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Psychology is an excuse.
The real reason most people suck at trading is not psychology. It's because they choose to trade outright directional positions & they have absolutely no idea when to enter a such a position.
Sure - it's frustrating but the issue isn't psychological.
It's great to be able to agree to disagree.
1) Maybe for you the issue isn't psychological and I congratulate you. However, for many people fear and greed, mainly fear, is the major issue. For them/us it doesn't matter whether you are into a good trade or a bad trade, fear will keep them in a bad trade too long and get them out of a good trade too early. The next result of course is that they lose more than they win. Even if you get the entry right if you don't have the guts to cut your losses and keep your winners then you will lose.
2) There have been many studies done that indicate that it isn't how you get into a trade it's how you exit it. Those studies have shown that money can be made with absolute random entries but the 'secret' is to analyze the exit conditions and then have the discipline to follow the exit tactic identified.
3) If it was just as simple as identifying the direction and the right time to enter (and exit) then a trading robot would be able to do it and someone could become filthy rich. If bobc has succeeded in this, then congratulations and I don't blame you for not sharing. If everyone knew how to do it then it would stop working.
I continue to enjoy this discussion but still no one has come up with a new idea that will help people become successful traders.
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I have a hard time agreeing with you here. You're attempting to generalize that directional trading is an inferior method of trading vs. hedged trading or spread trading, etc. This is ridiculous.
Psychology is a huge part of trading regardless of the method. And it doesn't play into just losing and is absolutely not an excuse for failure. Psychology affects all aspects of trading such as trade set up's, position sizing, profit expectations and other important factors that can all change your potential outcome. You can just as easily mess up a hedged position as you can with an outright directional trade based on fear, greed or whatever the emotion is at the time. Behavioral finance issues are one of the primary reasons many traders fail.
As I've said before, many come into trading with no formal training or background in this field and expect to make leaps and bounds in a relatively short period of time which is completely fatuous. Working with a "mentor" who's full time job is trading would be very beneficial for many new traders. What people don't understand is a mentor can't instantly make someone profitable. Any that lay that claim should be avoided. A mentor should serve as a person that helps the trader develop a solid foundation to their trading and provide feed back as the trader continues to develop. To also assist with developing a realistic trading strategy and attainable goals. So many get lost just in this area alone and begin the search for the perfect trading method.
This thread appears to be going in circles about this. The bottom line is some do well with external guidance from someone knowledgeable. Others prefer to experience trading on their own and make many mistakes that educated traders most likely would avoid. But ultimately some do succeed because they found a way to control their outcomes through trial and error, self-education and real life application. We're all on our own at the end of the day, it just depends on how you want to prepare for the journey.
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Received this email from Victor Niederhoffer today...
What 10 steps one should take to become a successful speculator. I would start by reading the books of the 19 th century speculators, 50 years on wall street, the reminiscences of a stock operator b y markman. Next I would read the papers of cowles in the 1920's and try to compute similar statistics on runs and expectations for 5 or 10 markets Third I would get or write a program to pick out random dates from an array of prices, and see what regularities you find in it compared to picking out actual event or market based events. Fourth, I would read Malkiel's book A random walkdown wall street and update his findings with the last 2 years of data Fifth I would look at the work of Sam Eisenstadt of Value Line and see if you could replicate it in real life with update results Sixth I would start to keep daily prices , open, high, low, and close for 20 of so markets and individual stocks and go bak a few years. Seventh I would go to a good business library and look at the old Investor Statstcal Laboraortoy recors of prices to see whether it gave you an insights. Eighth I would look for times when panic was in the air, and see if therre were opportunities to bring out the canes on a systematic basis Ninth I would apprentice myself to a good speculator and ask if I could be a helpful assistant without pay for a period Tenth I would befome adept at a field I knew and then try to apply some of the insights from that field into the market. Eleventh I would get a good book on statistics like snedecor or anderson and be able to compute the usual measures of mean, variance, and regression in it. Twelfth I would read all the good financial paper on ssrn or financial analysts journal to see what anomalies are still open? Thirteenth of course would be to read bacon, ben green, and atlas shrugged. I guess there are many other steps that should be taken that I have left out especially for the speculation in individual stocks. What additional steps would you recommend. ? Which of mine seem too narrow or specialized or wrong? vic
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This post has some really great points in it. I'll give you my 2 cents for each of those.
1) This thread appears to be going in circles. I would rephrase that this thread keeps bouncing back and forth as your next few sentences clarify. And it is absolutely true - some things work for some and some for others. The challenge is which of the many ways are you going to focus on to get where you want to go.
2) The concept that this is a journey is dead on. So what does a journey consist of: having a goal; knowing where you are starting; having a plan; acquiring whatever resources are required; having or developing the discipline to start and continue.
3) A mentor is not 'the' solution. A good mentor, for some people, can be part of a solution.. Identifying a good mentor is a major challenge.
4) Obviously I totally agree with the paragraph on psychology. Behavior in any new endeavor, especially one that has to confront major emotions like fear and greed has to be addressed. Changing one's behavior without some support mechanism is a task most of us will not succeed at.
5) Whatever you trade (directionally, hedged, using future/stocks/options) doesn't matter. They all will work if you learn to cut your losers and let your winners run. This is probably the most applicable cliche of trading and to do so means being able to deal with fear and greed as well as maintaining discipline, focus, and patience.
a) I often heard that it is necessary to control your emotions. I maintain that you can't control an emotion once it has started. As soon as you are feeling fear (as an example) you can't simply make it go away. What you can control is: i) being aware and acknowledging that you are experiencing fear;ii) identifying why you are feeling fear; iii) taking action based upon previously having identified what you would do in specific circumstances.
b) Developing discipline, focus, and patience means changing your behavior. Determining how to do that is really what I see as the challenge.
The following user says Thank You to gcaldridge for this post:
Wow! Thanks for giving specific suggestions and then asking for feedback.
Here's the feedback:
1) A lot of your suggestions are based upon reading. Absolutely agree.
2) More of your suggestions are about analyzing. Absolutely agree.
3) Number 9 is my favorite and if you anyone can find that person they should go for it. The essence of a lot of my submissions has been that some/most people need a coach (as opposed to a mentor). Being an assistant, an apprentice, to a successful speculator is an excellent approach. This reflects my belief that the movie "The Karate Kid" epitomizes what aspiring traders need to do.
4) Additional steps:
As another post identified, treat this as a journey and as I replied this means that you need: to have a goal; know where you are starting from; have a plan; identify resources you need; take action. If you can, get a guide for your journey. Climbing the Himalayas is often done with a Sherpa. Even then it is tough and people die. I'm not sure that trading is much easier than that sort of mountain climbing.
Be prepared to do a lot of hard work getting ready for the climb. Reading books and analyzing conditions will not be enough. This will mean getting in good physical shape by doing regular, proper exercise; knowing how to use the tools; being prepared mentally and physically when you encounter adverse conditions. In another post I gave the opinion that you cannot control emotions once they have started. However with proper training and exercise, I do believe it is possible to change your perception of conditions so that you don't feel the emotion in the first place. I used to be a scuba diver. I know that originally I was quite fearful. However, with proper guidance and training, I seldom felt fear (healthy respect but not fear).
Looking forward to more ideas.
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