Best Thread Trading Psychology

[bbmac]

Leverage

'...The smart guys don't need it, and the stupid ones have no business using it.'

Warren Buffet

 

[Joseff]

Re: Leverage

'...The smart guys don't need it, and the stupid ones have no business using it.'

Warren Buffet

Good quote, but smart guy wasn't smart always, somebody or something helped him to become a smart guy.

 

[15 min tlb]

Another great article

Copyright@1999 Walter T. Downs All Rights Reserved. Distribution is
allowed with due credit to the author. http://cistrader.com

http://www.stator-afm.com/support-files/article_downsw_psychologyoftrading.pdf

 

[15 min tlb]

Loads of great articles on phsycology

http://www.brettsteenbarger.com/articles.htm

 

[15 min tlb]

Loads of great articles on phsycology

http://www.brettsteenbarger.com/articles.htm

coping with risk and uncertainty

http://www.google.co.uk/#hl=en&xhr=...rtainty+steenbarger&pbx=1&fp=fdbf68d2413ead76

 

[15 min tlb]

Another great article

http://www.brettsteenbarger.com/Classic_Articles.pdf

 

[15 min tlb]

Leverage is a problem in trading , it leads to other psychological problems.If you did not have leverage , traders would just buy and hold until they saw profits.

Leverage works against the trader ,pumping the heart faster, creating emotional responses and loss of discipline , it also pushes fear and greed to extreme level.

Leverage is often the root cause of trader failures.

http://www.forextraders.com/learn-f...erleveraging-the-risks-of-forex-leverage.html

 

[15 min tlb]

Another article on leverage.Leverage leads to disaster and more problems.

a 50% drawdown will require a 100 % return oncapital

Download 7 deadly sins of forex

http://www.earnforex.com/forex-e-books/trading-psychology/The_7_Deadly_Sins_of_Forex.pdf

 

[Splitlink]

Leverage is a problem in trading , it leads to other psychological problems.If you did not have leverage , traders would just buy and hold until they saw profits.

Leverage works against the trader ,pumping the heart faster, creating emotional responses and loss of discipline , it also pushes fear and greed to extreme level.

Leverage is often the root cause of trader failures.

http://www.forextraders.com/learn-f...erleveraging-the-risks-of-forex-leverage.html

Definitely, spread betting is more dangerous than fixed. This is because traders will not calculate, unless they are trained to do so, how much loss is acceptable... Why? Because some traders will not contemplate the thought that they could be wrong in their assessment of how the trade will perform. That is why a stop loss should be calculated and placed as soon as the trade is opened.

It is pure arrogance to assume that all of a traders trades will be successful. They will not be.

With spreadbetting the stake can be as low as 50 pence which enables a larger stop loss distance to be placed, or the reverse. It is a kind of momentum, weight times distance, calculation.

Many traders believe that they can get by without stops which can lead to very real mental stress problems, as you decribe.

I have been buying and selling shares for most of my life and would say that the same problem applies, with or without leverage. Financial ruin is very real in the stock market as those who bought at the top of the recent bubble will know.

How much can be lost on a trade is just about the only real thing that can be calculated by a trader. The rest depends on the actions of all the other traders in the market and the individual has no control over them.

 

[15 min tlb]

Another problem with leverage in uncertain markets , is it adds fear in the trader.A trader has a net worth of $200k , he has a $100k account , he buys $1m euro/usd , with a stop loss of 20 , his risk is $2,000.The hidden risk with slippage , non fills and absence of liquidity , can be $40,000 if there is no counter party for another 400 pips or $40,000 or 40 %.About four weeks ago there was no liquidity on usd/yen for 300 pips , and liquidity provider suspended pair.


Trading $1m on net worth of $200k immediately blows the trading fuses.

The trader using more than 2 * account size leverage is likely to feel outside his comfort zone.The trader shouldn't be trading more than $200,000 euro usd, because if there were no fills in the market , his loss/risk for 200 pips is $2,000 or 2 %.Higher leverage will put him outside his comfort zone,and it will affect his trading performance and mindset.

The million euro/usd trader is risking only 2 % with a stop loss, but in reality could be risking 40%.This type of 2% (40% in reality)risk per account size is preached, whereas in reality this figure should be no more than 0.2%, that would give a risk of $4,000 in the event of non fills.This 0.2 % is good for the mindset , whereas most traders are on snake oil of 2 % /40%.This is the biggest single problem with trading, it leads to other issues like discipline failure,fear, greed ,failure of systems,execution problems, revenge trading,anger ,frustration and many other issues.

 

[Splitlink]

Another problem with leverage in uncertain markets , is it adds fear in the trader.A trader has a net worth of $200k , he has a $100k account , he buys $1m euro/usd , with a stop loss of 20 , his risk is $2,000.The hidden risk with slippage , non fills and absence of liquidity , can be $40,000 if there is no counter party for another 400 pips or $40,000 or 40 %.About four weeks ago there was no liquidity on usd/yen for 300 pips , and liquidity provider suspended pair.


Trading $1m on net worth of $200k immediately blows the trading fuses.

The trader using more than 2 * account size leverage is likely to feel outside his comfort zone.The trader shouldn't be trading more than $200,000 euro usd, because if there were no fills in the market , his loss/risk for 200 pips is $2,000 or 2 %.Higher leverage will put him outside his comfort zone,and it will affect his trading performance and mindset.

The million euro/usd trader is risking only 2 % with a stop loss, but in reality could be risking 40%.This type of 2% (40% in reality)risk per account size is preached, whereas in reality this figure should be no more than 0.2%, that would give a risk of $4,000 in the event of non fills.This 0.2 % is good for the mindset , whereas most traders are on snake oil of 2 % /40%.This is the biggest single problem with trading, it leads to other issues like discipline failure,fear, greed ,failure of systems,execution problems, revenge trading,anger ,frustration and many other issues.

I am horrified at the figures you produce and it is quite true. Also is true is the fact that many take those risks aboard without, even, contemplating the possible negative outcome. All they seem to see is blue sky.

This is a psychology thread. One way to eliminate a load of worry is to calculate and accept the risk before opening the trade. And don't say "OK, I know the risk is there but it won't happen to me" It happens to someone all the time.

 

[15 min tlb]

Another problem with leverage in uncertain markets , is it adds fear in the trader.A trader has a net worth of $200k , he has a $100k account , he buys $1m euro/usd , with a stop loss of 20 , his risk is $2,000.The hidden risk with slippage , non fills and absence of liquidity , can be $40,000 if there is no counter party for another 400 pips or $40,000 or 40 %.About four weeks ago there was no liquidity on usd/yen for 300 pips , and liquidity provider suspended pair.


Trading $1m on net worth of $200k immediately blows the trading fuses.

The trader using more than 2 * account size leverage is likely to feel outside his comfort zone.The trader shouldn't be trading more than $200,000 euro usd, because if there were no fills in the market , his loss/risk for 200 pips is $2,000 or 2 %.Higher leverage will put him outside his comfort zone,and it will affect his trading performance and mindset.

The million euro/usd trader is risking only 2 % with a stop loss, but in reality could be risking 40%.This type of 2% (40% in reality)risk per account size is preached, whereas in reality this figure should be no more than 0.2%, that would give a risk of $4,000 in the event of non fills.This 0.2 % is good for the mindset , whereas most traders are on snake oil of 2 % /40%.This is the biggest single problem with trading, it leads to other issues like discipline failure,fear, greed ,failure of systems,execution problems, revenge trading,anger ,frustration and many other issues.

Here is corrected statement


The trader using more than 1 * account size leverage is likely to feel outside his comfort zone.The trader shouldn't be trading more than $100,000 euro usd, because if there were no fills in the market , his loss/risk for 400 pips is $4,000 or 4 %.Higher leverage will put him outside his comfort zone,and it will affect his trading performance and mindset.

 

[15 min tlb]

Psychology is 90% of trading success say many commentators.
Replicated below are some articles I found in my archive, starting with;

If trader has a robust system with good money management, risk management , method /system for entries and exits, then 90 % will be the trading system and only 10 % will be the psychology.The robust system will avoid all the psychology , discipline , fear,greed and other personal problems which cloud trading.

 

[15 min tlb]

This is a good thread.

Forums - Why do 95 % of traders lose ?

 

[oshunt]

This thread has so much useful information on trading psycology, it's almost like a book.

 

[BeginnerJoe]

Why do 95 % of traders lose ?

Because the guy on the other side of their trade is too good. For these loosers to work on their own psychology will not change the behaviour or the performance of that guy, who will continue to win.

 

[bbmac]

Fear !!!

The more I think about those main negative emotions/traits that result in the bad habits that can be the difference between consistent profit and loss (assuming you have a consistently profitable trading edge - at least in theory,) the more I come to the conclusion that fear is the dominant emotion.

Greed, Fear, Hope, Revenge, Frustration, Boredom, ill discipline are the main negative emotions/traits that can be that vital difference, and dealing with them in turn

Greed -or put another way - the fear of missing out.
Hope - hope is fear in that it is the fear of turning an unrealised loss into a realised loss that leads to hope trades (not cutting the losers early enough) and if involved in a good trade and 'hoping for an unreasonable target/reward - this put another way is the fear of not making this unreasonable target probably borne out of the fear of not being able to cover a run of losing trades and/or a negative p&l.
Revenge - or put another way is going back into the market to recover a loss on another trade (s) and is simply the fear of writing that loss (s) off and waiting for the next 'real' trading opp.
Frustration, Boredom, ill disciple (ie you didn't follow your plan) - that can sometimes cause a market entry when no real trading opp is present - or put another way it is the fear of not making a trade and being in the position of making money that causes this.

If you can conquer fear - in all it's forms you can start to build the good habits necessary to build up a consistently profitable p&l from your trading activity. To do this you need an edge and a process of trading that edge and for all of us both the edge and the process is likely to be different. Recognising (an honest assessment) of the threats and the weaknesses -as well as- the strengths and opportunities of both your edge and you is a good place to start and designing a robust process that can build on the later and eliminate/control the former would be the next step. Carrying out that process would be the next step to that but ironically even if you get to this stage (most won't) those negative emotions/traits may still trip you up in going thru the process.

Whatever stage you are at - the war is never won and you must be vigilant at all times - lest fear strikes again in all it's forms - every trading session you do should be a battle against it and a process you have developed to guard against it's unwanted influences and possible effects - building these good habits that keep you as safe as it is ever possible to be from it's potential !

Just a thought.

G/L

 

[bbmac]

Why ' Traders ' lose

Why do most traders lose ? For 99% It is likely to be one or more of the following:

1. They don't have an edge
2. They don't know what an edge is and is not
3. They don't know what they need to know about their edge (assuming they have one) in respect of it's past typical-maximum performamce metrics. (I.e strike rate, expectancy/trade, av winner, av loser, LLR, LWR, likely LLR across x trades, likely LWR across next x trades, likely max LLR across next x trades, likely LWR across next x trades etc...)
4. They don't optimise their money and risk management to the edge re no.3 above such that it keeps them in the game.
5. Because they don't know 2,3, and 4 above they get spooked out what could be a perfectly good edge performing well within it's typical performance metrics.)
6. Related to point no's 4, and 5, above they are generally overleveraged - resulting from a low initial funding, (brokers will acommodate them with offers of massive leverage knowing this,) ...and this invariably results in losses that they are not comfortable with - using that edge, causing them to abandon it and search again.

7. They don't understand that even having an edge - there may well be/almost certainly will be for most, a profit gap - ie a psychological defecit in trading the edge profitably themselves that needs to be overcome.

Most ' traders ' will fund an account and lose some - it will hurt but not cause them to lose everything/seriously destabilise their life - then they will come back again at a future date on the next cycle convinced this time it will different - fund the a/c again and lose some more overall and this cycle may well repeat and repeat. The accumaulated losses may be substantial but because they didn't all happen at once they can withstand this. The Broker's/SB's love this type of 'punter' - they are his lifeblood - he and the recreational gambler who accepts losses as the inevitable part of the recreation - the cost of it if you like. Not until they understand/accept the above and develop a plan to overcome these potential obstacles will they gain meaningful consistent profitability.

For most 'traders' they never really know what it is they need to know and most don't ever find out.

G/L

 

[15 min tlb]

Re: Why ' Traders ' lose

Why do most traders lose ? For 99% It is likely to be one or more of the following:

1. They don't have an edge
2. They don't know what an edge is and is not
3. They don't know what they need to know about their edge (assuming they have one) in respect of it's past typical-maximum performamce metrics. (I.e strike rate, expectancy/trade, av winner, av loser, LLR, LWR, likely LLR across x trades, likely LWR across next x trades, likely max LLR across next x trades, likely LWR across next x trades etc...)
4. They don't optimise their money and risk management to the edge re no.3 above such that it keeps them in the game.
5. Because they don't know 2,3, and 4 above they get spooked out what could be a perfectly good edge performing well within it's typical performance metrics.)
6. Related to point no's 4, and 5, above they are generally overleveraged - resulting from a low initial funding, (brokers will acommodate them with offers of massive leverage knowing this,) ...and this invariably results in losses that they are not comfortable with - using that edge, causing them to abandon it and search again.

7. They don't understand that even having an edge - there may well be/almost certainly will be for most, a profit gap - ie a psychological defecit in trading the edge profitably themselves that needs to be overcome.

Most ' traders ' will fund an account and lose some - it will hurt but not cause them to lose everything/seriously destabilise their life - then they will come back again at a future date on the next cycle convinced this time it will different - fund the a/c again and lose some more overall and this cycle may well repeat and repeat. The accumaulated losses may be substantial but because they didn't all happen at once they can withstand this. The Broker's/SB's love this type of 'punter' - they are his lifeblood - he and the recreational gambler who accepts losses as the inevitable part of the recreation - the cost of it if you like. Not until they understand/accept the above and develop a plan to overcome these potential obstacles will they gain meaningful consistent profitability.

For most 'traders' they never really know what it is they need to know and most don't ever find out.

G/L

Most people don't have a clue what an edge is , the word edge is brandished by gurus not knowing what it is.

An edge is not a trading method , system or or psychology. An edge exists even before the dice is rolled.A casino has an edge before any gambling starts with punters.

What is your edge ? | Elite Trader

Does any trading method really have an edge?Most methods don't work consistently.

 

[bbmac]

Re: Why ' Traders ' lose

Well, as an example - the methodology/tactical approach I take to the market provides me with a consistent edge, ...I am sure there are many others. My definition of an edge is below:

A Trading Edge is simply a repeating circumstance or set of circumstances that suggests there exists a greater probability of price moving one way over the other (for howsoever long,) based on the historical precedent of such to that point in time. Additionally and/or alternatively; if the edge does not suggest a greater probability of price moving one way over the other, then based on historical precedent to that point in time, it suggests that more pip gain is available when it succeeds than when it fails given proper money management, sufficient for it to realise a net gain over any given sample.


G/L

Most people don't have a clue what an edge is , the word edge is brandished by gurus not knowing what it is.

An edge is not a trading method , system or or psychology. An edge exists even before the dice is rolled.A casino has an edge before any gambling starts with punters.

What is your edge ? | Elite Trader

Does any trading method really have an edge?Most methods don't work consistently.