How To Think Correctly

[CYOF]

Maybe some actualy do trade

 

[henry766]

Perhaps you guys worry about psychology and listen to idiots like socrates because your not making money , trust me fxscalper you were right the first time about socrates , and in which wet dream did they come back tails between their legs socrates , not in this world .Go and make a few million and then tell me your worried about "trading psychology " , you guys won't give it a second thought.

 

[SOCRATES]

Perhaps you guys worry about psychology and listen to idiots like socrates because your not making money , trust me fxscalper you were right the first time about socrates , and in which wet dream did they come back tails between their legs socrates , not in this world .Go and make a few million and then tell me your worried about "trading psychology " , you guys won't give it a second thought.

.

 

[Market Wizard]

Socrates' post raises what to me seems to be the real issue.

Conscious plans, goals, etc are good to have but don't address the areas that really sabotage trading. Similarly Mark Douglas's work classifies a number of key issues that we see in real life trading and some of the drivers for them (I don't believe all of them, just the ones he's seen). But his solutions don't work quickly (if at all) for many people - readers go, yeah! thats me, wow, but months later most of them are still making similar mistakes.

I saw a program the other night about a brit in NY who lost his memory ... 100%. But he didn't, what he lost was his episodic memory - he couldn't remember who he was or anything he'd done for his entire life. No people, nothing. But he still had two types of memory, his semantic memory and his procedural memory. In these two are some hints for traders.

Your semantic memory contains meaning, things like knowing that Sydney is the capital of Australia (lol, Aussies, I couldn't resist that). He still had that. You also have procedural memory where you remember how to do things, he could ride a bicycle or throw a ball.

For traders the problem is this. Trader A has a fantastic semantic memory, is very intelligent, and can figure out all the tricks of trading. So he learns or develops a day trading strategy. Then he tries it out .... and fxxx's it up big time! Socrates' training attempts.

The problem is that what you know doesn't translate into what you do. Lots of things contribute to it (fears, greed, hope, things you tried along the way and rewarded you spectacularly from time to time but are not part of your current strategy). So we have a great conscious view of what we should do and its all there at the semantic level.

But its not there at a procedural level. In that level lies the key to success or failure. Enough for now --- does anyone think this is on track or should I but out?

This confirms a lack of clarity in the process. What exists at at the semantic level is actually an idea of what the procedure should be. The reason for failing a the procedural level is that your mind is only processing the information of the idea, which may be vague or incomplete.

To get the correct results at the procedural level, the definition of what has to be done must be in-terms of absolutely laser clear detail, some people do this naturally and for others it takes an effort by way of developing goals - clear goals.

One must not underestimate the importance of clarity . Your mind will process anything to fulfilment at the level of clarity that you specify.

 

[henry766]

I sort of agree with you market wizard ( couldn't be bothered reading kiwi stuff) in that one should keep looking directly at the nuts and bolts , keep looking at the markets for the answer , not abstract mumbo jumbo , one needs to be focused on making winning trades , this isn't easy , but blaming your psychology when you lose instead of your trade is plain daft, people get philosophical when they lose ,and trading is ( more or less a zero sum game , where a few wily old dogs of the game make nearly all the money and nearly everyone else doesn't,which is why there are so many who don't make money , breeding grounds for this psychological rubbish ( and idiots like socrates ), but don't think losing traders want to lose, or suffer from insecurity ,traumatic childhoods etc , they just arn't good enough, though just a few will be oneday.

 

[SOCRATES]

I sort of agree with you market wizard ( couldn't be bothered reading kiwi stuff) in that one should keep looking directly at the nuts and bolts , keep looking at the markets for the answer , not abstract mumbo jumbo , one needs to be focused on making winning trades , this isn't easy , but blaming your psychology when you lose instead of your trade is plain daft, people get philosophical when they lose ,and trading is ( more or less a zero sum game , where a few wily old dogs of the game make nearly all the money and nearly everyone else doesn't,which is why there are so many who don't make money , breeding grounds for this psychological rubbish ( and idiots like socrates ), but don't think losing traders want to lose, or suffer from insecurity ,traumatic childhoods etc , they just arn't good enough, though just a few will be oneday.

..........(and idiots like socrates) ....hahahahahahahahaha

 

[CYOF]

My thoughts:

I tend to agree with the main points that Mark Douglas makes in relation to trading, i.e, trading is 20% Mechanical and 80% Psychological.

If we actually stop and think about how the markets work, how can it be any other way?

Scenario:

I identify a chart pattern that signals an opportunity to Buy Low and Sell High, so I put on a Long Trade.

Why did I put on the trade - was it because:

1)The market presented an opportunity based on certain criteria that I had defined as offering a low risk trading opportunity (in other words, the price should move up from here).

or was it because:

2) The market presented an opportunity based on certain criteria(same as in No.1) that I had defined as offering a trading opportunity with a possible positive outcome (in other words, this trade may be a winner or may be a loser).

Now, in both cases the market is showing me exactly the same information, but it is how I think as an individual trader that determines how I approach and manage the trade - do I look at the trade as No.1 or No.2.

So, lets now look at what happens after I enter the trade from both perspectives:

1) The market moves down below my entry price and hits my stop.

2) The market moves down below my entry price and hits my stop.

In both instances I have lost exactly the same amount of money.

But the big question is - which perspective will allow me make the most money in the long run.

This may sound stupid to a lot of traders, but if you actually look at how each perspective can effect the way you trade, then it becomes very important:

1) You are saying that the market did not do what you thought it would do

2) You are saying that you don't really care what the market does next as you already know that the price can go either way.

The big question is, which perspective is TRUE and which is False.

The answer is undoubtedly No.2 - as we all know that the price can go either way.

Therefore, if we know that the price can go either way, then why do we think that the price has to go up?

By adopting perspective No.1, we are fooling ourselves into thinking that we have to know what way the market is going to go before we put on a trade. If we adopt this approach, we then leave ourselves open to all the psychological baggage that goes with this type of thinking, i.e, fear, greed, uncertainty, hesitation, doubt, euphoria, stress, etc.

But, if we adopt perspective No.2, then we place the trade as soon as the criteria are met, not caring what happens next. This leaves us free of all the emotional baggage as mentioned above, which allows us to concentrate on what we should be concentrating on, i.e; what the market is doing at this particular moment in time.

I am currently trying to adopt perspective No.2 - and it ain't easy - but the first step is accepting that this is the correct way to trade in order to achieve consistent positive results in the market.

 

[Splitlink]

I sort of agree with you market wizard ( couldn't be bothered reading kiwi stuff) in that one should keep looking directly at the nuts and bolts , keep looking at the markets for the answer , not abstract mumbo jumbo , one needs to be focused on making winning trades , this isn't easy , but blaming your psychology when you lose instead of your trade is plain daft, people get philosophical when they lose ,and trading is ( more or less a zero sum game , where a few wily old dogs of the game make nearly all the money and nearly everyone else doesn't,which is why there are so many who don't make money , breeding grounds for this psychological rubbish ( and idiots like socrates ), but don't think losing traders want to lose, or suffer from insecurity ,traumatic childhoods etc , they just arn't good enough, though just a few will be oneday.

No, it's not daft, mate. I go along with much of what you say (including that which caused the idiot to laugh. Perhaps you should be a psychologist yourself- you have a knack for making them happy!) but psychology does come into the the matter frequently. Many of us will not acknowledge that something in our mental make-up makes us repeat our mistakes.

Split

 

[nine]

Or that some part of our mental make-up makes us deny that psychology has anything to do with it.

The challenge for psychology only starts after you have a winning edge, satisfactory risk control and a sound well defined strategy. Then you can ask why you are others don't simply execute to the perfection that should occur. Some will never have a problem, some will find the answers, and others will not. Its all part of trading.

 

[Splitlink]

Or that some part of our mental make-up makes us deny that psychology has anything to do with it.

The challenge for psychology only starts after you have a winning edge, satisfactory risk control and a sound well defined strategy. Then you can ask why you are others don't simply execute to the perfection that should occur. Some will never have a problem, some will find the answers, and others will not. Its all part of trading.

Nevertheless, I sympathise with Henry's impatience at the inability (present company excepted )
of psychologists to get to the nitty-gritty of the subject. After all, Henry's own diagnosis of Socrates'
mental condition left the reader in no doubts that something was seriously wrong.

Split

 

[SOCRATES]

Nevertheless, I sympathise with Henry's impatience at the inability (present company excepted )
of psychologists to get to the nitty-gritty of the subject. After all, Henry's own diagnosis of Socrates'
mental condition left the reader in no doubts that something was seriously wrong.

Split

Yes exactly...not clear to you but very clear to me, hahahahaha...that is why I can afford to laugh.

 

[Market Wizard]

I sort of agree with you market wizard ( couldn't be bothered reading kiwi stuff) in that one should keep looking directly at the nuts and bolts , keep looking at the markets for the answer , not abstract mumbo jumbo , one needs to be focused on making winning trades , this isn't easy , but blaming your psychology when you lose instead of your trade is plain daft, people get philosophical when they lose ,and trading is ( more or less a zero sum game , where a few wily old dogs of the game make nearly all the money and nearly everyone else doesn't,which is why there are so many who don't make money , breeding grounds for this psychological rubbish ( and idiots like socrates ), but don't think losing traders want to lose, or suffer from insecurity ,traumatic childhoods etc , they just arn't good enough, though just a few will be oneday.

I agree with you henry. People look too much into the psychology side of things, they begin to go on a journey of self discovery( nothing wrong this), but it detracts you from the real thing, which is making winning trades.

A focus on this and analysis of your performance and the answer to the "why" and "how" will help you develop the right psyche. The psychology in trading is achievable, it just requires awareness to the situation, which planning will allow you to do. I think its easier to develop these traits in a trading environment and take them outwards into other areas of your life, rather than developing some super personality and then begin trading.

Within trading you will have measurable milestones that will tell you exactly where you are currently and what areas to work on for improvement. Trying to apply the psychology principle without some frame of reference can be quite a task.

Think about winning and how you can . Think about losses and why they happened. The answers to these will ultimately make you aware of your actions and psychology. Just my opinion.

 

[dbphoenix]

I agree with you henry. People look too much into the psychology side of things, they begin to go on a journey of self discovery( nothing wrong this), but it detracts you from the real thing, which is making winning trades.

And I agree with both of you (no surprise).

I have yet to encounter anyone who is entangled in emotional problems who also has a consistently profitable trading strategy. But since there are so many other (similar) traders eager to commiserate, becoming mired in psychological angst is far easier than pulling up one's socks and getting on with it.

Focusing on one's strategy is more likely to yield results than focusing on one's navel.

Db

 

[Market Wizard]

I also tend to disagree with the notion that trading is 80% psychological and 20% analysis. I think the two play an equal role in that your analysis will determine the level of emotions you experience. As one improves so does the other. If your having to rely on 80% psychology then maybe need to focus more attention on refining analysis skills.

What do you think DB?

 

[dbphoenix]

I also tend to disagree with the notion that trading is 80% psychological and 20% analysis. I think the two play an equal role in that your analysis will determine the level of emotions you experience. As one improves so does the other. If your having to rely on 80% psychology then maybe need to focus more attention on refining analysis skills.

What do you think DB?

I don't know that weighting is particularly helpful, or even pertinent. What may be more to the point is Douglas's proposition that how one approaches the market -- including whatever analysis he may do and how he interprets the results -- depends on his beliefs. If, for example, one believes that it's all a vast conspiracy and will not be budged from that, everything he perceives will be colored by that. Ditto if he believes that it's all random or chaotic or can be reduced to a mathematical ratio or whatever. The set of beliefs which Douglas proposes is based on what he calls the "five fundamental truths", as follows:

1. Anything can happen.
2. You don’t need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in the market is unique.

Is all of this "psychological"? Depends on whether or not any of it can be proven (i.e., statistical proof). If it can, then a rejection of it based on something that cannot be proven would be emotional, irrational, "psychological". But regardless of the set of beliefs with which one begins his study, at some point the strategy will either be profitable or it will not. If it is not, then whatever one believes is immaterial. The most fervently-held belief will not turn a loss into a profit.

Therefore, if one is able to apply the scientific method to his study, he may be able to begin doing fairly well rather quickly and "psychology" may play only a small part, if any. But if he drags along a lot of baggage, he may never achieve any success at all.

Db

 

[Market Wizard]

I don't know that weighting is particularly helpful, or even pertinent. What may be more to the point is Douglas's proposition that how one approaches the market -- including whatever analysis he may do and how he interprets the results -- depends on his beliefs. If, for example, one believes that it's all a vast conspiracy and will not be budged from that, everything he perceives will be colored by that. Ditto if he believes that it's all random or chaotic or can be reduced to a mathematical ratio or whatever. The set of beliefs which Douglas proposes is based on what he calls the "five fundamental truths", as follows:

1. Anything can happen.
2. You don’t need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in the market is unique.

Is all of this "psychological"? Depends on whether or not any of it can be proven (i.e., statistical proof). If it can, then a rejection of it based on something that cannot be proven would be emotional, irrational, "psychological". But regardless of the set of beliefs with which one begins his study, at some point the strategy will either be profitable or it will not. If it is not, then whatever one believes is immaterial. The most fervently-held belief will not turn a loss into a profit.

Therefore, if one is able to apply the scientific method to his study, he may be able to begin doing fairly well rather quickly and "psychology" may play only a small part, if any. But if he drags along a lot of baggage, he may never achieve any success at all.

Db

Well put DB.

Thank you for your reply

 

[CYOF]

Mark Douglas is a very smart and extremely intelligent person, and it is unfortunate that he uses so much psychological language, which the majority of traders, including myself, find it hard to fully understand.

That said, it is very obvious from his writings, one of the main point he keeps stressing throughout his books is the requirement to have an open mind.

This approach, having an open mind, can help an individual to advance in all walks of life, not just in trading.

Once we have an open mind, we are allowing ourselves to gain new experiences and knowledge.

Life is an experience - a never ending one at that.

Ay some stage in our lives, things suddenly seem to go right for us, or suddenly seem to go wrong for us.

It is our perception of reality that creates the experience for us - not reality itself. It is how we react that determines our result.

It is our mental perception - the way we think - that controls all that we do and all that we experience.

Myself, I am of late starting to change my way of thinking in relation to trading, and I am now starting to think that a lot more money can be made from trading the intraday trends in a market, than by short term momentum daytrading or scalping.

Maybe I have been just fooling myself in the past, and have failed to see where the real money is made in the markets?

Of course, now I have to go and prove it to myself that it is possible to do, but at least I have an open mind, so who knows, maybe I might just be able to do it if I actually try!

 

[niceguy777]

The problem is that the mindset part of trading is all a bit of a mystery simply because most of us try to address our subconscious programming with our conscious mind - which is ridiculous, if you think about it! You need to find a way past the conscious mind and really get down to the programming - and change it. That's a practical process that involves changing the way you do things once you know what is driving your responses. Then you can start building your success strategically, rather than hoping that experience will lead you somewhere while you are still locked in set belief systems that tend to sabotage any attempt to do that!

 

[CYOF]

The problem is that the mindset part of trading is all a bit of a mystery simply because most of us try to address our subconscious programming with our conscious mind - which is ridiculous, if you think about it! You need to find a way past the conscious mind and really get down to the programming - and change it. That's a practical process that involves changing the way you do things once you know what is driving your responses. Then you can start building your success strategically, rather than hoping that experience will lead you somewhere while you are still locked in set belief systems that tend to sabotage any attempt to do that!

I could not have put it better myself - the only thing I will add, and I am probably repeating myself here, is that acceptance of this fact is the first step forward.

Without acceptance, it will be relegated to "just another post I read on the website".

Good post.

 

[CYOF]

The Seven Principles Of Consistency

For those who are interested, this is worth reading.