Psychology, are you sure?

Right, but then it all becomes a question of semantics, and what we mean by what. Then psychology is also the basic requirement for collecting stamps, engineering, and astronomy. If you don't have the right psychology, you will commit suicide, and then you won't be able to collect stamps. So psychology is the basis for everything. But then if it's the basis for everything, we can't say that it's peculiar to trading, so we can again state that psychology is not a "specific" requirement for trading.

Seriously. If you are a doctor, and you don't have a good psychological balance, how well will you handle everyday's pressure? Won't that get you in trouble? And if you were a policeman? Maybe the only type of job not affected by psychology would be like if you're just following simple orders and doing physical activity (so you have no room for procrastination, like with mental jobs), like a construction worker. So maybe we could agree that psychology affects trading like all other jobs that leave some degree of freedom/creativity to a person, and trader is certainly one of them (complete creativity and freedom).

So ok, psychology is the basis for trading (like for other jobs), but then, if you switch to automated trading, psychology becomes almost none. As long as you are totally automated - psychology becomes less important than for most other jobs. If you are automated, psychology is important for you less than it is for a policeman, for a doctor or a lawyer.

 

I would still submit that different professions require various degrees of psychological fortitude.

I think we can all agree that a certain psychological constitution and discipline are necessary to do anything in live. However, it's not a question of semantics when you consider that the psychological factor goes to the essence of what constitutes the financial markets: Millions of traders being pulled by fear and greed, coming together to form a herd. This is quite different from what goes on in the medical profession.

I still disgree that psychology becomes almost non-essential with automated trading. You still have to deal with large DDs and how you deal with them depends very much on psychology. Patience will always be key!

 

Well, partly I agree and partly not. When I read your post, it reminded me what others wrote and what they might reply to you, since they already said it in this thread. Psychology majors, or psychiatrists do not make excellent traders. Instead, if you go in the automated trading forum you see that most of them are computer science people, programmers, engineers and so on. So this means, as alexis wrote in the post starting the thread, that the essential thing is to have a good strategy (best if automated), which will leave little room for doubts:

"Bottom line is, analysis and risk mangement are 99% of the job. If you trust your strategies, there is no room for thinking or doubts".

Look, put it this way: would you rather have an undisciplined and frustrated person like me, unstable and all, but who - despite and maybe because of all these deficiencies - has built a trading system that works, or would you rather have a stable, disciplined, serene and content person who knows nothing about trading? I think the latter will give up very quickly, so it means trading is much more about what you got for a system (only if you built it yourself - otherwise it's not the same thing), than how stable and psychologically healthy you are.

Yes, maybe then, even if I'll make money, being so unhealthy, I will do something crazy with it. Maybe I will never be happy. But the other guy won't make any money just because of his healthy mind. We're not talking about who's best at being happy, but only about trading.

Actually, probably the people who reach the highest levels are the sickest and most frustrated ones, in general. The content and serene people take it easy, without trying to succeed excessively. The content person will not bother to try and build an automated trading system. He's gonna give up sooner because his wife is calling him for lunch. The fucked up guy will not be married, and he'll keep trying until he gets it done. Just in general, of course there are exceptions.

Anyway, another thought. I think (from my experience) it is misleading to say to ourselves or to others that trading is all about psychology, because we will all look in the wrong direction, potentially for years (my case). We will all try to be serene and balanced and create rules to be that way: "never trade while eating", "never trade while on the phone", "never trade when frustrated"... and so on. Whereas it would be much simpler to set this one rule: "only paper trade until you have found a method that has been profitable for 2 months (with frequent trades, not just 1 of course)". With this one rule, you don't have to worry about any psychological issues at all. It is much clearer, and easier to measure (the plus or minus sign tells you everything).

Instead of spending years trying to find a psychological balance that will make you profitable (I never found one), you will simply paper trade until you see a positive financial balance. Sooner than later you will realize that it's easier to go with automated trading, rather than discretionary. But in either case, you won't lose any money. And this will take out a lot of stress from trading.

What do you think? Well, these are just some random thoughts without expecting to prove anything scientifically...

 

While trading today I thought about this thread – and had to laugh as I observed some emotional (dumb if you prefer) money come into the market – and shorted it


Fwiw –

You can see dumb (emotional) money on a chart if you will only look… Hell you can even see it – as it’s actually coming in – if you would only….

Get out of your own way, lose your opinion, quiet your mind, find some objectivity – and observe

You’ll be surprised at first…, and then well rewarded once you learn to take advantage of it


Remember – most (admittedly not all) but most action on a chart is there for a reason – either use it – or it will use you




Week in summary…….

Had some lively conservation

Threw out some food for thought – I hope

You observed me using a resolution mechanism for a potentially destructive remark….

Yes I know it was totally unintentional, and an absolutely well intended compliment… but always – I MUST keep a clear head about me or the mkt WILL take my money… your mileage may vary of course…

Talked shop with some fellow traders


All in all – I’d say it was a pretty good week…..



Oh… BTW – There is an absolute gem posted in this thread – I didn’t post it – but it is here nonetheless…
You know who you are…


It’s beer-30 time (although these days I much prefer tea or water)

Soooooooo

I wish Y’all a Very Wonderful and Absolutely Fantastic Weekend


RN

 

I haven't all of this thread but what I did read sounds interesting. I like to include an article on this topic that I hope you will find of some value. I personally found it very informative and applied many of the strategies included.

Good Trading,
metoo


Regardless of your current experience level in trading, everyone had to start at the beginning. I suspect that the emotions and anxieties were pretty much identical for all traders early in their development. And since then, each trade has gotten easier as your confidence has grown. That's what a learning curve is.

Today I'd like to share two related ideas that should move everybody a little bit further down their learning curve. This will be good for the new-comers as well as the experts, but the traders near the middle of the learning curve will benefit the most. In a nutshell, to become a great trader, you have to do to things. First, master the internal ego. And second, defend the external ego.

1. Master The Internal Ego, So You Can Learn

The idea is a simple one - you must precisely recognize what is keeping you from taking your trading success to the next level. The vast majority of the time, it's your ego getting in the way of your self-education. This isn't the arrogant or over-confident type of ego. Instead, it's more along the lines of a defensive, protective ego - the "I don't need any help" ego. The problem is, that kind of self-shielding ego is what prevents real learning.

Let's take a closer look.

We're all human, and being human, we don't want to admit that we are wrong about anything, including trades. The ego wants to uphold an ideal version of ourselves that allows for only successes and not failures. Many traders collectively lose millions of dollars trying to protect the ego's version of reality. Your goal should be to trade without ego, or without personal judgment of your self worth. Trading is a business, and the businessmen who do the best at it are the ones who treat as such. It's not a reflection of them personally.

In fact it's usually just a reflection of a mostly-mechanized trading system. In order to make money trading, your goal is to keep losses small while letting winners run. Your ego is not equipped to do that naturally, but a mechanical trading system is. That's why we're such big fans of proven trading systems.

But aren't you up against traders with a ton of experience and great trading systems? Absolutely. But remember, everyone follows the same learning curve, and nothing is free. You'll have to spend time and effort to get good at this. How do you do that? Learn! The reality is that you chose to enter each and every trade.

Examine why the losing trades failed, and why the winners were successful. This can be painful, at least initially, since the ego is built to deflect blame yet accept praise (this is why we said the ego can create problems). That's a trap. If you find yourself saying "that was a good trade entry but..." then stop yourself immediately. Either everything before 'but' or after 'but' is inaccurate. If you rationalize or justify poor trades, then you'll never learn from them.

This is an important reality - the ego can prevent real learning. If you can learn to accept some failure without being emotionally devastated, then you'll be a good trader. In fact it's been said that the world's top traders aren't necessarily geniuses - they're survivors. They lasted longer because a rough trade (or a string of them) didn't spook them out of the game. In other words, they didn't take losses personally since they realized perfection is impossible. In so doing, they learned a great deal just by being able to stay in the game longer.

2. Keep Your Trading Private, So Others Can't Crack Your Confidence

So how much can other people affect your trading? There's not enough space here to even really begin. However, there is one characteristic that seems to separate the great traders from the average ones. The great ones realize what kind of problems that a lack of confidence can present, so they don't even risk a shattered ego. How? They keep their trading activities to themselves. While the amateur trader will often tell friends, neighbors, and total strangers about trades he may have entered, it's all too often a setup for disaster.

Call it Murphy's Law if you want, but one of the 'sure-fire' trades you just entered and told your neighbor about will turn against you soon. And like clockwork, the neighbor will ask how it panned out. You have one of two options at that point: tell the truth, or lie. You could lie to the neighbor and say the trade went fine. However, even though the neighbor may not know any better, the damage to our own ego is still a reality.

How? Being forced to deceive also forces us to acknowledge that we may have inferior skills. Instead of just accepting a losing position, we're forced to conceal the trade to protect other's perception of us. The irony is that the lie can cause even more damage to our confidence than just accepting the loss. Speaking psychologically, our subconscious minds can rationalize some incredible stuff that doesn't necessarily have to be true, so don't give it an opportunity to rationalize your decision to stop trading. You're better off not saying anything than saying something you know to be untrue.

On the other hand, you could tell the truth to your neighbor and own up to a bad trade, but that would also negatively impact your confidence. You see, our perception of how others see us has a far greater impact (for better and worse) than our perception of ourselves. It may not be fair or logical, but it's a fact nonetheless. And when we fail publicly - even at our own hands - we start to internalize and misinterpret external data, whether or not it's accurate. In other words, our damaged ego affects our judgment.

For instance, the neighbor may ask "How much did you lose?", while the trader may hear "Why didn't you use tighter stops?"

The neighbor may ask "Why did you buy it in the first place?", while the trader may hear "Can't you do adequate research?"

The neighbor may say "Better luck next time.", while the trader may hear "You have no business being in the market."

You get the idea - enough of those innocent questions and the trader is no longer trading. Or worse, the trader has changed his or her trading patterns in an effort to regain some confidence. And all because he opened the door to his ego!

The only real defense against such an attack is to simply not share the details of your trading with others. There's nothing wrong with telling others you trade, but in no way will detailing your trading activity enhance your return. In fact, it may potentially do the opposite. If you profess a trade position to someone else, you have made a subconscious commitment to it - maybe one you shouldn't have. If you know someone may ask you about that position later, you're more apt to hold it, even if it's a loser you'd normally get rid of.

By not sharing your trades with friends and colleagues, you allow yourself to make mistakes free of criticism. You allow yourself to fail. You allow yourself to focus on finding better trades rather than proving someone else wrong. When you don't have to worry about protecting your psyche, you can shift the focus from defense to offense - a necessary trait for all traders.

Price Headley - CFA, CMT, President & Founder of BigTrends.com. Price has been widely quoted by Barron's, CNBC, The Wall Street Journal and USA Today. Price is also the author of the new book, Big Trends in Trading: Strategies to Master Major Market Moves.

 

Seems like you're really looking at things from a systems point of view. Letting your system perform your entries, exits, and your strategies for you. Just setting up the system... and letting it run is all you need to do.

You may not even need to watch CNBC or analyze any kind of news... right? Why think about the psychology side of things at all because it is only worth 1% of your job. Who cares about what makes price move and how much it moves. Your system will analyze everything for you.

If you do have DD, then don't think about why you have the DDs at all, just systematically keep buiding better systems that outputs better numbers. It's not your fault... it's the system's fault.

Think I understand where you're coming from....

And I do agree with you where you mentioned psychology is as important in trading as in other professions. I've heard for being a lawyer, doctor, and many other professions... there is tremendous psychology involved.

 

Can you please explain what a positive expectancy is, for I am not sure exactly what you mean?

 

But that reply does not explain what a positive expectancy is, exactly?

As for the grasshopper, yes, that is a befitting title, as I do jump around when I am trading, as a matter of fact I jump around very quickly, and I do make funny noises at times also.

Maybe TM can explain what the patented word really means?

Thank you for the last line btw, but luck has nothing to do with it, really!

 

MC

My goodness man must I explain everything


Positive Expectancy

I enter a trade, I am "POSITIVE" that I can "EXPECT" my trade to lose or make – me money

Hence the term – Positive Expectancy


Of course now if someone would like to trump my definition with a textbook definition – that…. Mmmm let’s say –

The market could give two hoots in hell about because – it will do what it damn well pleases – whenever it damn well pleases

Then by all means be my guest

Your choice – as always


Cheers

RN

 

Dead wrong. Positive expectancy simply means that over the long term you will have a win rate that will allow you to be profitable.