I'm still a struggling (but consistently improving) trader, but I've never really gotten the whole "trader psychology" thing. Much of it seems painfully obvious and most of the "problems", usually emotional, can be fixed w/the oft-repeated mantra "Plan the Trade, Trade the Plan." It's a cliche but cliche's often become such because they are rock-solid truth. So if one has certain criteria for entries - the setups - and a price target - the exits - and a protective stop w/a risk/reward ratio one is comfortable with, and one determines how to manage the trade once taken - scaling in/out, trailing stops, or taking profits at predetermined levels - and if all this is in place before the trade is even taken, where/how does emotion come into play? Where is the psychology that there is so much blah-blah about? Of course a plan must be refined, adjusted, but not while actually in the trade, and only after some basic statistics have been built up over a number of trades. The thing I read most often is about trouble "sticking to the plan", but it seems just so much psycho-babble. Isn't it obvious that if one has a big winner - hurrah! - but this occurred by deviating from one's plan, then it wasn't a professional trade but rather simply luck and circumstance? The point is to be consistent - consistently - otherwise you're all over the map and you'll never find your way. Again, it just seems so obvious. And then there's Fear and Greed, Fear and Greed, Fear and Greed! If I read that one more time I'm going to puke. If one enters a trade w/a pre-determined stop in place, where is the Fear? How can there be Fear? Fear that you're too much of a pussy to take the stop? Then make it a hard stop, your broker will do it for it you. If you have an honest broker there's no doubt they'll take it, little missy. Greed? I'm as greedy as the next trader, but my broker allows a Profit Target and I use it. It's like the motto for the George Foreman Grill - "Set it and forget it." If one misses a bigger move, so be it - if it happens consistently, ok, then one adjusts one's plan, perhaps to allow for the occasional homerun. The Trading Plan should be a living, breathing, ever-evolving entity, until one is consistently building that equity curve. All adjustments are made between trades, not during. Again I ask, what's the problem w/that? If all the decisions have been made before the trade even takes place, where do emotion and psychology play any part during the trade? No place. Ironically, it seems to me that the ultimate goal of "trading psychology" should be to completely remove psychology from the equation. Harold
Harold, I completely agree with you ! I've always said: If you have a robust method and you have designed it yourself, the rest is easy I think the problem with most traders is they don't have a clue what or why they are doing what they do, and they've just found some tools and are trying to apply them without understanding what they really measure and why, how and where the tools matter. Education is the best cure for uncertainty.
Harold, You post is a good one and, no doubt, was a response to my thread earlier this morning. I agree with what you wrote. And yet there continue to be people, some of whom are presumably capable and intelligent, who screw themselves over in the market. A good plan is the basis for trading. Without one, I would imagine that there is almost certain failure. Even so, assuming all else being equal (preparation, plan, etc.), different people deal (cope) with uncertainty in different ways. To ignore this critical element is to ignore the fact that people are different. Further, uncertainty is one of the most difficult things for most people to cope with. We all know how to eat properly, and yet there is an increasing proportion of overweight people. Yes, there are the critical elements of desire and discipline, but on balance I think most people would agree that dealing with uncertainty is more difficult than dealing with weight control. To accept uncertainty is to accept a certain lack of control. I may be mistaken, but I think that most neuroses seem to stem from a perceived lack of control over one's life. (And, yes, I know that although we cannot control the markets, we can potentially control how we respond it to them.) In any event, if your thread is indeed in response to my fear/greed thread, please note that I was simply toying with the notion that apparent greed is just fear in disguise. I was just making an observation quite apart from your valid points.
Last night's episode of the Soprano's, with story line focusing on Tony's affliction for gambling was a perfect profile of the impact of fear and greed..and Tony made some poignant observations i.e. risk taking. The fact of the matter is, the absolute best traders are completely devoid of emotion. They stick to a systematic approach (necessarily always refining those approaches, as market behavior, volatility and liquidity issues will impact any system), but always based on consistently hitting singles and doubles, with very tight exit strategies. I posted a mention of something called the ACD method (read more at www.thelogicaltrader.net)... The book describing the method is particularly interesting because the author (Mark Fisher of MBF Clearing fame and ranked "Best of The Rest ' by Trader Monthly magazine) spends considerable time focusing on the psychological issues of trading--and what differentiates real professionals from those that are driven by greed.
It's a seductive theory that a system you have total confidence in will take psychology out of the equation.. bit like the chicken and the egg though
It's been proven over and over again that black box trading will eventually fail and blow out. Markets are like living breathing entities and although history repeats itself it is NEVER exactly the same. There is no easy way around using your Brain and doing your homework. Think, IF / THEN not React.
Mark Fischer is no doubt a great trader BUT once again I will reiterate ... SO WHAT !!! Even if you sat right beside him for months that doesn't mean that you will be a great trader too. You can golf with Tiger Woods for a month and although you will learn a lot your still not him. Educate yourself on all the tools available to us as traders both technically and fundamentally and start using common sense and hard work. Leave the psych stuff to the shrinks because all they know how to do is label things.