Should you think about money while trading? Trading, but not money. Why?

Not long ago I've read an interesting book on psychology, where there was an explanation why you shouldn't think about money while you are trading. It was surprising for me...maybe some of you also find this info interesting.

If you forget about everything, except price chart, and you are willing to win a victory over the market, then you'll be more successful, than if you just tried to earn money. I couldn't understand why it could be so. But the author of the book states, that this trick helps to get rid of fear and greediness. "If you are trading for the sake of trading, but not for money; if you are trading to demonstrate to yourself and to others that you are more clever and stronger than the market is; if you are trading because you want to solve a new task, but not because you want to buy a flat, then you'll succeed. And that is why on my central monitor there is the inscription: I am not interested in profit. I am interested in execution of my trading strategy" (the information was taken from the book Trader's Psychology).

Also, when there is no emotional interest (when you trade on a demo account) the absolute majority of traders win. Often their deposits increase for many times during a month. And, I think it is the main reason why the newbies have difficulties when switching to real accounts. When I was just starting my forex career I also had these difficulties and I didn't have such a book to read...

Our thoughts turn into reality someday, so let's think positively!

for me

i dont think there is such a thing as "no emotional interest", there is always an emotional interest for each trader, at some level, as that is what brings them to the auction in the first place.....

trading the trade for the trades sake is the ideal approach, once the trade is clearly defined the full focus is on that trade and nothing else.....inside that, the original reason for entering the auction process still remains and remains out of focus

i think that the key is simply to focus, focus correctly, once the trade profile is clearly defined

one small point; many pros do not trade off charts, they trade off price itself and price itself does not call for the same interpretation that a chart calls for (regardless of the time frame of the chart)

charts are often misleading given the time of day you view them and the frame you set them at and in many instances are set in a generic mode which calls for a trader to become a generic loser and anything that is added to that chart instantly becomes fruit of the poisened etc etc

as an old stalwart would say "never provide an answer, always ask if there's another question"

Whatever you are thinking about is what your brain is trying to manifest. The problem with thinking about money is that we don't actually MAKE money and for this to manifest in reality is not possible. Only the Bank or the Royal Mint make money. We earn money as a result of something that we do.

If we adapt this kind of attitude, for example by thinking about price, we will eventually come to think about how we can use price to earn money. So the focus shifts from something that is unclear to some actions you will have to take to earn money.

EvaldG said:

Not long ago I've read an interesting book on psychology, where there was an explanation why you shouldn't think about money while you are trading. It was surprising for me...maybe some of you also find this info interesting.

If you forget about everything, except price chart, and you are willing to win a victory over the market, then you'll be more successful, than if you just tried to earn money. I couldn't understand why it could be so. But the author of the book states, that this trick helps to get rid of fear and greediness. "If you are trading for the sake of trading, but not for money; if you are trading to demonstrate to yourself and to others that you are more clever and stronger than the market is; if you are trading because you want to solve a new task, but not because you want to buy a flat, then you'll succeed. And that is why on my central monitor there is the inscription: I am not interested in profit. I am interested in execution of my trading strategy" (the information was taken from the book Trader's Psychology).

Also, when there is no emotional interest (when you trade on a demo account) the absolute majority of traders win. Often their deposits increase for many times during a month. And, I think it is the main reason why the newbies have difficulties when switching to real accounts. When I was just starting my forex career I also had these difficulties and I didn't have such a book to read...

Our thoughts turn into reality someday, so let's think positively!

Click to expand...

Good post.

Good trading is NOT about the money, making or losing it.

Rather, it's about following your plan.

So if you followed your plan today and lost - you had a good day.

But if you DIDN'T follow your plan and made - you had a bad day.

Sadly, most will think 'made money, good day - lost money, bad day' but then we know what happens to most in this game.

Summary: Every day focus on following your plan and if your plan is good the money will come. Do that and you'll naturally start NOT to focus on the cash. As ever it's all very easy to say but it can be done, all you have to do is work at it, and work hard.

For the psychological reasons explained in the OP I now regard each trade in terms of achieved or potential profit/risk ratio and not money. I used to find that the same trade with a large risk rather than with a small risk affectd me psychologically because larger sums of money were involved. That was daft, because the quality of the trade and its plan were the same regardless of the sum traded!

So, I now go purely on P/R ratio and money management parameters. Works well for me. It's all psychological once you find a way to trade profitably.

0007 said:

For the psychological reasons explained in the OP I now regard each trade in terms of achieved or potential profit/risk ratio and not money. I used to find that the same trade with a large risk rather than with a small risk affectd me psychologically because larger sums of money were involved. That was daft, because the quality of the trade and its plan were the same regardless of the sum traded!

So, I now go purely on P/R ratio and money management parameters. Works well for me. It's all psychological once you find a way to trade profitably.

Click to expand...

Don't you believe that what you have just said infers that the lower the stake the safer it is, because the loss is less? IOW, a low stake is safer, not because the trade is a good or bad one, but because it has not cost much, anyway?. Personally, I dislike demo, or paper trading, for the same reason. It creates a false impression of security. I go for the profit and loss column because that is my bottom line.

I admit to having my own problems on this. A winning run will induce me to increase stake size, sometimes with undesired results, but how my account varies influences my trading a great deal.

Never manage a trade by the amount it will win or lose: once you're in, it's too late to think about the money.

You should have already thought about the money before going in, when you properly plan the trade. At that point you must ask yourself, if your stop is at Z and your stake is £X, are you happy to lose £Y if the stop is hit: conversely, are you more likely to and happy to gain £A if your target B is hit?

After that, as above, it's a matter of following the plan, and the better you can do that, the more gains you will have. A secondary objectove is obviously to improve the plan.

EvaldG said:

"If you are trading for the sake of trading, but not for money; if you are trading to demonstrate to yourself and to others that you are more clever and stronger than the market is; if you are trading because you want to solve a new task, but not because you want to buy a flat, then you'll succeed. And that is why on my central monitor there is the inscription: I am not interested in profit. I am interested in execution of my trading strategy"

Click to expand...

The only time I think about money is when I am considering the number of contracts I will trade. After that it is strictly by the percentages.

I gain my trading discipline from fear. Since I post my trades publicly, I fear being caught if I don't follow my plan. Losses especially catch readers attention.

Last, my discipline comes from keeping a trading journal. I'm my own worst critic, so I don't want wishful thinking entries.

tomorton said:

Never manage a trade by the amount it will win or lose: once you're in, it's too late to think about the money.

You should have already thought about the money before going in, when you properly plan the trade. At that point you must ask yourself, if your stop is at Z and your stake is £X, are you happy to lose £Y if the stop is hit: conversely, are you more likely to and happy to gain £A if your target B is hit?

After that, as above, it's a matter of following the plan, and the better you can do that, the more gains you will have. A secondary objectove is obviously to improve the plan.

Click to expand...

I have thought about the money before I enter the trade. Once I am in, it does not matter much what one looks at if it is one trade. I still watch the P&L so as to monitor the net when more than one trade is on. Just trading habits. I don't think that it makes a trader any better, or worse.

Splitlink said:

Don't you believe that what you have just said infers that the lower the stake the safer it is, because the loss is less? IOW, a low stake is safer, not because the trade is a good or bad one, but because it has not cost much, anyway?.

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Split,

That is precisely what I was NOT trying to say - but obviously not very clearly!

I meant to say that psychologically it is easy to feel that way, but as you rightly point out, that is illogical. My point is that a good trade/plan etc is good whatever the stake (certainly in my small-time trader horizon anyway) and that the amount you trade should be governed by money management considerations.

I think about the money only when planning a trade - thinking how much a potential trade is going to cost me if it doesn't go my way and how much profit can generate if successful. If happy with risk/reward I go for it.

Once in, I'll wait for it to hit one of the targets for partial exits, moving the stop to reduce remaining risk etc. If it hits the stop I'm out.

I calculate the stake based on the cost - don't feel comfortable with more than 2% risk per trade.
That's the only thing I have control over - cost(risk).

BTW If you are trading to demonstrate to yourself and to others that you are more clever and stronger than the market is, you may suffer massive losses while demonstrating.

0007 said:

Split,

That is precisely what I was NOT trying to say - but obviously not very clearly!

I meant to say that psychologically it is easy to feel that way, but as you rightly point out, that is illogical. My point is that a good trade/plan etc is good whatever the stake (certainly in my small-time trader horizon anyway) and that the amount you trade should be governed by money management considerations.

Click to expand...

As long as we agree with each other, that's great! the rest can sort it out for thenselves.

Have to agree with anley and tomorton here. Some of you may disagree with this but for me it's very like playing low stakes online poker (something I used to dabble in before I got bored and found an easier(?!) more enjoyable way to make regular money).

Regular poker players know that if you play your odds for long enough (against players not good enough to successfully play the player not the hand we assume here) you will eventually come out at a profit. It's all about following your plan.

You might get the occasional "bad beat" (when all the odds were in your favour - you had AA plays 33 and your oponent hits a 3 on the river) and lose for the day but getting a bad beat should just reinforce that your strategy is correct, its just that we all make losing trades/hands.

Sticking to your plan is more important than winning/losing in the short term.

And then once your plan is profitable, its about tweaking it to improve returns (letting your stop out a few more points or raising 3/4 a pot not 1/2 a pot on the flop with top pair!)


"Good trading is NOT about the money, making or losing it.

Rather, it's about following your plan.

So if you followed your plan today and lost - you had a good day.

But if you DIDN'T follow your plan and made - you had a bad day.

Sadly, most will think 'made money, good day - lost money, bad day' but then we know what happens to most in this game. "


"After that, as above, it's a matter of following the plan, and the better you can do that, the more gains you will have. A secondary objectove is obviously to improve the plan. "

I've heard all this before, somewhere. There is nothing new about it but I would question the merits of following a plan and saying, after losing "Everything is ok (or going to be ok) because I am following a plan"

Well, good for you! I hope you last the pace.

Clearly, 'plan' should be taken to mean 'a defined process that has been found to work consistently', not 'a vague dream of immeasurable riches'.

All trading systems incur losing trades, their occurrence (or absence) is not proof of anything.

Joules MM1 said:

one small point; many pros do not trade off charts, they trade off price itself and price itself does not call for the same interpretation that a chart calls for (regardless of the time frame of the chart)

charts are often misleading given the time of day you view them and the frame you set them at and in many instances are set in a generic mode which calls for a trader to become a generic loser and anything that is added to that chart instantly becomes fruit of the poisened etc etc

as an old stalwart would say "never provide an answer, always ask if there's another question"

Click to expand...

I have often wondered about this. Whenever watching documentaries on top traders. They seem to be wandering around there office and home looking at lists of prices on their screens and phoning in orders without a chart in sight.
Would a basic chart not be useful if only as a reminder of previous price?

Can anyone (who knows) shed any light on how they are operating?
This must be the ultimate aspiration for trading.

Jason101 said:

I have often wondered about this. Whenever watching documentaries on top traders. They seem to be wandering around there office and home looking at lists of prices on their screens and phoning in orders without a chart in sight.
Would a basic chart not be useful if only as a reminder of previous price?

Click to expand...

The chart is in your head.

When you look at the price (not the chart) all day long, you know everything the chart tells you anyway.