Pete's Psychology thread

I want to start this thread in order to write down all things I learn about trading psychology and trading itself, also write down my ideas.

PS. I will be deleting some posters posts, just to keep it clean. Or include questions in answers. Basically just sum everything up and keep it tidy. Ill also moderate this thread once a dayish.

Thinking in probabilities have been around for a long time. Many people know about, but very little people actually do it and achieve it in a hassle free manner.

Im not going to expand to much about probabilities, but what I will talk about is building a edge.

When starting out as a trader you try all systems at once. Getting confused, not keeping record and not keeping to any rules. This leads you down a never ending spiral of losing consistently.

When starting to trade picking one system, having a set of rules.

If you do this you can run this system over 20 trades, and if each trade was according to the rules of the system you will have a good idea about the metrics of the system after a sample size of 20.

For ex. what was your win percentage, ave win, ave loss. If you made notes you could see that these trades where big winners and you can adjust your tp levels accordingly. Or maybe give it a bit more room on your stops. Which will increase your profit ratio.

Even a mediocre system can work when the trader knows that to think in probabilities and to stick to his rules of his system will make him profitable.

You might want a few more than 20 trades...its a very small sample. I would advise at least 100 or more trades depending on the time frame you will use to make decisions...

But I am unsure what that has to do with psychology?

Thinking in probabilities.

Yeah, whatever makes you happy, I would say atleast 20 trades

Think about this.

If someone throws you a yellow ball, you catch it and it flaming hot, you immediately drop it to the floor. This experience builds the belief that yellow balls are hot, don't touch!!

That process is right because your external environment caused you to do something ( the market caused you to make a decision ).

Now that this belief is instilled... Next day you walk around a corner as you get around the corner the same guy has thrown a yellow ball at you, and it's half way on its way to you. What are you going to do???

If your normal you would as quick as you can get out of the way of this ball your beliefs tells you is hot, don't touch!!.

You find your friend laughing... you pick up the ball and its perfectly touchable. He puts this on youtube and everyone laughs how you fell over, trying to avoid this measly ball.

This process may be orait in real life but in trading its completely wrong. Your belief has reversed the cause affect relationship. Your belief has caused you to move away without actually feeling if its hot in the first place or not.

In the market this means that you are not open to what the market is telling you rather, your letting your beliefs about past experiences act out in the market. And basically telling the market what to do, do you think that's gonna work?

Do missed opportunity's exist?

Market is an endless river.There are infinite edges out there.What one has to decide is what he is defining as an edge.So my personal edge could appear 2 times today but another traders edge might appeard 4 times or not at all.The detail comes here:you want to trade only a setup that looks like 100% to your definition of edge,not a 99 % but a 100%
That will keep you out of temptation (thinking that something is happening)and keep you out approximating trading.You dont want to approximate.If you aproximate you wll never have a clean picture of your strategy.i am a naked chart trader-but i am using some indicators that serve to me as a "no trade situation",see i use them just to stay out of the market and trade what is 100% my definition of an edge.

A happy trader is the one who has the ability to follow 100% his RULES
if one has not that ability he is an aditive forex gambler

happy trading to all!

I will attempt to answer this here.

Well you can say when the trade is not according to your rules, some people don't have rules... I don't know how trading like this is possible. You should have some kind of rules.

Whenever your trading and going about looking for trades entering exiting etc, ideally you should feel completely at ease and these processes should be hassle free.

But if like you are like the most of us for who its not completely hassle free, you do have some conflict. This conflict does built up over time, and will cause you to snap.

If you do have any rules, the day or time of day when you can sense yourself getting closer and closer to breaking them, convincing yourself you should break them or changing your rules without a structured process.

This is when you should either refocus and stick to your rules or not trade at all. Till you have either settle's this issue or fixed the conflict you have.

I rate consistency very highly, for me consistency goes father than the word means to most people.

Consistency in all aspects of life, when your trying to lose weight. Consistently eating right and going to gym, is what will make your venture successfully. When practising for a sport consistently practice and also, consistently having a high level of practice.

In trading it is not enough to be consistent in trading 9-5 every day. You can trade 9-5 every day, but if every week your trying some new strategy or new method, you will take a long time be consistently profitable.

Thing I try to keep consistent are things like trading hours, focus, trading plan, strategy and breaks. If your strategy is working but your consistent with the rules and entry of the system. Then you can move on to the next or adjust it. Now your consistently trying out different strategy's not jumping from one to the next.

One more thing, doing things consistently and it becomes your second nature as in you do it automatically.

If you can automatically execute your trading plan you've opened your way to easily taking money from the market day in day out.