question is why?

Not an easy question to answer, as each of us have a history, experience, and mental 'makeup' unlike any other person.

So, then why do so many people regardless of their history/experience/makeup suffer from similar symptoms?

I believe because we have more in common than we think when it comes to reactions to things such as fear, greed, pain, etc.

And, if this is true, then in my humble opinion, the good news is this means many of these issues or obstacles can be over-come in similar ways. Spend enough time working with people, studying people, working through your own demons, etc., and often this experience can be translated into practical exercises which can help others to overcome these same obstacles. This is where forums like BigMikeTrading can become an invaluable tool.


Spend enough time, and you will find that many of the traders who are consistently profitable talk about the importance of the mental game, their "pre-game" preparation, their ability to be self-aware, to know when they are "in the zone", and when they are not, and other similar topics. Coincidence?

If this is not psychology (trading or otherwise), then what is it?

Gary

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 omni72 
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I recently had the pleasure of enjoying a tiny bit of dialog with Dr. Brett regarding some psychology and trading type stuff, and included it in my latest journal entry. Our esteemed futures.io (formerly BMT) friend @josh thought it would fit in well with this thread, so I was more than happy to share it here:


Quoting 

Quoting 
Hi Dr Brett -

I have a question I thought you may be able to help me with. Thanks to my wife's keen eye, we came across an article ( Why We Think Thin | Psychology Today) related to eating. Rather than try to paraphrase the content for you, if you have about three minutes to read it you'll probably get a better idea of what the author was conveying.

My question is: how likely is it that traders develop and perpetuate processes similar to those described in the article? It seems like a very easy task to replace 'eating' with 'trading'. Of course, I have a biased perspective because I already don't believe the frequently shared suggestion to control/eliminate/remove emotions from trading. Acknowledge, recognize, study, learn, manage - all those seem like worthy pursuits.

On the surface it may seem like a simple matter of semantics, but I think it is more than that. Traders, especially developing or struggling traders, really latch on to things like 'remove your emotions'. And when they can't do the impossible, it just reinforces their already fragile and unrealistic expectations of themselves.

Hi Derek,

Yes, I think there is a connection between the eating issue and the emotions issue in trading. Conscious strategies to (over)control behavior can unwittingly amplify that behavior. It's like telling yourself to not think about pink elephants. A different approach would be mindfulness, which would encourage people to observe their emotions, but not become absorbed/identified with them.

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.

Brett


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There are a lot of axioms in trading.

"Trade your plan" for example, well does anyone expect that not following your plan would somehow lead to better results?

"Control emotions", again -- does anyone think having out of control emotions would be a plus in trading?

If you go back thru futures.io (formerly BMT) journals and read posts you'll find some where the trader has had a really bad day. More times than not, when a trader has a really bad day, it isn't because they were in control of their emotions and followed their plan.

So those axioms are only useful in as much as they are simply requirements, prerequisites, for being a good trader.

Mike

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BTW you can't will yourself into following your plan or trading without emotion. Those things require practice and an environment where you can measure your actions.

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 omni72 
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Big Mike View Post
There are a lot of axioms in trading.

"Trade your plan" for example, well does anyone expect that not following your plan would somehow lead to better results?

"Control emotions", again -- does anyone think having out of control emotions would be a plus in trading?

If you go back thru futures.io (formerly BMT) journals and read posts you'll find some where the trader has had a really bad day. More times than not, when a trader has a really bad day, it isn't because they were in control of their emotions and followed their plan.

So those axioms are only useful in as much as they are simply requirements, prerequisites, for being a good trader.

Mike

I think in concept, we are probably on a similar page in regard to these topics.

However, anyone trying to control or eliminate their emotions is destined to fail. Actively aware of them? Sure. But there is a potentially wide band of variance covering the space between out of control and emotionally stable. And if some one has out of control emotions, trading will just be another way to express that.

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 most struggling traders create plans for their ideal, future self instead of their realistic, current self. It's like deciding to start working out tomorrow by following a plan that has you benching 300-lb on day one. You're not ready for 300-lb today, so if that is your 'any plan', you're gonna fail. Start with a plan that has you starting with just the weight of the bar. That's where your current self is. That doesn't mean a 300-lb press plan isn't in your future - it's just not your in your today.

Also, I'm not immune to any of this crap either. I still often try to enlist the skills and talents of my future self

Edit: @Big Mike, After re-reading your post, I'm not sure I took away what you intended. I started to edit my response, but opted to leave it as is so that you can correct any misunderstandings I may have come away with. Thanks, in advance.

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In my experience emotions really only come into play when you start trying to force things. Simple as that.

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 RichardHK 
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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)!

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... ...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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"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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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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 arnie 
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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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 josh 
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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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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 :
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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 Disciple 
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@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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@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.

Matt

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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 :
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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An interesting perspective from some experts:
Watch: How to Tame Your Emotions When Investing - Wall Street Journal - WSJ.com

Matt

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