The Importance of Mental Analysis

Mr. Green, you are probably right. Now that I think about it, it probably would be better for someone who is seasoned through experience trading the forex to read Mark Douglas' book after a year or two.

Well I guess its just his style of writing. I have been reading reviews of the book and I don't think I could ever get anything out of it.

"Winning is a by-product of your beliefs. Experts don't have to try to be consistent; they are consistent. Successful traders think differently."

Personally, I don't like that fluffy writing style. It seems like the "psychology fad" writing that so many books deploy. Sure it sounds good, but like Alexander Elder says in his trading psychology book Come into my trading room (which is an excellent book) "If you can't understand something after an honest effort, it is probably because the other guy is giving you double-talk".

I can't read something that throws around mathematical terms giving their own personal meaning to them. I know a lot of people that wouldn't care, but I personally can't take that.

But to end pointless argument, I understand that statement does not make mathematical sense, it makes "psychological" sense. Again, its a writing style choice, personally I couldn't read that without pulling my hair out, but if it works for you then great.

And no I'm not an engineer and I'm not in IT.

I'm 80% rational and 80% emotional. Doesn't add up? Well heck, that's the emotional part speaking.

Seriously though, nice post, I tend to agree with you. I see Mark Douglas' books as being motivational rather than instructional - he speaks more about the 'what you need to do' than the 'how to do it'. And he tends to assume that one already has a profitable strategy. Trading in the Zone makes the same points repetitively: understand that trading is a game of probabilities; learn to accept your losses philosophically; detach yourself; trade a proven strategy with discipline and consistency; focus on what lies within your control: assess your performance on how accurately and consistently you trade your plan, as opposed to how the market rewards you. To me, the psychological part of the trading 'equation' is self-evident. But then the battle lies not with the understanding, but in the implementation.

Maybe I'm stoooopid, but it's taken me two years of hard slog R&D to stitch together an entry/exit strategy that I believe provides a robust enough edge, and also suits my trading/personality objectives/lifestyle. Every time I find my emotions creeping in, I ask myself "Do you now want to make those exasperating two years a complete waste of time?". Thus far, it has proven motivation enough to keep my self-discipline on track.

If I may paraphrase a quote by Billflet, a strategy either provides a winning edge, or it doesn't. If it does, it's priceless; if it doesn't, it's worthless. Simple, but profound; thanks, Bill.

I'm a firm believer that if you don't have confidence in your strategy, then you'll never be able to trade it with discipline. Hence having a profitable strategy is the first prerequisite.

And yes, for the record, I am in IT.

The random distributions are the wins and losses accumulated over time using your system. The variables are the techniques and the indicators used with your trading system. If you know you have a system that gives you a consistent 7 out of 10 wins, then you have an edge. I used free throw shooting to try to illustrate that point. I know that if I shoot 20 free throws, there is a random distribution between makes and misses. But I know I will make more free throws than miss because of my style of shooting them. (Well, that was back then anyway)

Absolutely agree with you (and Billflet) Hanover - I recall you once had the analogy of a new driver filling their gas tank for the first time - they are not familiar w/ the process and are nervous - a year later they don't even think about it (apologies if it was not you - but I think it was That analogy was apropos cause it presumes one has a car.
So many traders do not have the psychological wherewithal to bother getting a car. They go from lot to lot - waste all their money on the bus and taxis -and eventually just go home. So they will never have a chance to fill up their car and therefore will never learn that it is a repetitive task and the only difference is which station you are at.

This early stage is where the true need for psychological help is needed. [Note: Not trading psy help - but real help - like getting rid of that complex of growing up so poor that if you hadn't of been born male you wouldn't have had anything to play with kind of help.] Not after you have a car - cause you know what to do then - you built the foundation for this moment piece by piece.
It took me a while to realize that the markets can never be rational because people cannot be counted on to act in their own best interest. This floored me when I first read it - but I have come to accept it as a truth. The reason is that so many wont even bother to find out what is in their best interest much less learn what acts are in their best interest.

I gotta a lot of respect for you Hanover - your a stand up guy.

(Talk about psychobabble huh - sorry I'm tired - its been a long week and really long day -I think I am gonna have a tall cold one now

Good move.

Thanks for the feedback, Mr G. The respect is mutual, I have learned a lot from your posts.

I think a major reason that the markets are 'irrational' is that we have no way of knowing who the participants are, or their objectives. For example, we might be 'lucky' enough to enter at a point where a multinational just happens to be transferring a vast sum to its overseas branch, necessitating a currency transaction whose effect is to fill a massive volume of orders, causing price to move in 'our' direction as it gobbles the orders up.

The structure of the forex market is very complex, with its tiered hierarchy and vast interbank transactions.

As I said in another post, I'm kept sober and humble by the thought that when I decide to open a trade, there's a trader somewhere else who's equally convinced by his own analysis to take the opposite position. Granted, that's an oversimplification, but the bottom line is that any market requires both a willing buyer and a willing seller, in order to function.

No doubt there are a host of reasons why markets behave irrationally. I'm sure that you're correct - folk not behaving in their own best interests is very likely another major one. In many ways trading is a 'counter-intuitive' activity.

Enjoy your cold one.