Just wrote short theses on what psychology can/can't help with in relation to trading: I want to clarify a few points about when psychology is applicable for traders and when it is not, because realized I never mentioned it before. Psychology will NOT help if a trader doesn’t have solid, well developed and tested “edge” (a trading system, methodology). No way attitude and mindset can substitute the statistical advantage. It can even be dangerous if one relies on psychology without having a profitable system in place first. So any trader who thinks s(he) needs psychological advice must first ask oneself: “do I really have a profitable method at my hands?” The answer must be absolute “yes”, which includes every detail of the tactics described in the form of rules applicable for any situation happening in the market, thorough back- and forward tests on simulated and live account with sample size, which is statistically significant and covers wide range of market conditions. If you can objectively answer “yes” to the question above, but still are unable to consistently extract profits out of markets, then indeed you need professional advice, because the reasons for your problem might be the following: a) past trauma of losing experience. Before finding a profitable method people often experience many defeats. I personally experienced dozens of defeats when newly developed or adopted system showed it’s flaws in real trading and had to be dismissed. This creates strong negative associations in our subconsciousness, which may paralyze our ability to make decisions and execute them properly. Psychologist may change that negative attitude in subconscious mind and correct the process of applying a trading method. b) Discipline problems. People may have emotional traits, which are not very compatible with successful trading. Here we have the following possibilities: 1) train oneself so that emotional discipline and attitude changes towards which suits the successful trading routine well, or… 2) accept the fact one’s emotional constitution is incompatible with trading or investment activity and altogether drop this business. Which is perfectly fine, too. If one person is a great football player and another is talented artist it doesn’t make one of them better than the other despite the fast artist unlikely could compete for a ball or athlete could write divine poem. c) Self-sabotage. Some people lose money in the markets, because subconsciously they think they don’t deserve winning. It is more common than many think (especially considering typical public image of Wall St. and it’s “sharks”) and is almost always very subliminal, far from “the surface” of our mind. We find those cases of self-sabotage due to one or another reason, correct them, which usually leads to dramatic changes in one’s professional growth (be it trading or any other activity). Those are not the only, but the most popular areas where psychology is highly applicable and very useful to traders and investors.
One thing you have not addressed specifically, which I think is significant and deserves attention, is attempting to trade a time frame one is psychologically unsuited to. Yes, it is part and parcel of a successful system, but I feel it is too often overlooked. Day trading has very specific onerous requirements not required in trading on a longer time frame. I was a successful swing trader and then decided to day trade the futures market. Nothing worked, I stopped at the point I found my hand shaking uncontrollably when I wanted to click to enter a trade. I'm no psychologist but given I'm a very logical person, I'd hazard a guess my subconscious mind was rebelling. Prior to this experience I had perfect discipline. Until now I make mistakes due to emotions that I never made before I tried day trading. I know I'll fix it, but I could have saved myself a load of time, money and stress if I had never tried day trading. One of the traders in the Market Wizard series was a successful bond trader, tried trading another market and failed miserably. I think the underlying principle is the same; trade what suits your temperament. I love numbers, so I like to do an analysis that involves numbers, then make my trading decisions. Doing it on the basis of an intraday chart is something I just cannot do.
Very true, JT, thanks. Indeed, finding a style which suits one's personality the best is also very important.
“You Can’t Get There From Here” Greetings C, Thank you for bringing forth such an interesting thesis. Your theory most definitely causes one to think, reflect, and communicate introspectively with oneself. All this to see if what you have to say is true and valid for himself. However, only being a Trader, not a Psychologist, I do take exception to the content and context of your thesis/theory. I am of the solid opinion that “Attitude and Mindset” are not only required for successful trading at certain timeframes, they are an absolute prerequisite and necessity! In my opinion, bereft of this “way of thinking”, a trader will likely have unwittingly “fixed” the course of his trading ship of state, to the rocks and reefs of failed trader shoals. I’m not trying to defend anyone’s arguments against the case you have submitted; I just wish to posit for constructive discussion, what is “my own truth” on the subject. In my opinion, the words of ET Justrading, who posted just after you, are a perfect example and reflection of my argument in this area. Here we have a trader who had a proven method and edge. And he was successful and profitable trading on a timeframe wherein psychological factors were not likely to come into the picture. This is due to the fact that at the relatively high timeframes, the “performance pressure, execution skills, and precise timing” for trading are significantly different, than at the intraday timeframes. In other words, the rate at which precise and accurate decisions must be made and executed is vastly different. And, for this trader, so long as he continued to operate on that larger timeframe, things will have likely remained copasetic. However, once he ventured into the world of the intraday timeframe, and was at the same time “unwittingly unaware” that a different “Thinking Process and Mindset” was required to successfully operate there,….what we have here is a prescription for disaster. The intraday timeframe, especially today with rampant HFT/Algo participation, has changed the whole intraday trading landscape and significantly sped the process up. Yes, this trader had a statistically proven and profitable method, yet he was unable to replicate his higher time frame results. If a proven method was all that was required,…what could possibly have gone wrong? Thus my argument gives credence the fact that; “method alone is not the penultimate key to success in the markets”. If method alone isn’t the key to the kingdom,...then where else could the problem lay? I again posit that his “Attitude and Mindset” were not appropriately aligned with this new dynamic environment. Had they been properly adjusted prior to moving into this new arena, I believe that the final result may likely have been vastly different then the one experienced. As I have stated before in another thread, Excellence and Peak Performance in any activity is both a carefully and deliberately constructed blend of “Technique with Mindset”. And I believe that any superior performer, in most any field of endeavor, who has ever reached the upper echelons of their craft will bare witness to this truth. In other words; you can learn exactly how to swing like Tiger Woods does on the green, (his Technique/Method), but if you don’t also acquire the same type of similarly effective Mental Skills and Techniques, the ones that he is using when he performs his task on the green, your results will more often than not consistently fall short on the green. I can assure you, how Tiger is thinking, and what Tiger is thinking about while he is executing, is in most cases light years away from what is going on, and what is going through the mind of the average duffer. I believe that this is also true with trading. How the trading professional is thinking, and what he is thinking about while he is executing, is light years away from what is going through the mind of the average trader. That is why he is a professional, he thinks differently. Excellence and Consistency will remain mysterious and elusive until one comes to this critical understanding. My point is: “You can’t get there from Technical Analysis {TA} alone!” Otherwise you will likely remain stuck in the Black Hole of trading, constantly searching for more and better ways of playing with numbers and patterns. It is this Inappropriate Belief held by most traders, that the answer to their trading problems is more and better techniques/methods. While at the same time these traders are totally ignorant of the critical role that “attitude and mindset” play in the process of their ultimate success. I also believe that this singular factor accounts for the high failure rate in trading, and surprisingly, in most other fields of endeavor as well. And I believe that this inappropriate belief is at root cause. Yes, TA/Method is extremely important,…but only in its proper context, which is; identifying the patterns, defining the risk, and determining when to take profits. Asking anything else of TA or your method, is simply asking it to do something that it is not designed to do. Further, I believe that what goes on with TA at the HTF/Algo level is not trading. I believe it is just plain theft, using access and speed to rape and pillage less affiliated accounts. That is truly unfortunate, but the way it is right now, and in the interim one needs to learn how to adapt,...but that's another story. I strongly do not believe TA should not be given the “end all and be all status” that it has attained. "Again, just because you can swing a club exactly like Tiger Woods, doesn't mean that you will perform like Tiger." Thanks for the opportunity to constructively discuss this topic. Just my opinion. KDASFTG
KDASFTG Good stuff Sir =============== CF I think you have it wrong Sir A person can't tell if their system viable... or not - till they can apply it correctly And they can only apply it correctly if their head on straight You can give a perfectly viable method to someone with poor psychology - they will lose Give a piss poor methodology to a trader - they will be profitable Methods - there are countless RN
Thank you very much, gents. Constructive criticism is exactly what I hope for when start such talks. RN: You have a point here that before system is correctly applied it's often hard to tell if it's viable. But my point is: if a system is something like NoD mentions often - purely objective set of signals, thus perfectly possible to at least theoretically model it's performance in case of ideal execution (ideal meaning no negative human factor involved). Would you agree such a system could be considered viable after thorough testing? KDA: I fully agree attitude and mindset are extremely important. Also subliminal reasons one trades because are. But the question here is sort of "the egg or a chicken". Does attitude and mindset only lead to a development of profitable method AND successful application of it or different skills are required in order to develop a method and apply it?
You may also want to look at how this alleged "statistical advantage" was obtained, whether by -- for example -- a backtest run by a computer or testing done manually via replay.
Greeting Again C, Sir, I’m not sure I fully comprehend your questions. I don’t understand the nature of your query, or where you are attempting to go with this “subliminal” line of reasoning. But in any case, in the light of understanding, I will attempt as best I can to address what I believe you have asked of me. Q1- "I fully agree attitude and mindset are extremely important. Also subliminal reasons one trades because are. But the question here is sort of "the egg or a chicken". Most assuredly, in the context of what was discussed in my missive, I don’t believe that there exists any controversy here as to a question of the “chicken or the egg”. In my mind, “First cause is ALWAYS mental”. For example; First, one has to be able to “conceptualize” a thing,…a thing to be used in the act to drive a nail into a board, before one can create a thing, a thing called a hammer. The act of conceptualization as you are no doubt aware is a mental process. And as I have said, first cause is ALWAYS mental. I’m sure that you, as a Psychologist are keenly aware of the underlying mental dynamics of the “cause and effect” relationship I am relating to, and describing here. Along this line of reasoning, and to my way of thinking regarding trading; confused thoughts (cause), will likely lead to confused actions (effect). I don’t see how this process could be different in the world of trading? Do You? Q2- “Does attitude and mindset only lead to a development of profitable method AND successful application of it or different skills are required in order to develop a method and apply it?” Again, I have difficulty addressing your question. In and of themselves I don’t see how the singular and standalone words of “attitude and mindset” can lead to any specific response, without first having defined the context within which they are referenced. Standalone, the words are just Nouns. However, note that the context in which I used the words, is specific in nature, and is readily defined within the missive, as a process or “way of thinking”. Since these terms have now been now taken “out of context”, and since you did not directly and initially define what you meant by using the terms “attitude and mindset”, I am thereby at a loss as to how to respond to your question. KDASFTG
Sure I would agree – however here’s the rub Even after exhaustive testing.., even after identifying objective signals NOD still had to traverse the “mental bridge” before she fully capable of trading her method dutifully As we all have – (or at least those of us who didn't grow up in a trading environment…, and / or…, have the benefit of a mentor instilling the proper mindset And NOD…, please…, and certainly – correct me if I am wrong here ================ One’s mental makeup is absolutely critical to achieving any modicum of consistency / success Regardless the plan – it still requires proper implementation by the idiot controlling the mouse ========= Aside I actually think the biggest benefit of creating a personalized methodology - and why it near impossible to simply hand over a methodology and expect another to competently trade it The mind takes time to grow / change - by going through the iteration & taking the time to create a methodology - it provides the brain necessary time to begin the growing / morphing process However this just the initial growth spurt When it actually comes to implementing (trading) said methodology - that's another.., and significantly bigger (imo) shock (completely foreign operating environment which must be assimilated / our brain wrapped around - at a functional level) Of course.., as one is attempting to bring this to a functional level - there sits the mkt - punishing and rewarding in what is seemingly an indiscriminate manner Further hampering one's progression (don't cha just love it) ============ a plan - is a plan - is a plan - and there are countless numbers of good (viable) ones Ultimately it is the trader which makes each profitable - or not Btw.., traders are nothing special - we simply think - therefor act - differently RN
====So any trader who thinks s(he) needs psychological advice must first ask oneself: “do I really have a profitable method at my hands?” The answer must be absolute “yes”, which includes every detail of the tactics described in the form of rules applicable for any situation happening in the market, thorough back- and forward tests on simulated and live account with sample size, which is statistically significant and covers wide range of market conditions. If you can objectively answer “yes” to the question above, but still are unable to consistently extract profits out of market ==== I think it's the other way around. Show me the trader with the psychological problems and I will show you the trader without the functional trading method. IMHO the main and the only reason for all psychological problems experienced by the so called traders is their subconscious knowledge that their methods do not work. In his head the so-called trader (since I do not call anyone without a method a trader) may think that he has a method, but his ass knows better... Hence the conflict... So everybody, who inspired to become a trader, needs to resolve his psychological problems while building a method (unfortunately not before and definitely not after). When there is a method, a person who built it overcame already all the obstacles in trading including psychological (otherwise he would never build it). I strongly believe that this is a one man show. Effectively nobody will help you. You on your own to resolve all your problems including psychological.