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

  #11 (permalink)
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Like driving in Indy 500, trading is not for everyone

You and Silvester both said this, and I wholeheartedly agree.

But who we are is the sum total of all of our life experiences, from birth until now. So we might say someone "cannot handle trading" or is "not cut out" for trading. That may be true, but isn't that intrinsically linked to their life experiences, their attitudes, their emotional makeup, their... psychological self?

Whether they can be successful or not, I'll never say, but I agree, some are just better than others. But the question is this: is that success due to internal factors, or external? The obvious answer is, to some degree, both. But seeing as how there are almost as many methods, systems, approaches to the market as there are traders, it makes sense to me that the success or lack of it is more dependent upon who the person is, how their mind works, and their ability to see markets for what they are.

I have a strong distaste for reading about how someone's trading is related to how he was treated when he was 5 years old, blah, blah, etc. But who am I to say that maybe this is truly a key that may open doors for this person in both his personal and professional lives?

Finally, I'll say this: some people jump into psychology too quickly. It takes time, experience (as Mike referred to), and an understanding of how markets operate in order to have a chance. Exploring personal psychology when one is still pretty new is probably not a step in the right direction, and I think this is largely the point you are making. They try to blame their newbie-ish behavior on psychology, when in fact it's just because they're new, don't know what they're doing, etc.

Perhaps a balanced approach and appreciation for all the various components needed is in order: we need strategy/method/experience, and we need the ability mentally to execute in a way consistent with success.

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  #12 (permalink)
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Psychology is a funny topic in general (not just in trading).

Great people are often acutely self-aware. They know what they are thinking and feeling, and they are capable of stepping back and viewing themselves not through the lens of their anxiety-ridden egos, but in an objective way. They have often struggled and sweated to develop that ability.

That being said, those people tend not to spend a lot of time fretting about, whining about, obsessing over, or explaining their successes and failures by referring to their personal psychology.

Empowered by self-understanding, they are now focused exclusively on excelling at the task at hand.

best,
RK

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  #13 (permalink)
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I found some Psychology helpfull.
It helped my to separate out emotional baggage that affects not only Trading but life in general.
It helps to understand why I do what I do.
Now Im not trying to find any "cure" or solutions to problems that took a lifetime to aquire.
Ya can't just undo fifty somethin years of history.
But I have found that I can separate and move on from hear.
So I don;t ponder on cures and fixes.
See what is hindering my intuitive development, face it strate up and move on.
Like make a line in the sand.
Ray at IDT has a good model .
Another place I found was a guy Andrew Menecker.
He don't call himself a shrink, he is a stretch.
POPdoc.com

Im not paid to advertise just sharing what works.
You do not have to spend tons of money these two guys can get ya situated and focused.
They got some good tools to have in your box.
Emotional capitol has value.

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  #14 (permalink)
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I am fond of the way Jedi (from the chatbox) looks at things. He categorizes trade mistakes into 2 separate groups. Method and execution. Method is if you trade exactly to plan and the trade still goes bad, then that is method failure. Nothing wrong with this. Statistically gonna happen.

Conversely, if you mishandle the trade by not pulling the trigger, chasing, holding a loser, whatever, then that is an execution failure (win or lose). That is attributable to psychology, whether it be emotion, discipline, or the ability to make the decision at the right time. Using the 2 group approach simplifies things. Post trade you evaluate your your trade and check it off in one box or the other. You can tally them up and see if you have a problem and where it lies. Does your method suck or does your execution suck? Or are you a trading god and those check boxes rarely get any action?

As opposed to looking at "psychology", which for some is a bad word, just look at your execution.

I am not one to talk as I suck discretionary and know it, but this is one thing that stuck out to me as a way to simplify psychology.

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  #15 (permalink)
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Luger View Post
You can tally them up and see if you have a problem and where it lies.

Something like Yoda might say: The Force you go with.

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  #16 (permalink)
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All anyone needs to do is spend a few minutes reading trading journals on futures.io (formerly BMT) to see how important psychology is with trading.

The psychology of trading is not about "my mommy didn't let me play outside when I was 5, and now I'm a bad trader". I think maybe some people that oppose the use of the word psychology are just hung up on the wrong mental image of what it means.

The development of the mind.

Mike

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Last edited by Big Mike; October 4th, 2012 at 05:16 AM.
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  #17 (permalink)
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Some people like to say psychology has no place. You are either a skilled trader or you aren't. Maybe that is true if you are an Android or computer, but as a human, you have emotions. Your mind plays tricks on you. If you don't know that to be true, then you need to do some more research on how memories work with the human brain.

When you put all these things together, "the psychology of trading", you come up with a collective of reasons that can explain away why you held on to that losing trade, even though your plan said to get rid of it. This is both a good and a bad thing.

For most, it is a good thing when they finally realize that their poor trading performance is a direct result of their own actions. Too many traders never get this far. They blame the market, indicators, vendors, platforms, data feeds, family, phone calls, whatever. But never themselves. No accountability.

When you finally realize that it was your own actions that caused you to mis-manage a trade, that is progress. But why did you do it? You know you did it, but why?? I call this the psychology of trading. Why do we as humans want to be right? Why is it our memories fault us, convincing us of something in order for us to be right, when in reality we were wrong?

You cannot use psychology as a crutch any more than you can use an indicator as a crutch, or a scapegoat. To do so would be a mistake. But at least if you focus your energy on psychology, you've recognized that you are responsible for your own actions. I believe this is inherit with psychology -- it's called taking accountability.

Once you've identified problems with your trading, lets say over trading, holding losers to long, whatever --- now you can begin to work on these areas. Why do you do these bad things? Surely you can read english, and right in front of you is your trading plan which clearly states in bold letters "DO NOT HOLD LOSERS TOO LONG". Yet you do it anyway. You can read right? So what's the problem?

Some people will say that isn't psychology, it's skill. I think it's the same. When you are great at a skill, it means you've mastered all aspects of it, including the psychological aspect. You cannot simply remove the psychological aspect of a skill because you don't like the word. It is there whether you want to admit it exists or ignore it.

I believe that those that think psychology has no place in trading just look at it in simple black/white terms of "if you didn't follow your rules, you are a bad trader". They don't think psychology enters in to that. And again, I think it's just mincing words, because it is all the same thing. They are interchanging skill for psychology and vice versa.

So again, call it what you want, so long as you are spending time on it. At least you aren't downloading 10 new indicators every week, spending hours looking at new and improved setups on your chart, trying to find new indicators to minimize chop, trying to add new filters to your chart... right? RIGHT??

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
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  #18 (permalink)
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Is Trading Psychology a Hoax?

Great thread!

Of course, greed and fear are part of the human make-up and both affect trading between the ears.

In a free promotional webinar I attended by Rande Howell (aka "Trading Psychologist") he said (paraphrasing), the brain cannot distinguish uncertainty from fear.

My interpretation on Rande's observation is since trading almost always involves uncertainty every time a trader pulls the trigger this is perceived by the brain as fear. For my own trading I think this is why many times I fail to enter valid setups (avoidance of uncertainty - avoidance of fear). I have certainty only when I don't take a trade. It also influences my trade management as the uncertainty (fear) is not resolved until the trade is over. From what Luger/Jedi above says, this all affects execution (not method).

An exercise that have helped me somewhat overcome the uncertainty/fear issue (which were suggested to me by another Trading Psychologist that I paid for) is in real time to write down what I'm thinking before and during trades and to write down reasons that I consciously think of why or why not to take a trade. There is nothing wrong with not taking a trade as long as I consciously know why and can review at the end of the day.

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Big Mike said:


Quoting 
All anyone needs to do is spend a few minutes reading trading journals on futures.io (formerly BMT) to see how important psychology is with trading.

That's on the money.

When I started my journal I flamed out quickly with a bad method. While researching a method I went back to page one of the Elite Journals and read them all from start to finish. You see the same behaviors over and over again, mostly the same panicky inability to focus coupled with brain-freezing insecurity.

It was a tutorial in how not to be.

That's a very general and ever-applicable skill set, by the way: how to be.

You might call it "the philosopher's edge."

-RK

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  #20 (permalink)
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Big Mike View Post
Some people like to say psychology has no place. You are either a skilled trader or you aren't. Maybe that is true if you are an Android or computer, but as a human, you have emotions. Your mind plays tricks on you. If you don't know that to be true, then you need to do some more research on how memories work with the human brain.

When you put all these things together, "the psychology of trading", you come up with a collective of reasons that can explain away why you held on to that losing trade, even though your plan said to get rid of it. This is both a good and a bad thing.

For most, it is a good thing when they finally realize that their poor trading performance is a direct result of their own actions. Too many traders never get this far. They blame the market, indicators, vendors, platforms, data feeds, family, phone calls, whatever. But never themselves. No accountability.

When you finally realize that it was your own actions that caused you to mis-manage a trade, that is progress. But why did you do it? You know you did it, but why?? I call this the psychology of trading. Why do we as humans want to be right? Why is it our memories fault us, convincing us of something in order for us to be right, when in reality we were wrong?

You cannot use psychology as a crutch any more than you can use an indicator as a crutch, or a scapegoat. To do so would be a mistake. But at least if you focus your energy on psychology, you've recognized that you are responsible for your own actions. I believe this is inherit with psychology -- it's called taking accountability.

Once you've identified problems with your trading, lets say over trading, holding losers to long, whatever --- now you can begin to work on these areas. Why do you do these bad things? Surely you can read english, and right in front of you is your trading plan which clearly states in bold letters "DO NOT HOLD LOSERS TOO LONG". Yet you do it anyway. You can read right? So what's the problem?

Some people will say that isn't psychology, it's skill. I think it's the same. When you are great at a skill, it means you've mastered all aspects of it, including the psychological aspect. You cannot simply remove the psychological aspect of a skill because you don't like the word. It is there whether you want to admit it exists or ignore it.

I believe that those that think psychology has no place in trading just look at it in simple black/white terms of "if you didn't follow your rules, you are a bad trader". They don't think psychology enters in to that. And again, I think it's just mincing words, because it is all the same thing. They are interchanging skill for psychology and vice versa.

So again, call it what you want, so long as you are spending time on it. At least you aren't downloading 10 new indicators every week, spending hours looking at new and improved setups on your chart, trying to find new indicators to minimize chop, trying to add new filters to your chart... right? RIGHT??

Mike

I see what you're saying. and I would agree to a certain degree.

here's another example. you're a doctor. you misdiagnosed your patient. as a result the patient dies. are you calling this psychology of medicine? maybe I don't know. but the fact is, you made a fatal mistake. you should not be a doctor. nobody cares about the aspect of psychology. I know this is a far fetched example.

my simple point is, if you can't handle it, don't trade with real money until you can.

another great example of psychology pressure is if you borrow money for trading and can't afford to lose. and here I agree about your mind playing games with you. but then again, you shouldn't do that. so stop trading. I guess you can call this fear.

now I greed example. you want to go for big moves. lets say 10 points with a stop of 2 points. most of the time you get 5 points and then market reverses and you get stopped out for 2 points. but you keep doing it and losing. I don't call this a psychological problem, I call this simple stupidity.

all I want to say is, stop making excuses about losing trades. and if you think your mind is playing games with you when trading, then again trading is not for you.

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