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psychological biases affecting trading

  • #21
  • Feb 4, 2018 10:15pm Feb 4, 2018 10:15pm
A lot of these threads seem to be geared towards those who are day trading. In my personal experience I have found day trading and watching charts constantly to be extremely stressful. I thought I wanted to be a day trader until I did this for a period of time and suffered so much stress and anxiety watching my p&l while sitting in front of charts. So basically, I think trading style has a huge impact on psychology. I have had success as a swing trader but had nothing but heavy losses as a day trader. Just my 2 cents.
  • #22
  • Feb 5, 2018 3:41am Feb 5, 2018 3:41am
Quoting hanover
{quote} Ivo, There have been some very good replies so far IMHO, but I will add my two cents worth: First I would try to identify the source of your anxiety: is it fear of being wrong, or is it the money? (Perhaps the simplest way to find out is to place a couple of demo trades, where there's no money involved, and test your reaction). If it's the money that's the problem, then downsize your positions to a point where you're comfortable. If your strategy allows it, make as many decisions as you can at the point of entry, when your emotions are less...
Hi, thanks a lot for your constructive answer.

>is it fear of being wrong, or is it the money?

The money... In the morning when I prepare for the day my goal used to be "making a lot of money". But right now I focus on "understanding the market" and trading goes much better since then. The money is just a result of that. Good exits seems to be the last obstacle to take. I try to not focus on P&L. A bad exit (exiting while knowing I should not have) and frustration can easily lead to new (bad) trades while initially having a positive day.

>If your strategy allows it, make as many decisions as you can at the point of entry

I agree... a huge part of trading is not screwing up... so less decisions is better.

> would ascertain exactly what parts of your exit strategy can be automated

I don't know.. I like the subjective part of trading. I need to see the situation, are we making new highs/lows? Where are we? Time of day? how's volume, etc etc.. And may then set a PT of just decide to hold the rest of the day.

>you might like to find yourself a trading buddy

Will give this a thought. Thanks

Ivo
Trouble lies in what we believe to know for sure that just ain't so.
  • #23
  • Feb 26, 2018 5:06pm Feb 26, 2018 5:06pm
Quoting ivob
I have been trading for quite a while. No problem to see what's going on, I generally read the day very well. I notice that I have some bias...
That is a cognitive bias called risk aversion. Nobel prize winning researcher, Daniel Kahneman is the man in this field. Search for BBC documentary on him, it's on youtube. I have this bias also, it's human nature but can be worked on.
big money makes big moves and then hides during small money chasing.
  • #24
  • Mar 4, 2018 7:04pm Mar 4, 2018 7:04pm
Quoting hanover
{quote} Ivo, There have been some very good replies so far IMHO, but I will add my two cents worth: First I would try to identify the source of your anxiety: is it fear of being wrong, or is it the money? (Perhaps the simplest way to find out is to place a couple of demo trades, where there's no money involved, and test your reaction). If it's the money that's the problem, then downsize your positions to a point where you're comfortable. If your strategy allows it, make as many decisions as you can at the point of entry, when your emotions are less...
Dear David and Ivob,
Thank you so much for what you claim is worth 2 cents, to me this was worth many times its weight in gold
I too struggle from exits from time to time, but maybe if your exits can not be automated you can try the approach I have taken: basically scaling out. Whet I exit my position I only exit half and the rest is set to break even + a few pips. Doing that for several months helped me get extra experience and disciplined control on when I should actually exit trades.
I would absolutely love a trading buddy but it is a bit difficult to find one here in Australia. Anyways if there is anyone reading this post, please feel free to send me a message
Best Regards,
Tzamo
"Work hard, put in the effort, and follow your dreams..." -Me
  • #25
  • Mar 5, 2018 3:19am Mar 5, 2018 3:19am
Quoting dkrock
Let me see if I can help. I have a lot of experience with trading patterns. Please temporarily change your focus from psychological to logical for a minute and let me propose a solution to your issue. Logical now means mathematical, okay? 1. Mathematically, you are bored trading ranges. They lack motivation to even try. Then a range moves too far and you chastise yourself for not being in the trade. 2. You have a lower pip count than you prefer. You haven't figured out yet that money is made from risk, not pips. If you make 10 pips with 100 lots...
Disagree. Money is made from precision compounding. The problem occurs when traders think they don't go hand in hand. Neither throwing everything in without any ability to compound nor compounding with no idea how to execute it with precision tend to work out very well. Alone they're flimsy but in synergy they present a sharp edge. When you add in the whole ego thing where a trader starts thinking they're amazing or forgetting that they have to create the edge slowly and start to get overconfident with greed and laziness... Is when they start screwing up. There's a lot of money on the table to be made. Just don't try to pick it up all at once.
"The fun is in the hunt. Not the kill."
  • #26
  • Mar 5, 2018 3:27am Mar 5, 2018 3:27am
Speaking as a long-term only trader, doesn't anyone see the irony in day-traders' concerns about psychological biases, irrational influences, emotional trading, greed and revenge trading and the rest?

When day-trading itself is sustained out of fear of over-night risk?
  • #27
  • Edited 3:48am Mar 5, 2018 3:34am | Edited 3:48am
Quoting tomorton
Speaking as a long-term only trader, doesn't anyone see the irony in day-traders' concerns about psychological biases, irrational influences, emotional trading, greed and revenge trading and the rest? When day-trading itself is sustained out of fear of over-night risk?
No, day trading is sustained out of knowing that the market doesn't go into shutdown and can easily reverse overnight when it's not being watched. My biggest losses occur when I'm asleep. It also has to do with knowing what's going on rather than catching a long-term trend and hoping nothing happens to reverse it intraday. If you think MMs only work for a few hours a week looking for trends rather than pulling 80-100 hour workweeks then you're in for a surprise . A trend follower is just hopping onboard to feed off the carrion scraps after the actual work's been done. But those of us actually in the melee don't mind you showing up late to toot your victory trumpet.

Toot away little soldier. Toot away.
"The fun is in the hunt. Not the kill."
  • #28
  • Mar 5, 2018 3:47am Mar 5, 2018 3:47am
Quoting Redeflect
{quote} No, day trading is sustained out of knowing that the market doesn't go into shutdown and can easily reverse overnight when it's not being watched. My biggest losses occur when I'm asleep. It also has to do with knowing what's going on rather than catching a long-term trend and hoping nothing happens to reverse it intraday. If you think MMs only work for a few hours a week looking for trends rather than pulling 80-100 hour workweeks then you're in for a surprise. A trend follower is just hopping onboard to feed off scraps after the actual...

Well isn't that what I said sustains day-trading? Fear of over-night reversals.
  • #29
  • Mar 5, 2018 3:48am Mar 5, 2018 3:48am
Quoting dkrock
{quote} One of my rules is to only trade when the banks for one of the currencies of my pair is open. That means I concentrate on intraday swings. Having started in the stock market and been subject to wild weekend fluctuations, you learn to keep hold of your money. Good Luck to you though!!

Its actually down to good planning and market awareness rather than luck, but thank you anyway. (he said modestly)
  • #30
  • Edited 4:05am Mar 5, 2018 3:55am | Edited 4:05am
Quoting dkrock
{quote} Thanks for your opinion. It has nothing to do with what I said, but maybe it will help someone. The OP already knows how to trade. This is not a rookie conversation.
-shrug- It's one going over psychological biases. I figured that's always a novice-level discussion to have. Just make sure the liquidity doesn't dry up when stacking.

Quoting tomorton
{quote} Its actually down to good planning and market awareness rather than luck, but thank you anyway. (he said modestly)
How is it market awareness if you aren't aware of the intraday minutiae? Believing "people are afraid to hold overnight so if I take that risk for them then I'll get their money!" is a naive way of understanding market psychology.

What you're really saying is that you couldn't make it intraday and realized that most people can't so you shifted to the sidelines where you perform better. Planning to avoid situations where you get your but kicked is wise; but an even more apt example of risk aversion.
"The fun is in the hunt. Not the kill."
  • #31
  • Mar 5, 2018 3:59am Mar 5, 2018 3:59am
Quoting dkrock
{quote} One of my rules is to only trade when the banks for one of the currencies of my pair is open. That means I concentrate on intraday swings. First, that is when the market moves. Banks closed = dead market. Second, having started in the stock market and been subject to wild weekend fluctuations, you learn to keep hold of your money. Good Luck to you though!! A position trade for 1000 pips is nearly equivalent to 4000 pips of an intraday swing trader. All a matter of your business plan.

But seriously, you're saying that over-night markets are dead, Redeflect's saying trends can easily reverse over-night. One or other of your analyses must be wrong. But I think where you agree is you carry a fear of what might happen while you are unable to react.

My wider point is that whereas something like impulsive trading or a stop-and-reverse revenge trade are easily recognised as emotional trading, some broader behaviours are equally irrational.

Let me say that if you are a new trader and you have just started day-trading only, 99% of you will not be around next year.
  • #32
  • Mar 5, 2018 4:14am Mar 5, 2018 4:14am
Quoting dkrock
{quote} There is no fear. If the banks are moving 90% of the money, and the banks are closed..........DUH! Trade like a business. If business is not open, do not trade. Excuse me if I sound brash. I thought I was talking to professionals, so my topic is advanced. If you are a rookie, or a losing trader, you should ignore my posts on this thread. I am specially talking to the OP, who I believe to be a successful trader stuck in a rut and ready to move forward.
Except the banks never close. When something important happens; it happens. Regardless of the time.

My best recollection was Trump throwing some Tomahawks into Syria last spring at about 9:15pm. The 'trend'(by my standards) flipped and USD tanked for two weeks. I only knew something happened because of the reaction when I checked the charts 15min later.

Sure, the argument could be made that Tokyo was open but let's be serious. It's Tokyo.
"The fun is in the hunt. Not the kill."
  • #33
  • Edited 4:47am Mar 5, 2018 4:32am | Edited 4:47am
Quoting dkrock
{quote} You can be consistent, or not. You can make it as complicated as you want. Since news releases occur with standardized frequency, I trade IAW them. Black swan news is not a consistent fundamental source. It is an outlier. Can't worry about it. Good Luck.
I am only making the point that overnight risk aversion is not 'irrational' since Tom believes our analysis to be contradictory.

Taking it on has marginal risk-reward benefits when painted with a broad brush.(and no I'm not referencing R:R ratios)

The point to be made is that the market usually doesn't move at that time so the reward is low while if it does move it's not a situation where you want to be sleeping behind the wheel. There's little point in taking on risk when the markets are dead unless they aren't dead and you're consuming other people (such as Tom's) overnight risk.
"The fun is in the hunt. Not the kill."
  • #34
  • Edited 6:17am Mar 5, 2018 5:45am | Edited 6:17am
Quoting ivob
I have been trading for quite a while. No problem to see what's going on, I generally read the day very well. I notice that I have some bias... when the day is easy and my profit is small or reasonable I do not want to take the risk to lose it. I should make a killing on these days but I don't. I don't trade or just very small, taking very quick profits even though I know I should let it run. On the other hand, when the day is hard, I lose some, I want to make up for it. Start trading big...and bigger. It's ridiculous, my motivation seems to be...
You take on risk with every trade. You're closing trades to lock in small profits... For what? Have you found a better place to put it where you're willing to pay the spread again? If you've covered the spread then you've already won. Move your SL to just above break even. If you really want to lock in the profits then lock in some of them and look for somewhere better to put it. Change your exit strategy into a reverse martingale where you are progressively scaling out as it moves against you towards break-even( a series of stops). Then you'll always be locking in profits and only be closing if it is about to become a loss until you get better at exiting (one of the toughest things to master). You shouldn't be exiting from fear of losing profits. You should be exiting because you found a better place to put the money, have a reason in and of itself to reverse the position(because that's what you are doing as you close a position; you're basically 'hedging' in the opposite direction while freeing up capital), or believe it's run it's course for the day and decide it's time to close the shop. Overcoming that fear of leaving profits on the table is a very common problem but a simple behavioral bias to overcome; stop caring about profits and start caring about the trades. Your exit strategy should ideally be the same as the one you use to enter. If you are trading well then the profits will come and you should know by now that there are more profitable trades just around the corner. The only question is if you're so used to taking small profits and big losses that you aren't looking out for the corners because you are too afraid of crashing on the potholes.
"The fun is in the hunt. Not the kill."
  • #35
  • Mar 5, 2018 6:20am Mar 5, 2018 6:20am
Quoting ivob
I have been trading for quite a while. No problem to see what's going on, I generally read the day very well. I notice that I have some bias... when the day is easy and my profit is small or reasonable I do not want to take the risk to lose it. I should make a killing on these days but I don't. I don't trade or just very small, taking very quick profits even though I know I should let it run. On the other hand, when the day is hard, I lose some, I want to make up for it. Start trading big...and bigger. It's ridiculous, my motivation seems to be...


Discipline problems are common pal. Many traders at banks are not brilliant traders (in fact, many retail forex traders are much better traders than bank traders). Bank traders do not have a sixth sense for the markets. These traders do not have access to secret algorithms or indicators. Many traders are consistently profitable because there is a built-in discipline system at the bank.

Bank traders have a risk manager. The risk manager ensures that the bank trader trades with discipline. The bank hires intelligent trainees to become disciplined traders on the forex desk. The risk manager ensures that the bank traders do not risk too much on their trades. All the bank traders must follow one simple rule: They must not take more risk than they are allowed. Each bank trader knows how much he may risk, every bank trader has a number, and his risk cannot exceed this number. The risk manager on the forex desk oversees the risk associated with each of the trades taken by the traders. If a trader takes on too much risk, the trader is warned once. If a trader makes this mistake again, the trader loses his job. These are the rules. Each bank trader understands this, and the forex trading desk is set up to tightly manage risk.

The interesting thing about this system is that even those traders who are exceptionally profitable—the traders who make millions for the bank—even these traders are shown the door if they take on too much risk. Banks understand trading is a game of risk. All the bank traders must be disciplined traders. Any trader who steps out of line is a severe concern for the bank.
  • #36
  • Mar 5, 2018 11:19am Mar 5, 2018 11:19am
Quoting andinurhasan
{quote} Discipline problems are common pal. Many traders at banks are not brilliant traders (in fact, many retail forex traders are much better traders than bank traders). Bank traders do not have a sixth sense for the markets. These traders do not have access to secret algorithms or indicators. Many traders are consistently profitable because there is a built-in discipline system at the bank. Bank traders have a risk manager. The risk manager ensures that the bank trader trades with discipline. The bank hires intelligent trainees to become disciplined...
Always a pleasure when someone gets it.
"The fun is in the hunt. Not the kill."
  • #37
  • Mar 5, 2018 4:05pm Mar 5, 2018 4:05pm
Quoting Arbaaz
{quote} You may laugh but meditation helps me a lot in controlling my emotions. We can't get rid of them but control them. Revenge trading destroys the whole trading career, never revenge here. Mindset training is a must. I also recommend using Neuronation which is min training application. Results you will not notice quickly but it does builds our edge in a few months. Hope it helps.
Thanks, I do meditate! Like it.

Ivo
Trouble lies in what we believe to know for sure that just ain't so.
  • #38
  • Mar 5, 2018 4:06pm Mar 5, 2018 4:06pm
Quoting corrman
{quote} That is a cognitive bias called risk aversion. Nobel prize winning researcher, Daniel Kahneman is the man in this field. Search for BBC documentary on him, it's on youtube. I have this bias also, it's human nature but can be worked on.
I just can't stand losing..... getting better at it though. Occasionally there's a loss after a day and they're not big anymore. I used to risk more and more to turn a bad day into a good one and then when things went wrong they went really wrong.

Ivo
Trouble lies in what we believe to know for sure that just ain't so.
  • #39
  • Mar 5, 2018 4:08pm Mar 5, 2018 4:08pm
Quoting Redeflect
{quote}.. The only question is if you're so used to taking small profits and big losses that you aren't looking out for the corners because you are too afraid of crashing on the potholes.
Exactly.. I am already rewarded... just not nearly what it should be but it does reinforce "bad" or undesired behavior. The first thing in solving this is to be aware, and I am..

Ivo
Trouble lies in what we believe to know for sure that just ain't so.
  • #40
  • Mar 5, 2018 6:57pm Mar 5, 2018 6:57pm
Quoting Redeflect
{quote} I am only making the point that overnight risk aversion is not 'irrational' since Tom believes our analysis to be contradictory. Taking it on has marginal risk-reward benefits when painted with a broad brush.(and no I'm not referencing R:R ratios) The point to be made is that the market usually doesn't move at that time so the reward is low while if it does move it's not a situation where you want to be sleeping behind the wheel. There's little point in taking on risk when the markets are dead unless they aren't dead and you're consuming...
IMHO, holding overnight is only risk if you are over-leveraged. If you have sized your position appropriately, an overnight gap won't but a huge dent in your account. No different than day trading when an unexpected sharp price move causes you to get slipped.
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