For instance, did you have a sound method before but were unable to trade it, or did this help you develop a sound trading method as well as help handle stresses of the trade?
I know you asked foroom l. but I can tell you my experiences if you wish (I read and watch a lot of the same material as f.l.)
Yes a sound method.
I have traded for many years. Often moving from method to method on different time frames, making some and loosing some.
I then woke up and concentrated on just one method, one I leaned towards the most (with a few variants on entries and exits, but pretty much the same method.) And one time frame only (So..Daily & Trend Following). So I wrote my rules out and began.
I did very well. With 1-2% risk I accumulated over 500% in under a year. I was trading on auto pilot, riding high and buzzing. Everything was going very well.
Then all of a sudden I had a run of losses and then some more. I thought, has the market changed? Is this trading system actually pants? w.t.f. is going on?
I was absolutely convinced that either the market had changed or my system was just no good. I was prepared to amend or even scrap my method.
So I stopped trading and started the process of reviewing the market and all my past trades.
I was shocked to find the market had not changed and I should have continued to make money. My system was fine and the market was fine, so what was going on?
A closer analysis of my trades showed as my account grew my trade discipline gradually began to slip. After reviewing my trades I came to the following conclusions.
At each big round number increase of account balance my discipline would slacken and when my profits added another zero onto my account my discipline took a big hit. I was finding it hard to maintain that extra zero.
What was happening?..
I was making so much money I began to feel like a market wizard. I felt I could control the market. Making the market go up at will by buying it and down by selling. When I sold a position for profit, boom it would sink back down.
This euphoric feeling was enhanced around big round numbers and landmark increases in
my trading account. As I felt more confidence and euphoria my discipline waned the most. (These were
my numbers effecting my trades,
not the markets prices!)
I began to feel so confident I started putting on bigger % size. I hid this from my conscious brain by estimating the % and then rounding it up. And by adding to positions prematurely.
I began to ignore my definition of trend by saying, the trend is still up, lets enter (even though the charts were not calling the trend as strictly as my plan needed.)
I even doubled down on a couple of occasions (it pays off a few times, so you think, this is fine, until it isn't and by that time you have your biggest size on.)
This thread is about psychology. Let me tell you,
I was in denial of all of this.
I had a big problem adding the extra zero to account, swaying above and below.
I thought I was obeying my rules, I was not, but subconsciously I was actively fooling myself.
Doubling down was a pure subconscious revenge trade(by thinking the trend was still in play.)
This was all due to my emotional state brought about from lots of large wins.
If I had obeyed my own rules I would not have taken any draw down at all.
That was a while ago now. Now my trading rules are not just printed out but form a very comprehensive check list that I need to complete before each trade. Each item needs to be ticked off and Item number one is -
1. You must tick every box before you can trade, move a stop, move a limit order or take a profit.
My trade log now has a box covering my emotional state.
This is just one example of psychology influencing trading results.
As a proviso I would like to re-print something from a previous post by foroom.l.
Note: These can be useful and powerful techniques, but no psychological methods can substitute for rational trading strategies grounded in research and trading experience. Many traders who experience doubt and fear experience these feelings rationally, reflecting the inner realization that they lack adequate preparation in the markets. Trading psychology can help you make the most of a good trading system or method, but cannot substitute for one.
