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The Importance of Mental Analysis

  • #1
  • First Post: Feb 19, 2009 12:10pm Feb 19, 2009 12:10pm
This blog will probably not be very popular, but hopefully I can reach some newbies before they get knee deep in trouble with the forex. Please, I repeat, please stop trading until you’re familiar with mental analysis. Do you know that mental analysis is more important than fundamental and technical analysis? I’ve been trading for over 2 years, and it took me two years to understand that I wasn’t mentally prepared to take on the market. Trading with emotions will get you in trouble. One of the best reads that should be in everyone’s library is “Trading in the Zone,” written by Mark Douglas. There is a quote in that book that I feel everyone should memorize and fully understand before they begin trading: “There is a random distribution between wins and losses for any given set of variables that define an edge.” When you fully understand that quote and you have a system that has an edge that you can execute flawlessly, then you will make nothing but money in this market. Now, all I do is make nothing but money trading the markets because of my understanding of market psychology. Always remember that the qualities that have served you well elsewhere is life will cost you money in the market.
  • #2
  • Feb 19, 2009 12:22pm Feb 19, 2009 12:22pm
Quoting cecillee44
[font=Calibri][size=3]This blog will probably not be very popular, but hopefully I can reach some newbies before they get knee deep in trouble with the forex. Please, I repeat, please stop trading until you’re familiar with mental analysis. Do you know that mental analysis is more important than fundamental and technical analysis? I’ve been trading for over 2 years, and it took me two years to understand that I wasn’t mentally prepared to take on the market. Trading with emotions will get you in trouble. One of the best reads that should be in everyone’s...
Agree... I have learned more about myself in the last three years trading, then I did in the previous 10...

Question: you have been a member since 9/07, why so long for your post?
  • #3
  • Feb 19, 2009 12:27pm Feb 19, 2009 12:27pm
Good post! I agree completely about the necessity of mental analysis in trading and am also intrigued to hear more about your strategies for achieving mental preparation as well as your technical edge.

"Trading in the Zone" is a great book. I should reread that.
  • #4
  • Feb 19, 2009 12:51pm Feb 19, 2009 12:51pm
...does Mark Douglas actually trade? I suspect not, if so why does anybody think he has anything to offer beyond self-help psychobabble?
The breaking of a wave cannot explain the whole sea.
  • #5
  • Feb 19, 2009 1:26pm Feb 19, 2009 1:26pm
Quoting Craig
...does Mark Douglas actually trade? I suspect not, if so why does anybody think he has anything to offer beyond self-help psychobabble?
He does trade, Craig.
  • #6
  • Feb 19, 2009 1:36pm Feb 19, 2009 1:36pm
In that case I retract my statement, can you point me at something as I could not find anything apart from seminar advertising.
Edit: I see on his website 'successful trader since 1980's' hmmm....I could apply occam's razor here, but I think I'll just shut my trap.
The breaking of a wave cannot explain the whole sea.
  • #7
  • Feb 19, 2009 1:41pm Feb 19, 2009 1:41pm
Quoting Mysticdiver
Agree... I have learned more about myself in the last three years trading, then I did in the previous 10...

Question: you have been a member since 9/07, why so long for your post?
Because I use to use this sight for only for the economic calendar. But since I've finally learned how to trade and the importance of mental analysis, I wanted to share that with novices and anyone else who's struggling.
  • #8
  • Feb 19, 2009 1:43pm Feb 19, 2009 1:43pm
Quoting PiedPipper
Good post! I agree completely about the necessity of mental analysis in trading and am also intrigued to hear more about your strategies for achieving mental preparation as well as your technical edge.

"Trading in the Zone" is a great book. I should reread that.
I use Fibonacci retracements, Trendlines, the 200 and 34 Ema's, and MACD. I only use two timeframes, the Daily and 4 hour charts. I'll elaborate more on how I use them later, but right now, I'm pressed for time.
  • #9
  • Feb 19, 2009 2:09pm Feb 19, 2009 2:09pm
I do not recall a thread that began to discuss the psycological aspect of trading ever continuing on topic. It gets sidetracked pretty quickly. People are not interested in mental - they want to know when to enter and exit.
Soon the 'click and grow rich' crowd will chime in about how they have solved their psycological issues by having their EA do all the trading for them. LOL
Welcome to FF cecillee44
In trading, there is no bullshit. You either make money or you don't.
  • #10
  • Feb 19, 2009 2:55pm Feb 19, 2009 2:55pm
Quoting mrgreen
I do not recall a thread that began to discuss the psycological aspect of trading ever continuing on topic. It gets sidetracked pretty quickly. People are not interested in mental - they want to know when to enter and exit.
Soon the 'click and grow rich' crowd will chime in about how they have solved their psycological issues by having their EA do all the trading for them. LOL
Welcome to FF cecillee44
I agree with you. That's why there is an abundant supply of money for the taking. Thanks for welcoming me to FF.
  • #11
  • Feb 19, 2009 3:48pm Feb 19, 2009 3:48pm
Quoting mrgreen
the 'click and grow rich' crowd
Clever. Can I steal that?

I'm very interested in the mental aspect since I believe trading is 90% mental and the other 90% psychological. The math part.. not sure about that.
  • #12
  • Feb 19, 2009 4:46pm Feb 19, 2009 4:46pm
Quoting cecillee44
Because I use to use this sight for only for the economic calendar. But since I've finally learned how to trade and the importance of mental analysis, I wanted to share that with novices and anyone else who's struggling.
Thx for contributing.
  • #13
  • Feb 19, 2009 5:03pm Feb 19, 2009 5:03pm
Quoting JR97
Clever. Can I steal that?

I'm very interested in the mental aspect since I believe trading is 90% mental and the other 90% psychological. The math part.. not sure about that.
I believe in keeping things simple. When successful traders talk about the psycological aspect of trading, this is what they mean in a nutshell. Create a system that you can be committed to that wins more than loses and that creates more profit than losses. Then, execute that system flawlessly. In order to do that, you have to have a system you can trust, and you have to get beyond the threshold of discipline. (That is Mark Douglas' quote). Everybody always talks about discipline; but you have to get past discipline in order to become a professional trader. Here's a good example. I started lifting weights about 10 years ago because I wanted to change my appearance. Most of the time I didn't want to go to the gym because of excuses too numerous to mention. But I went anyway through the use of discipline. No matter what the weather, how I felt physically, or whatever, I still went because of discipline. I still go to the gym at least three times a week and now I love to go, but I no longer need discipline because when I go, I'm just expressing a part of who I am. It's almost involuntary, I don't even think about it. Discipline must turn into expression, and when that happens to a trader that has a system with an edge, a 9 to 5 will no longer be required.
  • #14
  • Feb 19, 2009 8:17pm Feb 19, 2009 8:17pm
Is this an ad?
  • #15
  • Feb 19, 2009 10:07pm Feb 19, 2009 10:07pm
No.
  • #16
  • Feb 19, 2009 10:53pm Feb 19, 2009 10:53pm
“There is a random distribution between wins and losses for any given set of variables that define an edge.”

Since you obviously understand this, care to give any proof that your set of variables is randomly distributed? I don't see how this is possible since "define an edge" is so vague. Unless this is another post that takes new meaning to mathematical terms.

Or is this just more gimmick psychobabble.

Before you respond with personal attacks, I am not trying to attack you myself. I just don't understand the point of these posts (and why there are so many).
  • #17
  • Feb 19, 2009 11:33pm Feb 19, 2009 11:33pm
Fair enough. I'll do my best to explain. When I was a teenager, I used to play rummy a lot with my friends. I use to win on average about 6 out of 10 games. It didn't matter who dealt the cards, I always used the same strategy and I never deviated from it. Even if I lost 2 or three games in a row, I knew if we played enough games, I would end up winning more than losing. But the trick was to execute my style flawlessly. Trading is a numbers game. It's actually a very simple game that's very hard to play because it seems like it should be complicated. When you develop that edge and develop the traders mindset, trading is very easy. If I have a strategy that wins more than loses, why deviate from it? Today, I traded my system flawlessly when I traded the USD/CAD pair and I ended up losing 15 pips. I didn't get discouraged. I traded the EUR/USD pair the exact same way and banked 63 pips. I also traded the AUD/USD pair the same way and banked 45 pips. Does Las Vegas get mad when a person gets on a winning streak and walks away with hundreds of thousands? Of course not, because they know that their bottom line at the end of the month is going to be in the positive. Also, when I was on a High School basketball team years ago, I was the best free throw shooter on my team. (I shot 85% from the free throw line). When I missed, I didn't make changes to how I shot free throws because I knew that I had a high probability of making free throws consistently the way that I was shooting them. Keeping trading consistently simple is the way to go. Tiger Woods was once asked by a media person years ago why he was so consistent with his putting and I know the media person (I forgot his name) was looking for a profound statement and Tiger Woods statement was this: Find out what works for you and keep doing it over, and over, and over, and over, again.....
  • #18
  • Feb 19, 2009 11:58pm Feb 19, 2009 11:58pm
Quoting cecillee44
Find out what works for you and keep doing it over, and over, and over, and over, again.....
On the flip side... if ain't workin, stop doing it over and over and over over again.
  • #19
  • Feb 20, 2009 12:12am Feb 20, 2009 12:12am
Not too sure what you are trying to say by those examples.. but

I agree.

Find what works for you. That is obvious. And I'm guessing that is your take of the statement “There is a random distribution between wins and losses for any given set of variables that define an edge.”
Hence why we aren't all rich. If there was such a mechanical system out there, there would be no reason for anyone to think.

However I fail to see the random distribution. What are the variables? How many wins and losses? I don't get how your past of basketball and card playing plays into that statement, nor can I yet decipher what that statement means.

But anyways, it seems like a ton of posts here re-iterate things from books that people rarely take time to think about. Like "Trading is a numbers game".. Ok.. What does that even mean?

But again: “There is a random distribution between wins and losses for any given set of variables that define an edge.” This statement does not make sense. If it does, someone please explain it to me. How on earth can there be a distribution of any kind between vague variables that aren't even defined.

I think it boils down to just what you said: find what works for you, and do it over and over. I also think it makes things a lot more confusing when mathematical terms start getting thrown around carelessly like they do in so many books.
  • #20
  • Feb 20, 2009 4:57am Feb 20, 2009 4:57am
Quoting loa1452
But again: “There is a random distribution between wins and losses for any given set of variables that define an edge.” This statement does not make sense. If it does, someone please explain it to me. How on earth can there be a distribution of any kind between vague variables that aren't even defined.
This is the reason that I do not advocate that a rookie trader even read Douglas. They do not have the synaptic highways (Experience) to put it into perspective. They attempt to put it into 'what they know' (Are you an engineer or IT guy - LOL - I am so I struggled). Once a person has traded for a year or two - then read Douglas - it then may start to make sense.

When taken out of context and over thought then yes it makes no sense. Here are how Douglas defines. If you can accept that in trading anything can happen then you must accept you cannot predict the future so you come up with a method that will win at least greater than 50% and that of these trades you don't know if the next will be a winner or a loser but you don't care because your probabilities are on your side that over a given set of trades you will be an overall winner.
He goes further to define the variables within the 7 principles of consistency.

The Five Fundamental Truths…

  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.

…and The Seven Principles of Consistency

  1. I objectively identify my edges.
  2. I predefine the risk of every trade.
  3. I completely accept the risk or I am willing to let go of the trade.
  4. I act on my edges without reservation or hesitation.
  5. I pay myself as the market makes money available to me.
  6. I continually monitor my susceptibility for making errors.
  7. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.

"An Edge is nothing more than an an indication of a higher probability of one thing happening over another"
In trading, there is no bullshit. You either make money or you don't.
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