Some lessons from the real world

If you like the concept of a "system" then maybe take a look at the Max trading system, as the Lite course is quite cheap. If you have a couple of years under your belt then it will make sense to you. Perhaps a combination of that plus the self-review?

Yes, "plugging away" is ok, but is much better if within the context of a well-defined structure/process aimed to improve your current outcomes. It means that any chart time or data review time will be more meaningful and less likely to end in frustration...and for example as you are going through the process if you can find a way to see the value in realising that your current avenue of exploration (eg with a S/R level at a certain parameter or with indicator XYZ) is not going to yield the results for you then you will be more likely to stick with your method development approach, and be less inclined to go indicator or system hopping.. just my 2 cents.

Ya, I would guess that the number one reason that I'm not further ahead of where I am today in my trading is because of my 'system hopping' (as you put it :-) ). Each time I've tried a system I find significant holes in it and when another one comes along that looks promising, I hop. I'm not looking for the holy grail or anything, but I'd like to be using a system that not only is profitable, but also makes logical sense to me. I'll take a peek at the Max trading system to see what that ones all about... thanks for the suggestion.

Cheers

Some excellent comments you've made in your opening post, but I have to disagree with your take on the importance of psychology.....unless I am completely misunderstanding exactly what you meant by it.

From what I have seen, a persons psychology is of paramount importance. And the ability to adjust and train your mind and emotions will make or break a traders success.

I trade full time as my sole income and have done for several years. I have a good friend who has seen what I do and wants the same, so I have worked to help him. We've sat down together and he has watched me make my trades live in front of him, and he's seen that I make a profit. I have gone back through my logs and shown him every trade I've made over previous years....he's seen the win rate, losses, consecutive wins and losses, exactly where and when I placed each trade, etc etc, the whole shebang. He has sat next to me for a couple of days each week for several months and demo traded exactly as I trade. We watch the charts together and when I hit the buy or sell, he does exactly the same at exactly the same time. And low and behold he has made "play" profits in the same proportion as me. Then it was time for him to go live. He had absolute confidence in the way I trade and he "knew" he would make money the same as me if he just did what I did, when I did it. And therein comes the psychology.

He sat next to me and waited for our reasons to enter. He knew without me telling him that this was a trade to take, and he froze. I told him I was taking the trade, I shouted at him to hit the button, but he couldn't. As soon as real money was involved, he couldn't replicate what he had already been doing day in and day out for the previous months. He kept hesitating and backing out. On the times I could get him to take the trade, he would inevitably close out too soon either for a loss that turned in to a winner for me, or for a tiny profit when I would walk away with a bigger profit. He just couldn't cope when real money was as stake.

His "system" (although I don't call what I do a system) was good, his training was good, his knowledge was good, his demo period was good, his faith in the strategy was good and had been proven to him live. And yet he lost making the same trades that I was making even though I was winning.

For me this is entirely due to his psychology, and it is something that from what I can see is under-rated as opposed to over-rated as you suggest.

I strongly believe that I could trade just about any "system" and make profit from it because I seem have the right psychology for this kind of thing (I hope that doesn't sound arrogant). The fact that there are so many people making money from this business with such a massive diversity of "systems" and strategies, suggests to me that the strategy is more or less irrelevant.....it's the person that matters and not the mechanics. And if I'm right, then psychology is central to successful trading.

If more people concentrated on what is in their heads instead of looking for systems and robots and indicators, I suspect there would be far more people making a fantastic living out of this business.

As a successful trader, you clearly have the psychology aspect weighed off. From your comments of it being over-rated I imagine you are one of the few people who are fortunate enough to have the right stuff upstairs without having to work on it. But you are in a minority. For most people psychology is the biggest hurdle in their way. Fear and greed come down to psychology.

I honestly think psychology is the number one thing people should concentrate on. I think it is the key behind every successful traders success. Granted, the term is loosely bandied about as a cliché by people who don't really understand it, but just because they are misrepresenting the meaning of it, doesn't mean psychology is over rated.

Hopefully this hasn't come across as argumentative in any way. It's quite possible I misunderstood your true meaning in your post.

Hello Flotsom - Thank you for an excellent post and I must say that although I disagree with many aspects of 'trading psychology' you do make some good points, and your example is a nice one - so I am not about go to wholesale disagreeing with you!
I suppose my argument with the whole 'trading psychology' army comes from different examples to what you have cited - where people with essentially bad methods/systems have tried to become better traders through improving psychology, when actually their "poor pyschology" was just a symptom of a very practical underlying root cause in the mechanics of their method (though perhaps it is chicken or the egg?). So managing the symptom and not the root cause has not surprisingly made matters worse.

As you suggest, I wish I was a person naturally able to handle the challenges of trading! But in my case, I have developed to the point I am currently at (and continue to do so) through treating the development of my method as a highly practical and analytical process, where if I have felt a emotions or shown a tendency that was not fitting with successful trading (eg lack of discipline, patience) I have dealt with it by getting into the nitty gritty of my trading plan and identifying things at a practical level that I needed to improve or change. eg removal of some trades, adjustment of risk levels, etc.

It is probably true that both our points of view might offer something to new or developing traders, depending on where they are at with their trading and what challenges they are encountering.

Thanks again for an excellent contribution. Cheers.

In my view, traders get more benefit from following this thread than reading any hundred 'system' threads. Quality contributions, Hedginghog. And, as you rightly point out in the initial post, these reflections are providing you with excellent opportunities to question and develop your own trading mindset.

Thanks O N D. I have just finished scanning through some of your posts and indeed it is good that you are not dead! There appears to be quite some wisdom in your (infrequent but valuable) contributions to FF. I dare say that many traders, myself included, could probably learn a thing or two from you. Here's hoping that you can find the time to share some thoughts every now and again. All the best.
Cheers, HH.

You are very kind, HH - thank you.

The freedom of being semi-retired and being fortunate enough to be financially secure means I get distracted by trips around the world a great deal. Hence I tend to post rather sporadically

However, I answered a private message from some time ago via email tonight and it has started the old creative juices flowing a little again! I won't clutter up this thread any further but I am seriously considering adding some further thoughts in a new thread (if I avoid getting distracted or dropping dead long enough ).

Kind regards,

O N D

A new thread from someone who actually knows what they are talking about? This forum would be all the better for it. Looking forward to reading it, if and when it comes into fruition.

i'm sure it's against the rules to start meaningful threads.

Great Thread,

Best first post I have ever read, if you ever want to succeed in trading LISTEN TO THIS GUY.

With regards Psychology and its importance, of course its important, but its as relevant as saying "Not being paralyzed from the neck down is of great importance in trading" or "Having an internet connection or phone line is very important without that a good system will fail", i.e. as long as you are not in and out of a mental ward then its not really relevant.

Mark

I dont't usually read anything else only what I'm interested in. Period. But somehow I found your cave. What can I say? Hedginghog- the realest. Ain't nothing in your posts that I tent to disagree more or less. Great job in spreading the truth. Keep it up!

Im still in the beginning of all this, but if i may comment a bit on this - pleasingly high quality - discussion:

i think one thing never (or way too seldom) gets mentioned on FF in the whole psychology talk is attitude.
without the right attitude, you will not accomplish anything. in every aspect of life, and in every business. many new traders (including myself not a while ago) want to make 'easy' money by trading. they dont want that 9-5 anymore, want more spare time and freedom from a boss. thats a valid reason/motivation, but what many dont realize in the beginning, it doesnt come for free. and i dont mean 'free' in monetary terms. i for myself got interested in that whole thing about a year ago, and only 5 months ago i realized what i have to do.
i consider myself lucky for that, because many others need way more time to come to that realization.

so my point is: if i want something (in this case, trading success), i must know (or obtain that knowledge - by thinking hard, a mentor, ...) what i have to do for it, and do it! there is never a shortcut, or did you learn how to drive simply by buying some books?

Thanks Markmm and belekas for your comments, and to moetzger for your clear take on the 'psychology' question. While everyone is different, I tend to agree with you - in my opening post (reality#9) I liken the approach to trading with the approach to running a business - 'attitude' fits well with this view; a simple concept to understand but with significant implications for effort and approach. Your point is well made.

And while we're at it - Heck, I've said it before and I'll say it again -the stuff that sometimes (ok not all the time!) gets put down to a problem with 'trading psychology' is just the elaboration of a symptom of a far more practical underlying root cause in the trading methodology. So behaviours of fear, impatience, lack of confidence, etc are quite often just and articulation, or symptom, of something going wrong at the mechanical level in the trading method, even just a lack of basic experience - should you try to correct the symptoms (and therefore become an equally crap trader but just with a more steadfast and confident approach), or should you get down to the nitty gritty of your entire trading approach, work out what is going on, and seek to fix the underlying root causes? The latter is more difficult, but far more tangible and rewarding.

Yes, I agree. If you have a system/method that allows you to enter and exit the market according to clear-cut mechanical rules instead of vague hunches and emotional guesswork, then there should be no barrier between your finger and the trigger, right? It's a life long journey as the market is always changing but the natural laws remain the same. Learning to beat the odds takes alot of time, sweat, money, practise and complete dedication. The path to Olympics ain't nowhere different, but only a few makes it. Don't want to shift from original question, so I say that without a methodology you fully understand and can apply to real time market conditions, even the best psichologically prepared mind is doomed to fail.

something that's pretty obvious, but many tend to forget when they start (dont ask me why it seems to happen to more people in trading than in any other profession): routine. if you do something often enough and for a reasonable amount of time, while not making errors constantly, it will become second nature.

to continue the comparison to driving: in the beginning, you think about everything, when to hit the breaks, when to shift gears, and so on. after a few years everything will be automatic, and you will talk to the person you give a ride, listen to the radio without problems.

it just takes an incredible amount of time. the advice you often read on FF - thousands of hours of looking at charts will help - is not necessarily the right one. making trades, managing them and closing them is important too. you have to do it often enough till you dont think about "but what if" anymore. then you follow then plan. dont get me wrong - blindly entering a trade before thinking about it is of course the wrong way - but some thoughts just come from missing routine.

missing routine results in uncertainty, which in return can result in frustration and going haywire - resulting in not following the plan.

Until I started lurking around at FF last year, it hadn't occured to me just how common the "I've blown my account" scenario really was - even though a broker friend of mine has cited some interesting figures about how often people top-up their accounts before giving up (and presumably moving onto something else).

An apparently wise and respected contributor to these forums suggested that because of my pride and lack of acknowledgement of the importance of trading psychology I was destined to "blow my account," (A crystal ball trader, perhaps) but interestingly in my 8 years of trading I never have blown an account, though surely did sustain some big losses - maybe I was just lucky in my foolish days, but even as a not profitable or barely profitable trader I always had maintained a very clear focus on risk management, and evidence would suggest that this is what "saved me" from the fate that seems to swallow many rookie traders.

So how can the rookie trader avoid the dreaded account blow-up? Here are a few very basic tips banged out over my morning coffee - other experienced traders might like to add to this list:

1) Wake up and smell the roses. Account blow-ups are not acceptable and they just shouldn't happen!! If you think it's just part and parcel of learning how to trade, then forget trading and go to a casino - at least you'll have fun loosing your money.

2) Trade a demo account for at least 6 months before you even think about going live or trade with $1 contracts (and budget to have a controlled loss) if you prefer the reality of trading with real money

3) Before every trade, write down a defined exit plan that includes how much you will lose if the trade fails and stick to it, religiously. Get the $ signs out of your eyes and think about risk, constantly. For example I aim to risk around 1% of my account per trade, I am not comfortable with anything more (that's just me) - but I assume that my planed risk exposure could easily be double or triple what I planned if something highly "unexpected" happens

4) When you are a confident, experienced and proven trader, make sure you are trading with adequate capitalisation. Thinking you can make 100k per year with a 10k cash in your account is a recipe for disaster, but methodically and patiently trading your way to 100k income per year with a 200k account is realistic for good traders. That's reality, not fantasy

5) Being realistic about what you can achieve in the short term as a rookie may help you avoid huge risk. While everyone is different, I reckon most good traders would agree that a 3-5 year apprenticeship is a realistic timeframe to target in order to become a (consistently) profitable trader. Grand visions of anything else are likely to drive you into dysfunctional and counter-productive behaviour.

6) Stay away from anything remotely resembling a "martingale" approach to money management - especially with an acquired trading robot / EA. Sooner or later, it will destroy your account.

7) Learn to enjoy small losses - it probably means you are doing your job properly

8) Avoid the spiral of death - if you find yourself seeking out new trades in order to make up for consecutive loosing trades then STOP TRADING, methodically go back and analyse what has gone wrong and bloody fix it before trading again!

OK - that's just a few basic ones. No doubt people have their more sophisticated views but I like to keep it as simple as possible.

short answer is yes or probably.
BUT due to the uniqueness of each human being, the results will be diverse. not all are guaranteed to succeed even if they 'all work equally hard'.
another human is either superior or inferior to u. that is life

it is an issue of quality & talent/gift (or lack of).
Hope i made sense.

i think that is incorrect.
they wont have the same results even if 1000 people work equally hard AND smart, let alne 100 people or 50 people.
like i said above, there will be differences/diversity in the results, no matter how small or big.

i agree, some are just more talented- skill, lucky or inherited it (in life as a combination)... In trading, either your system works or it doesnt or you have the talent to take the right trades in a trending, choppy or ranging market... The work is knowing what market your in and adapting..... The People that are drawing lines all over the charts, indicators galore. See this is wave c of bla bla bla...If you would have taken it; you would have made a killing ...,,they are just market meat... --- all history. The market is random taken out the crowd with spurts of fundamentals. It doesnt mean it cant be beat, its just that traders need to come to certain conclusions about trading.

Life is full of luck, bad and good. The fact I was born a white male in the US is an unbelievable stroke of good luck that I've been able to capitalize on my whole life, knowingly and unknowingly.

There's a lot of luck involved in everything. If you read Taleb's book, he talks about how when we're successful, it's due to things like intelligence, hard-work, perseverance, etc, all traits we have control over. Yet, when we fail, it's usually due to bad luck. Such as when LTCM failed, it was just their bad luck the Russians defaulted. People will actually say, "Well, if they didn't have that stroke of bad luck, then they would have been fine."

We're all delusional. Only a few of us are truly honest.

yep, i think 90% are delusional. lol!