I hear a lot about how psychology or our emotional state are the top reason(s) for trading success and that you must master these before you can become successful long term in trading. I am grouping these two together and positioning them as the third most important factor. If I rank what I think are the most important factors in long term trading success, this is what I came up with: 1. Having a good trading system 2. Managing risk 3. Controlling emotions/psychology 4. Everything else... I posit that traders should be concentrating their time and efforts on developing a good trading system. Not just using a handful of indicators and a few charts, but a complete overall trading system, having a good set of rules, and whatever that might mean to you. For long term trading success, it needs to be adaptable to changing market dynamics and whatnot, and needs to encompass many aspects of reviewing and analyzing charts while also predicting price action. Second most important is managing risk. Most of you know what this means so I won't go into that much, Primarily position sizing, determining when to exit, waiting for the best entries, and so forth. Third is psychology and emotions. Having Discipline and patience while controlling our anger, excitement, frustration, revenge, and whatever else gets in our way. All the human elements in trading. I'll summarize it like this: If you have a good trading system, then emotions become less of a problem. Yes I believe that emotions will knock you out of the game once in a while, but a good trading system will keep you in the game.
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It's worth noting that as you mature as a trader, psychology takes the center stage. By that time, you shouldn't even have to think about your "trading system".
If you have a problem it's difficult to determine if the problem is the system or the trader. Focusing on the process makes this easier.
I doubt emotions have much to do with trading results unless you're gambling. If you have a strong emotional reaction to a series of wins or losses you're probably trading with too much risk. Boredom is the dominant emotion traders have while waiting for the probabilities to be realized in a series of trades.
It depends. Most people can walk on a long plank just a few inches off the ground. If you can walk on a long plank a few miles off the ground confidently, your emotion management is good. If you can't, then you have to work very hard on mind management
I respectfully disagree with that order. I believe that a trader must have a sound psychological profile especially on faster time-frames. Maybe end-of-day traders can get away with some emotional / psychological issues, but traders on fast intraday timeframes who are trading with high leverage need to have their shit together. Here is why: The biggest risk in trading is always the trader himself. You can have the best trading system in the world, you can have the most detailed risk management plan, but one stupid highly leveraged trade triggered by euphoria or revenge can do your account and (your psychology) lots of damage. (been there done that myself) Some traders are emotionally mature and naturally risk averse, and would not be susceptible to the above scenario as would be those traders with underlaying emotional issues who end up transferring their issues onto the market. For example, Tom Hougaard likes to focus on profits and seems to like drama (and attention), while other traders like Paul Tudor Jones are the exact opposite, here is what Paul Tudor Jones said: Ask yourself? “Mr. stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?” Change Trading style to, spend your day trying to make yourself as happy and relaxed as you can be. ~ Paul Tudor Jones~ I guess you really need to know your own weaknesses and fully trust yourself. If you don't, then the market will eventually find your every weakness and push your every button. You cannot just ask questions and read about this, you need to trade (with live money) and find out for yourself. You have to step into the "boxing ring" and take a few painful hits to understand
If the trader keeps journals and does regular debriefing, then he’ll know where the problem is and what/how to adjust.