Trading Psychology

[MaxiV]

The are many here that would like to trade and successfully at that . But I believe there is a certain psyche needed to be long time successful financial trader. You really need to be in the right frame of mind. I have seen many a time at 0630 where a lot of members here are very on the edge and indecisive<< very dangerous if this happens often. There are others here that are very experienced... but tend to slip into that "primitive" way of trading... some of us do it... i know I have. I call it being "out of sync". And if this happens to me for more than a few days... I STOP! Have a rest for a few days then get back into sync and start again. Works for me every time.

I opened this thread to help trades or spread traders (I don't like to call it betting as "betting" is not what i'm/we are doing) to come back here at times of being out of sync and get a reality check.

I hope there are some experienced traders out there that can share their tips and experiences and in turn for others to take the essential knowledge to ... well.... gain that certain way of thinking when pro traders trade.... I'm sure there are experience trades out there know what I mean and can put it in another angle.

I will add other tips later.... but to start>>

This is an essential book to read>
http://www.amazon.co.uk/Trading-Zon...=sr_1_4?s=books&ie=UTF8&qid=1307999853&sr=1-4

there are others... but probably too in-depth to add just now.

Also there is already an area on T2W>
http://www.trade2win.com/boards/psychology/

 

[surferking]

I like the philosophy of the thread - a kind of chill out thread for when you're over-trading or second guessing everything and reduced yourself to taking a punt on anything that moves.

Whatever we do, statistically we can never damage our account by not trading and taking a day off to collect our thoughts, and everyone can wait one more day to be a millionaire if it keeps them on that path.

I know I needed a break after losing £2k in about 4 hours last week, and after admitting it, it's surprising how many respected and experienced traders have had 'fessed-up to similar experiences.

 

[mark120169]

I like the philosophy of the thread - a kind of chill out thread for when you're over-trading or second guessing everything and reduced yourself to taking a punt on anything that moves.

Whatever we do, statistically we can never damage our account by not trading and taking a day off to collect our thoughts, and everyone can wait one more day to be a millionaire if it keeps them on that path.

I know I needed a break after losing £2k in about 4 hours last week, and after admitting it, it's surprising how many respected and experienced traders have had 'fessed-up to similar experiences.

I have had £2k drawdown since Easter, about -16%. It certainly makes me more cautious although I have stuck to my guns and not reduced my stakes below the last lockin 50p step I made. This has helped me claw back to -10% but it means I am still trading over 2% for now until the pot equalises back to it's pre easter levels when the lockin was reached.

That's the problem with making nearly 100% gains in 12 months, drawdown periods around 10-20% start to count in the £1000's!!!

M

 

[MaxiV]

I think this is a nice starting point for all traders to get a reality check; i found it elsewhere on the T2W.

Have a read and re-tune yourself (or get back in sync).

(another reason for putting this here is that I can't fine the cradle for my extrnl hard disk drive... will have to get another from eBay).

 

[MaxiV]

This is from Mark Douglas who wrote "Trading in the Zone"
I mentioned him above:

if you like this article from him, I strongly suggest you get his book. As before, trading is more controlled in the sub-conscious level<<< get that sorted and right... your long term trading is right to win too without a doubt.
http://www.amazon.co.uk/Trading-Zone...7999853&sr=1-4

Another book (prob' older) is this one>>
http://www.amazon.co.uk/Disciplined...g-Attitudes/dp/0132157578/ref=ntt_at_ep_dpt_2

 

[goldfinger777]

This is from Mark Douglas who wrote "Trading in the Zone"
I mentioned him above:

if you like this article from him, I strongly suggest you get his book. As before, trading is more controlled in the sub-conscious level<<< get that sorted and right... your long term trading is right to win too without a doubt.
http://www.amazon.co.uk/Trading-Zone...7999853&sr=1-4

Another book (prob' older) is this one>>
http://www.amazon.co.uk/Disciplined...g-Attitudes/dp/0132157578/ref=ntt_at_ep_dpt_2

Cheers for these links MaxiV.

The presenter at a recent ETX Seminar I attended recommended the Trading In the Zone book, he said it basically converted him from a losing mindset to the mindset of a pro trader.

I haven't seen the book myself yet but will take a look.

In the mean time, check out these attachments. Haven't had time to go through them myself yet so might be a load of rubbish. But you never know.

 

[goldfinger777]

I'm certainly not immune to lapses in trading discipline and have suffered some pretty nasty drawdown in the past.

But here are some random tips and musings that help to keep me on the right track and may help you too:

* "Plan the trade, trade the plan."

* Personally I've found it helpful to use a stake calculator. My problem is that I regularly run test systems on low stakes to try out new ideas and strategies, but before I know it I'm running excessive risk. So I put everything into the stake calculator to make sure my MM is locked down no matter how many systems I'm trading at any one time.

* As you bank INCREASES in size you may find it helpful to gradually DECREASE the MM risk %. So for example run 3% risk while you're building up your bank and trying to settle on a proven system, then gradually decrease it to 1% once you're disciplined enough to stick to a particular strategy or set of strategies and your trading bank is a decent size (say £30K plus.) The bigger your bank is the more painful the drawdown can become. 1% may not sound much but if you've got a big bank you can use the miracle of compounding to make you rich. Interestingly the presenter at an ETX seminar I attended was recommending only 1% risk. I thought at the time he was being very conservative, but if you think about the psychology it makes a lot of sense.

 

[MaxiV]

I'm certainly not immune to lapses in trading discipline and have suffered some pretty nasty drawdown in the past.

But here are some random tips and musings that help to keep me on the right track and may help you too:

* "Plan the trade, trade the plan."

* Personally I've found it helpful to use a stake calculator. My problem is that I regularly run test systems on low stakes to try out new ideas and strategies, but before I know it I'm running excessive risk. So I put everything into the stake calculator to make sure my MM is locked down no matter how many systems I'm trading at any one time.

* As you bank INCREASES in size you may find it helpful to gradually DECREASE the MM risk %. So for example run 3% risk while you're building up your bank and trying to settle on a proven system, then gradually decrease it to 1% once you're disciplined enough to stick to a particular strategy or set of strategies and your trading bank is a decent size (say £30K plus.) The bigger your bank is the more painful the drawdown can become. 1% may not sound much but if you've got a big bank you can use the miracle of compounding to make you rich. Interestingly the presenter at an ETX seminar I attended was recommending only 1% risk. I thought at the time he was being very conservative, but if you think about the psychology it makes a lot of sense.

This idea I like very much and is what I do at the moment.... it's like a pension pot where as you come to retirement you switch and buy annuity to save the bigger pot from eroding away to market changed. We all do it for our pensions... why not for trading too... well at least one of there trading accounts (i'm presuming some of us have more than one account and trading method).

 

[fwloop]

Some more light reading for you all on this topic!

Provided by the following website - http://www.day-trading-mind.com/

-S

 

[moore_roger]

I'm not certain, but having traded for about three years the conclusion I have come to is, Know yourself, be honest about it, learn what you can and can't change about yourself and adapt your trading style to fit, rather than trying to change yourself to fit a trading style. Over the years I have kept and often pinned on the walls all the great sayings and when it came to the crunch, totally ignored them. I won't go into of what I discovered about myself, it's far too painful, but the end result is that my most successful trading style is scalping(trade what you see, not what you think) and risk taking with my stake. It's taken a long time to reach this conclusion and it's quite recent so I could end up completely wrong and horribly broke.

 

[stevepatt]

Like many have said on here it's important to know the type of trader you are and what suits your character. What I've had a tendency to do in the past is when I've had a losing run I imediatly want to get back into the market and win back the pips. Big mistake, I now only allow myself one losing trade a day and then stop, this way, the most I lose on any day is my initial SL, if I get feelings of revenge I swap to a demo account and take my frustrations out on that. I've written this into my trading plan and, so far, it's working it helps me to focus on only taking the best setups.

 

[moore_roger]

I agree. One of my biggest failings was if I had a loser I would immediately get back in and usually trade the opposite way. Usually a disaster and strangely I discovered that it wasn't just a desire to get my money back but an arrogant belief that all I had got wrong was the timing.

 

[goldfinger777]

Like many have said on here it's important to know the type of trader you are and what suits your character. What I've had a tendency to do in the past is when I've had a losing run I imediatly want to get back into the market and win back the pips. Big mistake, I now only allow myself one losing trade a day and then stop, this way, the most I lose on any day is my initial SL, if I get feelings of revenge I swap to a demo account and take my frustrations out on that. I've written this into my trading plan and, so far, it's working it helps me to focus on only taking the best setups.

Yes a demo account can be a great asset, especially when you do a lot of experimentation like I do!

 

[MaxiV]

Like many have said on here it's important to know the type of trader you are and what suits your character. What I've had a tendency to do in the past is when I've had a losing run I imediatly want to get back into the market and win back the pips. Big mistake, I now only allow myself one losing trade a day and then stop, this way, the most I lose on any day is my initial SL, if I get feelings of revenge I swap to a demo account and take my frustrations out on that. I've written this into my trading plan and, so far, it's working it helps me to focus on only taking the best setups.

I couldn't agree more... and I have mentioned this elsewhere too... and im sure other wise traders do this too... they do this because they have been through the alternative.
A good example would be the Friday just gone: I made half trade on the 30int30 and another order to buy on a little pullback with SL20. Both got taken out... and this is where the discipline comes in (i stopped and closed for the day as Stevepatt said)...

...in the back of my mind I feel that its near the support and may bounce to a profit and make my money back... and whilst im at it set the limit like +50 to the next resistance and let it run to get a profit for that day.... as you all saw... had i done that... not only had i lost 30+20 (less if scaled as they were half my MM%) I would have lost another +20 (for each EU and GU)... and if i was dumb enough to re enter and doubled up to make back my losses at 0840, when i should have quit.... i would have lost again.... im sure from the graph you could have see what the total pip loss would have been... around 90-100pips probably; twice if with EU too(with 20 SL everytime... and there are others that would have done 30 as that's what we use for NT so sub-consciously we think we should use the same SL.... well then that person would have lost more!)

...Later in the day when he checks and sees what looks like its broke the resistance (ye he's read a few books and figures this is what it is) and looks to go long around 11-12pm.... only to lose again .... how much did was put in this time... double... triple.... got to make my loss back today!!!!.... at this point.... you feel like giving up when half your account is down in one day.... and have a feeling that trading the markets is not for you.... QUITS! ...or continues to battle with the markets the next day as we humans and want to always be RIGHT! With the same stupid mentality and gets totally wiped out.....

He reads a few more books.... and defiantly gets it this time... got to some seminars etc... but read more as its cheaper.... and thinks he's got it.... gets a loan and tries again..... but the mindset is not right..... back to square one..... but this time.... he owes the back money.... with interest!:-0

That.... was my story around 8 odd years ago... lasted a couple of years.... didn't trade again for years.... until it clicked and read things more on NLP and creative visualization ( i know, its got nothing to do with trading... i'll add something on the "Luck Factor" - some of you may have heard of this). Steven Covey (8 Habits), ZigZiglar and Anthony Robbins (he was the tall guy from the Jack Black film Shallow Hal) to name just a few, also helped my way of thinking a lot.
But the two that was linked to trading was by:

- Mark Douglas (mentioned above) and,

- a samurai trained trader called Richard McCall and his "Way of the Warrior Trader" http://www.amazon.co.uk/Way-Warrior-Trader-Risk-Takers-Confidence/dp/0786311630 << not much on trading... but more on mind set.... even got the cds from this site http://www.clickevents.co.uk/pristine-mastery-nexus.htm (i still have these discs somewhere.... but we are packing and moving to a better house... and i need a caddy for my hard drive from my old laptop where all my wealth of knowledge is)....

...what i learnt from my "life skill" experience is 90-95% is mindset and discipline and only 5-10% is trading methods

And here I am now..... doing well.... learning new methods (like the NT but keeping to the discipline<< thats what its all about) and making profit every month (big and small) ... and yes some months i lose.... but i look at it as a per annum basis... like wages if you like. Overall you should be in profit ALL the time... if not.... you are trading more to the methods and much less of the discipline... your emotion takes over....

Get your psycee right first people!:smart:

 

[MaxiV]

Today was a good win but many didn't trade due to past performance of NT... you really need to know yourself and your personality; think this was mentioned before,.... here's a good read ... (i'll try to put things on on a weekly or monthly basis to read... if you are like me I just about get time to read some things let alone the monthly traders mag a really am trying to keep up with)...>

 

[Rosvet]

Thanks Guys! I have found this thread to be an interesting read.

Since the beginning of April when I again got serious with trading on the Forex market I have suffered a rather large drawdown on my funds to the point where I came close to giving the trading away. I can't blame anything else except my own actions as I had the tendancy to go straight back in on top of a loosing trade to try and recover what I had lost, which more often than not meant I would loose even more.

It was more the fact that I really desire to work for myself, rather than someone else, that finally made me stop and really analyse what I was doing. My main problems were lack of discipline and emotions. This forced me to think more about my trading style and as a result I have largely given up market trades. Most of what I now do I think is called order trades?? where after much analysis I place an order in both directions at pre-determined points and wait for the market to come to me. This works well for me as the trigger and exit points have already been decided and I have disciplined myself to the point where I rarely interfer in the trade, just letting it run it's course.

Roger

 

[MaxiV]

Ok many got tampering with todays trade... remember... as stevepatt said today... read the market... don't THINK its going some where... especially with no backing up with reason for meddling... if there is no reason... then the fear of loss has kicked into your heads... (and yes, as mentioned today... alot is done by reading what others do). Just remember, backtests by me and others have been done on the MMI AI and both combined together.... it works without too much +D... but if you are to +D, make sure you have a valid reason....

have a look at:
http://www.babypips.com/school

and get knowledgeable... don't go at FOREX blind and based on others. I never subscribed to tip sheet and subscriptions where i need to rely on others... if they are gone... where does that leave you.

 

[goldfinger777]

Here's a useful video about trading psychology and the importance of having a trading plan and sticking to it. Glad it's not just me who keeps going on about discipline LOL!

He goes off on one a bit in the middle of the video and only blinks about 5 times during the whole recording LOL, but it's worth 5 minutes of your time to watch I reckon. http://www.youtube.com/watch?feature=player_embedded&v=OGV-RbK2jIs

 

[Denman]

Evening All. A very apt' thread.
After blowin two 'small' accounts and tearing my (rapidly thinning hair) out, after endless researching for the holy grail, surfing the the net and subscribing paid/unpaid systems, I had a full blown 'light-bulb' moment in the very early morn hours(was trading the Asian session).
As has already been said in this thread, our emotions/psyche are as/more important than the way we trade.
For me, too often to mention, I would let perfect winning trades/setups turn to losers. I just had to let my trade run and then when it turned to drawdown let that run also, just hoping it would come back. And obviously it did but only when I exited with a loss.
So for me greed/fear was my own demon I had to learn (still learning) to conquer. Now, when I set my TP(according to what strat' im using) i halve it. And NO MORE do I move my S/L to chase a losing
trade. I suppose its making that transition from being a gambler to (hopefully) a pro' trader. :idea:

 

[goldfinger777]

Evening All. A very apt' thread.
After blowin two 'small' accounts and tearing my (rapidly thinning hair) out, after endless researching for the holy grail, surfing the the net and subscribing paid/unpaid systems, I had a full blown 'light-bulb' moment in the very early morn hours(was trading the Asian session).
As has already been said in this thread, our emotions/psyche are as/more important than the way we trade.
For me, too often to mention, I would let perfect winning trades/setups turn to losers. I just had to let my trade run and then when it turned to drawdown let that run also, just hoping it would come back. And obviously it did but only when I exited with a loss.
So for me greed/fear was my own demon I had to learn (still learning) to conquer. Now, when I set my TP(according to what strat' im using) i halve it. And NO MORE do I move my S/L to chase a losing
trade. I suppose its making that transition from being a gambler to (hopefully) a pro' trader. :idea:

Spot-on there Denman. It's not difficult to learn how to trade or even to develop a strategy that has an edge. The difficulty is in mastering the psychology required to stick to a winning formula through the hard times and the good.

97% of traders fail in the long-term due to their inability to master their emotions. This is the difficult part of trading, this is the bit that takes time and experience.

I think with the advent of technical analysis many traders make the mistake of thinking that the learning curve attached to understanding the technical aspects is THE important learning curve in trading.

But ultimately technical analysis is just a means to an end and it's all too easy to get caught up in chasing the "holy grail" of trading strategies, thinking that some magic combination of technical indicators is going to provide a full-proof strategy. In fact, the holy grail doesn't exist.

The successful traders out there - the ones actually making a living from it - are those who have found a strategy with a profitable edge (even if it's only a very slight edge), and mastered the discipline required to STICK to that strategy, even during drawdown periods. Of course, that's not to say that any single strategy will always have an edge - it may need tweaking from time to time.

Trying to find that magic strategy that's gonna pull in 1000s of pips every month and make you rich overnight is just a mug's game. It appeals to the gamblers out there but this kind of approach has very little probability of success in the long-term.

Along with the power of compound growth, a strategy that pulls in an average of around 100 pips a month is more than enough to make some serious money if executed consistently.

Trading is a business, and it should be treated as such. This means careful risk management, preservation of capital, and re-investing of profits to compound up the returns. Steady, safe growth.