I respectfully disagree with some of the earlier posts here. While it is true that one needs to have an edge (positive expectancy like a casino), it seems that lot of people tend to focus on profits and strategies while neglecting psychology. It’s like trying to build the best Formula One race car in attempt to win world championship and while neglecting to learn how to drive it. To be consistently profitable trader, it requires knowledge, experience and beliefs of the individual that execute them. Most of us underestimate our own biases, overstate our own objectivity, and confidently believe we have finally learned from our mistakes and won't be making any more. For those who agree that psychology is essential, I’ll share below some notes from MarK douglas, It will resonate with the better traders on this forum, and at the same time I’m sure that there will be people who will disagree. (sorry about my typos, English is my 2nd language and I have chronic pain and am currently on strong pain killers that make my mind foggy) Trading can be distilled down to four general skillsets, that you have to acquire to be consistently succeeded trader: 1) Learning to identify an edge. This is the easiest part, and therefore the easiest part people gravitate towards, as can be seen over and over again on this forum. 2) Learning how to think in markets perspectives or learning how to think in market probabilities. This is the most important skillset. There are people who have degrees in probabilities, yet they cannot think in probabilities. Once you start thinkg in probabilities, you'll stop making that kind of errors that will detract from your ability to be consistent. Once you start thinking in probabilities, it won't even occur to you that you won't predefine your risk, not to cut your losses, to even hesitate when your edge shows up in the market, to jump the gun, not to take profits or have systematic way of taking profits, these things won't happen when you have effectively integrated into your mindset this ability to think in probabilities, it is completely inconsistent to do these things with this thinking methodology. This mindset won't let you to behave that way. 3) Learning to identify and neutralize self sabotaging beliefs. The problem is that the market represents unlimited opportunities to enrich ourselves, but that doesn't mean that the kind of things we have accumulated throughout our lives that exist in our mental environment are in complete harmony and desire to create a consistent results and tap into that unlimited ability to enrich ourselves. Everything that we've learned can argue against riches or increased prosperity. It can be things we're conscious of, and many cases it can be unconscious beliefs. Just because we're not conscious of something we've learned at some point in our lives, it doesn't mean that it's not operational. This area is one that can take a bit of time to master, you don't have tear apart your personality to become a consistently successful trader, but if you choose not to go through that process then you're going have to adapt a trading regiment that compensate for it. 4) Euphoria. It is a riskless state of mind, a state of mind in which we have no ability to perceive risk. It is virtually impossible to set limitations on your behavior. There is a threshold between confidence and euphoria. You have to develop a trading regiment that compensates for this, meaning you have to be able to recognise when you have flipped into a state of euphoria and then be able to stop trading. If you put on a larger size than your money management allows, the amount of distance the market has to move against you to flip from euphoria into complete mind freeze is just very tiny. You go from heaven to hell in one instance by just having the market move few ticks against you, and the problem is that it can create enormous psychological amount of damage that is very difficult to recover from.
I was not referring to mental process but to the nuts and bolts of trading….having a well tested trade plan and adhering to the rules of the trade, without which any “profits” are fantasy.
%% RIGHT\ like Dave Rasmsey noted finance is about 80% mental so make sure to work on the 20% also . Bill Gates is one of my heroes ; but ''never taking a day off in my twenties '' is counterproductive, same way with lazy. ''Business + trading especially/ I've been struck again and again how important measurement is to improve................-Bill gates ''work'' quote [probably in a figurative important way\ i dont think his wife really struck himLOL
Futures Trade Psychology: When it comes to the world of science, psychology isn’t one. It is a subject area that is too subjective; conclusions are mushy, and not falsifiable or repeatable. As a college major, it is not in the top 20 (or 30) highest paying majors but in fact one of the lowest. The same is true for graduate school salaries. Trading psychology recommendations are outright silly: Consider the statement: “The most important attribute for making money in financial markets is self-confidence” but how is confidence, self or otherwise, defined and measured? If self-confidence cannot be defined or measured, it cannot be understood so how can it be the most important? The same can be said for this statement: “Do not trade money until you are fully confident in your strategy”. Since “fully” cannot be measured it is useless. Consider the list of 6 keys to managing trade psychology which include “have an edge” (what is that exactly?); know thyself (who me?) and avoid emotional mistakes (My, oh my). Putting psychology to the curb, there are defined situations where we are defeated by aberrant choices that we can avoid using math.
The terminology in this thread needs to be kept in the proper context. After all, the market doesn’t even exist, it’s a nominalization, it is a process that people describe as a noun and assign to it qualities that only exist in their heads. The consequence of this is that we actually trade our beliefs about the market. “You experience what you believe, unless you believe you won’t, in which case you don’t, which mean you did.” ~Harry Palmer~ Yes, psychology is subjective, and you're right that mainstream academic psychology is an absolute joke https://www.theatlantic.com/science/archive/2018/11/psychologys-replication-crisis-real/576223/ but trading results and trader’s performance can be objectively measured (over decent sample size), and is a reflection of the trader’s psychological processes (beliefs, mental strategies, mental sequences, etc.) Context is what defines the content, and it is interesting to read posts with different perspectives.
Think of athletes who look to a psychologist for help to get over a "rough patch". They've made it but now they are having problems sustaining or increasing the success they have attained or even find themselves in decline. IOW they have their "strat" but it is no longer enough. Pysch help after you figured out how to be profitable, to a certain extent. Don't put the cart before the horse and worry about geez is there a doctor in house lol before you know what you are doing and more importantly, doing it profitably.
Results and performance is easy to measure. You can use equity curve or any number of ratios to come up with a performance. I measure my performance by whether I follow my trading plan or not. Do I do what I planned to do or not. Again easy to measure. I don't know how I would measure psychological processes (beliefs, mental strategies, mental sequences, etc.). Can you suggest a method of making those measures.
There is a cause-effect relationship between psychological processes and results / performance. The challenge most traders face is that they are solely focused on profits. On the other hand, (because of the above-mentioned cause-effect relationship) most of the world’s best traders are not as interested in trading and financial freedom as they are in their personal development. They see their results from their trading as a mirror of what's going on in their personal development. THE KEY ASPECT HERE IS TO UNDERSTAND THAT THE TRADER IS THE KEY FACTOR IN HIS PROFITS. You’ll find many methods in the resources I’ve listed in post #4. From the top of my head, I think Brett Steenbarger’s book “Enhancing Trader’s Performance” goes into the methods you’re seeking.