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Quest for the Psychology behind Trading Effectively...

  • #41
  • Sep 11, 2011 5:02pm Sep 11, 2011 5:02pm
I think that the trading method should be adjusted to your psychological profile. In other words: You adjust your method to fit your personality. It's all about knowing yourself.

For example I know I can be "trigger happy" at times...see opportunities everywhere. At the same time in the back of my head I know the opportunity at that moment is not the best. I know I have to hedge that tendency.....So I trade extremely ridiculusly small...just for the fun and to see if it works out. I lose nothing, gain nothing, just practice.

I take 1/2 profits of the table pretty quickly and/or move my stop to breakeven so you have the feeling you're in a "free trade"... gives peace of mind.

I cut off losers immediately so the loss will always be small. (even if there are many). Having no position is for me from a psychological point of view the best position to analyse the market, your mind is free for new opportunities. Some of the best moves occur right after a setup completely fails....got to be ready for that.

Other factor that have to match your profile: timeframe you trade. How patient are you and how quicly can you analyse? The size you trade is very important. It should not be so little that you don't care, it should not be too big so you get paralyzed of fear... Sounds weird but if you know you can get over-confident aim for modest gains, don't trade too big and don't let your account grow too fast.

It's all a matter of tweaking the method until it fits your personality.

regards,
Ivo
Trouble lies in what we believe to know for sure that just ain't so.
  • #42
  • Sep 11, 2011 7:40pm Sep 11, 2011 7:40pm
Quoting stevefx
Hi, thanks this was a decent post and perhaps it deserves some kind of response or comment.

I think poker is a pretty good analogy in a lot of ways. There are similar kinds of emotional impacts which occur within the same basic win/loss structure of each pursuit. Tilt is another good word. Like, trading on full tilt.

I actually used to run a poker website-just an informative type deal, where among other things I offered a free poker course which I wrote myself. In this course I had a page called top 10 beginner mistakes to avoid.

The...



Here we have a SENSIBLE man with a sensible answer which should NOT be disregarded.
  • #43
  • Sep 11, 2011 9:28pm Sep 11, 2011 9:28pm
Super thread

Psychology in trading is my entire goal this year. Everything I read is about that. ! 1 good book is "Blink" by Malcomb Gladwell.

One thing I did is take a personality test and then read about it. Helps to understand a little on how and why you think the way you do. There are many free ones on line.

Here is one. http://www.humanmetrics.com/cgi-win/jtypes2.asp


Anyway back to work.....Will be keeping this thread on my radar and will contribute when I get some time.
Illegitimi non carborundum - Noli pati a scelestis opprimi.
  • #44
  • Sep 11, 2011 10:07pm Sep 11, 2011 10:07pm
Another good "personality site" describes different personalities, etc., etc.... But it's worth noting that personality need not dictate success or failure. There are "great people" of every personality type.

Humans are not so easily categorized, classed and told what they are or are not capable of. Yes?

On the other hand it is known in advance exactly what a computer program or a programmed human would do. No?
  • #45
  • Sep 12, 2011 2:42am Sep 12, 2011 2:42am
This is a good article too - http://www.tigersharktrading.com/art...ars/Page1.html
  • #46
  • Sep 12, 2011 2:58am Sep 12, 2011 2:58am
I read their book and taken all the free tests on the website, but don't know about any of their paid stuff. I like the gambler test, short one. There are some longer ones. Hope folks find it useful.

http://www.marketpsych.com/
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #47
  • Sep 15, 2011 1:20am Sep 15, 2011 1:20am
This talk is not directly about trading but mindfulness and a neuroscientific way of approaching it.
Sharing it because I definitely believe there are uses for mindfulness with traders.
When one is mindful they are not 'run' by their emotions and are free to objectively analyze a situation.
Obvious advantages with that would be decreased susceptibility to 'revenge trade' or even react at all in a negative way to being stopped. And the same would apply with over-confidence after a long winning streak.
Then there is the ability to retain clear focussed attention over longer periods of time without burning out. I have had someone suggest taking 5 minute meditation breaks every 30-60 minutes at the charts, in order to refresh the mind and remain clear.

Anyway, another tool that could be useful for us.

Inserted Video
  • #48
  • Sep 18, 2011 11:32am Sep 18, 2011 11:32am
Many traders set a % per week om their NAV as goal for profit.
How relative is this?
I think that everyone will agree that if your get consistently 5% per week you're doing very good. (Lol I wish I could achieve that)
Last week I actually got 4.5% but then I realized that it is very relative if I see how I achieved it.
My capital is at the moment divided in 4 accounts, my entries are based relative to my total NAV.
Last week I mainly traded only EU in 2 accounts (1 for long, 1 for short). The 2 accounts represented less than 50% of my total trading capital.
I did not use the backup of the balance in the other 2 accounts.
So the 4,5% I achieved with about 40% of my total capital.
Hey if I had traded lets say GU the same way in the other 2 accounts, would my profit have been 9%?

Food for thought

So how big are your entries relative to your total NAV?
New voice message: Why are you calling me? If I need you, I'll call you!
  • #49
  • Oct 8, 2011 10:08am Oct 8, 2011 10:08am
Two things that have made me become more profitable are:

1. Switching to longer multi-timeframes to swing trade. I use 1h, 4h, 1 day, 1week. This also keeps one from overtrading.

2. Actually change the instruments I trade away from futures and forex to options, where the risk is fixed. I like knowing there's only a certain amount I can lose, and until the trade is profitable for me, I am comfortable losing the whole thing. Once into a certain amount of profitability, I set a BE stop and keep the trade going until it hits my TP, though I will take partial profits at times. Sometimes it is not advisable to cut your losers short but rather average in again, though only with the set strategy of averaging into a full position.
  • #50
  • Oct 18, 2011 9:44am Oct 18, 2011 9:44am
coming to the conclusion that the one silver bullet answer to all of this psychological and emotional crap all lies in position size, have analysed it and re-analysed it and every time i've fowled up (which is numerous times over the past few years) it's been down to over-leveraging...

would be interested to hear others opinions on this angle...

edit- particularly why an individual does it and how one can guard against it ever happening...

and also i'd make a clear distinction between opening a new over-leveraged position and scaling into an already winning position btw...
  • #51
  • Oct 18, 2011 9:58am Oct 18, 2011 9:58am
Quoting FibbinArchie
coming to the conclusion that the one silver bullet answer to all of this psychological and emotional crap all lies in position size, have analysed it and re-analysed it and every time i've fowled up (which is numerous times over the past few years) it's been down to over-leveraging...

would be interested to hear others opinions on this angle...
Maybe Archie... leverage is a huge part of it... and keep in mind, at this particular point in my trading life I am after *aggressive* maximum account growth. 10 pips = 2%.

However, I can risk things with this type of leverage due to trading not being my main source of income. It will be de-leveraged drastically once that is on the table.

With that being said, I have done a very good job of focusing on not paying attention to current profit/loss in terms of dollars. Actually, in MT4 (Your with Alpari, correct?) you can toggle your current trade values in terms of the base currency, or in points. I have used points from day one and have learned to just completely ignore the dollar amount associated.

I know that my available equity is x, therefore my next trade is going to y lot sizes. This does not ever change. Then it's all just pips from that point forward. I make 50 pips, I lose 50 pips. Ignoring the dollar value.

I think this would be a good thing for you to focus on. I am 'dollar blind' so to speak on my trades. I also try and view everything in percentages when it comes to the wins/losses. The point being, you need to forget the money. Forget the profits; especially the losses.

Just trade, and trade well.

I know I am a bit all over the place this morning... headache and all, and the coffee doesn't have much umph to it... but I recall you talking about putting stops to BE way to early, to eventually be right and be knocked out. I know we don't like to take losses, it's something I had to work over myself for quite some time. But, when I enter a trade, there are so many pips that I want out of it. And if I don't get close to those pips, i'd prefer to take a loss on it.

I have myself focused on the fact that I would rather take a loss, then be stopped prematurely out of a good trade. I asked myself... whats the point? I have my risk/reward, and I'm not even giving it a chance. Sure, the trade my go risk/free (BE+?). But there in lies the problem, there is a reason it is now risk free, because you are now risking profit on a premature knockout.

My trades never go to BE until a protective cluster has formed and price has moved on; meaning, I'm looking for a bit of price to protect my stops.

Anyways... just some rambling thoughts from a young fool on little sleep

Cheers Archie, let me know if I can help or explain my thoughts more graciously.
  • #52
  • Oct 18, 2011 10:14am Oct 18, 2011 10:14am
Quoting Venice
Maybe Archie... leverage is a huge part of it... and keep in mind, at this particular point in my trading life I am after *aggressive* maximum account growth. 10 pips = 2%.

However, I can risk things with this type of leverage due to trading not being my main source of income. It will be de-leveraged drastically once that is on the table.

With that being said, I have done a very good job of focusing on not paying attention to current profit/loss in terms of dollars. Actually, in MT4 (Your with Alpari, correct?) you can toggle your current trade...
Two things and I will be short.

1. Using a set PC on each trade is only good if you have either a good risk:reward level or a high win PC...

2. You pretty much said it yourself but with a higher risk you need to aim for a bigger reward and a higher reward needs more space....

Archie has a smaller aim I think and BE can be one way to trade in FX with a smaller aim as you are looking for liquidity..... meaning if it doesnt hit your TP in the first or second go..... it probably wont...

I however are not increasing my lot size and I know that I only need a certain amount of pips to be ahead this alone makes it very easy...

Remember that when you increase in equity and you have a fixed pc on risk.... you will always have the biggest looser when you loose....

post scriptum: nice thread

Good night,
  • #53
  • Oct 18, 2011 10:41am Oct 18, 2011 10:41am
Quoting Larseg
Two things and I will be short.

1. Using a set PC on each trade is only good if you have either a good risk:reward level or a high win PC...

2. You pretty much said it yourself but with a higher risk you need to aim for a bigger reward and a higher reward needs more space....

Archie has a smaller aim I think and BE can be one way to trade in FX with a smaller aim as you are looking for liquidity..... meaning if it doesnt hit your TP in the first or second go..... it probably wont...

I however are not increasing my lot size and I know that I...
Good point Larseg, and yes, very true. I am after compounding right now, so, it's nature of the beast.

But, with that being said... because of the fixed lot size based on equity, my system rewards winning streaks and protects against losing streaks. My first loss will always be the highest leverage.
  • #54
  • Oct 18, 2011 10:46am Oct 18, 2011 10:46am
Being aware of when your emotions have been compromised is really useful as well too...

Ahh... if only we were Vulcan. Pointy eared bastads!
  • #55
  • Oct 18, 2011 11:53am Oct 18, 2011 11:53am
haven't read through this thread, but here's my take on the subject. i'll focus mainly on fear now, as i believe it's the biggest psychological problem in trading. greed can be a problem for sure, but i think it's tied up intimately with fear. eliminate fear and you'll be trading far more relaxed and consciously

next time you experience the sudden gripping fear of a loss, or the need to close your position early and not let your profit run, or pretty much any other psychological problem in trading, observe how you are breathing. in the worst cases, i guarantee you that you'll find yourself holding your breath. in less extreme cases, you'll likely be breathing in a very shallow and rapid manner. here is the problem:

holding your breath or breathing in a shallow, rapid, forced manner triggers your sympathetic nervous system which is essentially your "fight or flight" response. this causes your entire body to tense up involuntarily and stimulates nervous and anxious thoughts in your mind, because your mind and body think that something is wrong and there is danger. fear. this is the absolute worst state to be making trading decisions in. you are essentially trying to trade in the same state you would be in while facing a bear in the wilderness.

instead, when trading gets tough, make absolutely sure to breath naturally and easily. your mind and body will relax involuntarily, fear will be gone or will exist to a far lesser extent. your mind will be quiet, and you can observe the charts for what they really are instead of projecting your fearful mind's thoughts on the them. this is how you want to trade. if you want more info on the subject (proper breathing, not necessarily for trading) check out dennis lewis. he writes a lot on the subject

hope this is helpful. it's changed my life in many ways, both in trading and outside of it
  • #56
  • Oct 18, 2011 11:57am Oct 18, 2011 11:57am
Quoting FibbinArchie
coming to the conclusion that the one silver bullet answer to all of this psychological and emotional crap all lies in position size, have analysed it and re-analysed it and every time i've fowled up (which is numerous times over the past few years) it's been down to over-leveraging...

would be interested to hear others opinions on this angle...

edit- particularly why an individual does it and how one can guard against it ever happening...

and also i'd make a clear distinction between opening a new over-leveraged position and scaling into an...
Totally Agree on this. Position Size and Money Management
  • #57
  • Oct 21, 2011 12:50am Oct 21, 2011 12:50am
hi All,
has anyone tried taking random trades with a risk to reward ratio of 1:2, try it and you would see how difficult it is to blow an account.

In my experience having a methodology that give you an edge is the key to optimizing your psychology. so i think firstly is getting a methodology that gives u a sound risk to reward ratio, so that each time you loose, merely remembering the fact that you have to win fewer trades to come on par is really comforting.

and fibbi, thanks for creating this thread, i really like it.
  • #58
  • Oct 27, 2011 10:50am Oct 27, 2011 10:50am
'hi All,
has anyone tried taking random trades with a risk to reward ratio of 1:2, try it and you would see how difficult it is to blow an account.' - Panmic

This is true, I did a lot of research on PA to find a suitable trading method and came across Nial Fuller, he took 20 random trades on random currencies and timeframes with a 2:1 ratio, and came out down by only the commission cost if I remember correctly...

Makes one realise a lot is to do with psychology & leveraging (and a non mm broker!) as the market just rewards probabilities.

Just my 2 cents...
  • #59
  • Oct 27, 2011 10:56am Oct 27, 2011 10:56am
Quoting Fresh1
'hi All,
has anyone tried taking random trades with a risk to reward ratio of 1:2, try it and you would see how difficult it is to blow an account.' - Panmic

This is true, I did a lot of research on PA to find a suitable trading method and came across Nial Fuller, he took 20 random trades on random currencies and timeframes with a 2:1 ratio, and came out down by only the commission cost if I remember correctly...

Makes one realise a lot is to do with psychology & leveraging (and a non mm broker!) as the market just rewards probabilities.

Just...
That's why, above anything else, this is a game of calculated risk.
  • #60
  • Oct 27, 2011 11:24am Oct 27, 2011 11:24am
Quoting panmic
hi All,
has anyone tried taking random trades with a risk to reward ratio of 1:2, try it and you would see how difficult it is to blow an account.

In my experience having a methodology that give you an edge is the key to optimizing your psychology. so i think firstly is getting a methodology that gives u a sound risk to reward ratio, so that each time you loose, merely remembering the fact that you have to win fewer trades to come on par is really comforting.

and fibbi, thanks for creating this thread, i really like it.
I think I would add that having a workable method that suits YOU and which YOU can follow to the letter gives you the edge. I remember reading somewhere: "so many people are cheated of trading success due to the sabotaging influence of their poorly trained subconscious mind.........it went on to conclude that becoming aware of your character defects can lead to transformation as a trader"

Fear and greed have no place in real time trading and new traders have to eradicate this, failing traders have to eradicate this too. Some people cannot do this. Everyone has to overcome both.

Important to slow down enough to learn your chosen method/approach and to understand yourself and adjust accordingly.

Nial Fuller has a great handle on PA but I think he uses a few indicators too so it is not pure PA as I myself would apply it.

THE TRUTH IS YOU DO ONLY HAVE TO LEARN/MASTER A FEW SET UPS to be consistently profitable on your chosen market(s) using PA. Less is more as they say. These set ups happen on all markets, everyday and acceptance of them is KEY.

Those who concentrate more on the psychological aspects of trading and refine their behaviour and shortcomings are the ones who equip themselves to succeed. Trading is not about lucky breaks or hunches.

Only fools rush in.

Good thread BTW.

makingpips
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