Trading Psychology – Stage 1. Blissful Unawareness.

Trading Psychology – Stage 1. Blissful Unawareness. by RealityTrader

As we mentioned in the previous article, first stage is usually the one where a newer trader doesn’t acknowledge the role of psyhcology in his trading. It happens out of ignorance or arrogance.

In a former case (ignorance) it’s simply lack of knowledge and mistaken notion that one can trade succeffully if given “right” system or indicator ot tip or whatever causes one to enter and exit his/her positions. It usually takes a while before a trader starts seeing how his mindset influences his trading and how his personal traits shine through his trading decisions. It comes as a surprize realization that different traders will get different results while trying to apply the same system. It is counter-intuitive, isn’t it?

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In a latter case (arrogance), a trader shows some kind of denial – it’s “not me” attitude, thinking that goes along the lines “maybe it’s a problem for some but I am in control of myself,” “this stuff is for weak-minded” etc. Needless to say, it’s rarely the case… and even more importantly, it’s not so much about weak vs. strong mind as it is about influence one’s personality has over one’s trading.

In any case, the important thing at this stage is to come to appreciate this aspect of trading. It happens when one sees how much truth there is in saying “everyone gets what they want out of market” (Ed Seykota I think?) Again, seems counter-intuitive, right? After all, don’t we all want to succeed, to make winning trades, to make money? Sure… but it’s not about what our conscious mind wants, it’s about what our inner core dictates, and that is not always easy to realize and control.*

Simple example to illustrate the idea: do you know people who repeat certain behavior patterns harmful to themselves? Getting themselves into relationships with the types that make them miserable, over and over again? Repeating the same mistakes in their interaction with others, obviously not learning from the past? I bet you do (although you personally never act like this, right?) So, why do we do it even though we see (or could see if we looked) that these behavioral patterns hurt us? Because those patterns are not just some easy to break habits; rather they are a part of our personality, of who we are, and it takes much more than simple decision not to do that anymore to change our ways. Pretty much the same thing happens in trading – we know what not to do yet we continue doing it.

As soon as one realizes all this, the first stage is completed. The role of psychology in trading is acknowledged, denial is over – and this forms the foundation for a change.

*My favorite example of this phenomenon is the Russian movie Stalker. The plot line briefly: there is a certain machine granting wishes (stalkers in the movie are the people who take clients to it through the many dangerous traps). The machine grants wishes alright but there is catch: it’s not a wish that you stand in front of the machine and announce that will be granted… it’s a wish that constitutes your essence, your core, your deep desire – and it’s not necessary the one you realize and announce to yourself and to the world. Pretty much what happens in trading and pretty much what the author of that saying (everyone gets what they want in trading) meant.

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Best Forex traders worldwide, give you advice for FREE to buy or sell. ZuluTrade converts this advice to a live trade in your broker account automatically, again for FREE! Unique service, I have already opened an account!

http://moonlightforex1.zulutrade.com

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About the Author

RealityTrader, lead by seasoned trader Vadym Graifer, is dedicated to provide traders with a solid understanding on how the market functions and how to implement time-proven techniques in a step-by-step and consistent manner.

Vadym is the author of Techniques of Tape Reading (McGraw Hill 2003), How to Scalp Any Market (2005),Master Profit Plan (Trafford, 2005) and A Taoist Trader (2010). Vadym is a frequent featured speaker at International Trader’s Expos, private seminars and Financial Forum Conferences.

Realitytrader provides a community where traders can refine their trading skills with helpful hints and tips from those that trade the market everyday in a safe, affordable and non-threatening environment.

RealityTrader is dedicated and committed to teach you everything about this evolving market. Evolve with us, not after us.

The Trading Psychology of Decision Making

Let’s start our discussion with decision making. Just how
important is the decision making process to the way we trade?
To answer that question let’s talk about the word decision.

The simple truth is that there isn’t anything you do without
making a decision first.  Absolutely everything you do requires
the effort of deciding to do it. When you get out of bed in
the morning, you are deciding to rise, when you make your
morning cup of coffee you must decide to put forth the
effort first.

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Even things as simple speaking or walking require you to
make the decision to do so. There isn’t a moment in our
lives when we aren’t making a decision.

You can’t even get off with “deciding not to decide”, since
in doing so you are putting forth the conscious effort to
make that decision. Even when within your own mind as you
think – you are making decisions on how to direct your
thoughts, how to mold an idea, and we decide how and when
to direct and focus our attention.

Since we cannot “not decide”, and in reality are making a lot
of conscious, un-conscious, and semi-conscious decisions
each day then it is then fair to say that:

Everything about us, including (but not limited to)

– Our Actions
– Our Attitudes
– Our Emotions
– Our Thoughts
– Our Imagination

Are the result of our decisions and the ways in which we
decide to focus our attentions towards  or away from something.

This brings us to the psychology of decision making. The term
psychology comes from the term pscyche (that is, our own
combined mental and emotional makeup). The way we make any
given decision, out of the thousands we make each day, is
directly affected by our own psyche.

Every single person on the planet internalizes things
differently. We have all had different experiences, we have
different thought processes, and we all see things in slightly
different ways. One image may represent something completely
different to you than it does to your neighbor.

If something influences our psyche (the way we view the world)
then it also influences the way we internalize. The way we
internalize information affects every decision we make.

To apply it to trading: We cannot make a trading decision
without our own psychology coming into play. Since we all
make decisions differently, a trading plan (or system), that
worked well for one person won’t always work well for
another person.

The good trader is the one who can find a psychologically
balanced approach to trading. They understand their own
psychology well enough to develop a trading plan that fits
with their psyche and decision making processes.

They also develop ways to overcome their own temptation to
second guess a trading plan and stick to it.  A well balanced
approach to trading shouldn’t require a lot of work on your
part. It should be quite natural to follow your own trading plan.

————————————————————————————————-

Best Forex traders worldwide, give you advice for FREE to buy or sell. ZuluTrade converts this advice to a live trade in your broker account automatically, again for FREE! Unique service, I have already opened an account!

http://moonlightforex1.zulutrade.com

————————————————————————————————-

Trading Psychology – Stage 1. Blissful Unawareness.

Trading Psychology – Stage 1. Blissful Unawareness. by Reality Trader

As we mentioned in the previous article, first stage is usually the one where a newer trader doesn’t acknowledge the role of psyhcology in his trading. It happens out of ignorance or arrogance.

In a former case (ignorance) it’s simply lack of knowledge and mistaken notion that one can trade succeffully if given “right” system or indicator or tip or whatever causes one to enter and exit his/her positions. It usually takes a while before a trader starts seeing how his mindset influences his trading and how his personal traits shine through his trading decisions. It comes as a surprize realization that different traders will get different results while trying to apply the same system. It is counter-intuitive, isn’t it?

————————————————————————————————-

Best Forex traders worldwide, give you advice for FREE to buy or sell. ZuluTrade converts this advice to a live trade in your broker account automatically, again for FREE! Unique service, I have already opened an account!

http://moonlightforex1.zulutrade.com

————————————————————————————————-

In a latter case (arrogance), a trader shows some kind of denial – it’s “not me” attitude, thinking that goes along the lines “maybe it’s a problem for some but I am in control of myself,” “this stuff is for weak-minded” etc. Needless to say, it’s rarely the case… and even more importantly, it’s not so much about weak vs. strong mind as it is about influence one’s personality has over one’s trading.

In any case, the important thing at this stage is to come to appreciate this aspect of trading. It happens when one sees how much truth there is in saying “everyone gets what they want out of market” (Ed Seykota I think?) Again, seems counter-intuitive, right? After all, don’t we all want to succeed, to make winning trades, to make money? Sure… but it’s not about what our conscious mind wants, it’s about what our inner core dictates, and that is not always easy to realize and control.*

Simple example to illustrate the idea: do you know people who repeat certain behavior patterns harmful to themselves? Getting themselves into relationships with the types that make them miserable, over and over again? Repeating the same mistakes in their interaction with others, obviously not learning from the past? I bet you do (although you personally never act like this, right?) So, why do we do it even though we see (or could see if we looked) that these behavioral patterns hurt us? Because those patterns are not just some easy to break habits; rather they are a part of our personality, of who we are, and it takes much more than simple decision not to do that anymore to change our ways. Pretty much the same thing happens in trading – we know what not to do yet we continue doing it.

As soon as one realizes all this, the first stage is completed. The role of psychology in trading is acknowledged, denial is over – and this forms the foundation for a change.

*My favorite example of this phenomenon is the Russian movie Stalker. The plot line briefly: there is a certain machine granting wishes (stalkers in the movie are the people who take clients to it through the many dangerous traps). The machine grants wishes alright but there is catch: it’s not a wish that you stand in front of the machine and announce that will be granted… it’s a wish that constitutes your essence, your core, your deep desire – and it’s not necessary the one you realize and announce to yourself and to the world. Pretty much what happens in trading and pretty much what the author of that saying (everyone gets what they want in trading) meant.

————————————————————————————————-

Best Forex traders worldwide, give you advice for FREE to buy or sell. ZuluTrade converts this advice to a live trade in your broker account automatically, again for FREE! Unique service, I have already opened an account!

http://moonlightforex1.zulutrade.com

————————————————————————————————-

About the Author

RealityTrader, lead by seasoned trader Vadym Graifer, is dedicated to provide traders with a solid understanding on how the market functions and how to implement time-proven techniques in a step-by-step and consistent manner.

Vadym is the author of Techniques of Tape Reading (McGraw Hill 2003), How to Scalp Any Market (2005),Master Profit Plan (Trafford, 2005) and A Taoist Trader (2010). Vadym is a frequent featured speaker at International Trader’s Expos, private seminars and Financial Forum Conferences.

Realitytrader provides a community where traders can refine their trading skills with helpful hints and tips from those that trade the market everyday in a safe, affordable and non-threatening environment.

RealityTrader is dedicated and committed to teach you everything about this evolving market. Evolve with us, not after us.

Trading Psychology – Stage 4. Through the Looking-Glass

Trading Psychology – Stage 4. Through the Looking-Glass
by RealityTrader

This last stage of a trader’s development in psychology department is fairly simple to understand, maybe not very easy to implement… but give it due recognition and make an attempt, and it will happen with not much effort – as long as you are ready for this transition. This is kind of things that you don’t rush, they come almost by themselves when it’s time.

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Best Forex traders worldwide, give you advice for FREE to buy or sell. ZuluTrade converts this advice to a live trade in your broker account automatically, again for FREE! Unique service, I have already opened an account!

http://moonlightforex1.zulutrade.com

————————————————————————————————-

The idea is really simple. There are emotions that, at your early stages, plague your trading and cause erroneous entries and exits. Those are the same emotions that cause the crowd’s mistakes. As you learn to deal with your emotions, as you take control over them and diminish, then eliminate, their impact on your trading decisions, you don’t completely eliminate emotions themselves. You just learn to dull them and separate your trading actions from their influence. However, you still should be able to observe them as detached cold-blooded observer, This is a stage where you gain an ability to actually utilize them instead of being their slave. If you can feel how huge selloff creates this feeling of panic somewhere deep in you, this is what crowd feels. Feel the temptation to buy this parabolic upward spike, seemingly unstoppable? Chances are, at the moment when you feel the strongest urge to give up and just buy, that’s when the last buyers, desperate not to miss the train, hit their Buy at Market buttons.

You see the point now. Use this as a mirror, as your window into understanding how crowd acts. Together with your strict self-control, such approach will put you on the right side of trades – and as we know, right side is usually not the crowd’s side. It’s not a stand-alone method of trading of course but it’s a good supplement to your tape/chart reading skills. Overall, this approach is in perfect alignment with a few Taoist principles described in our A Taoist Trader course

Two fair warnings. First, do not try to implement this element into your trading too soon. You really need to be at the Stage 3 and get steady and confident at it before you try to move to Stage 4. No jumping over steps. Contrarian approach of this kind requires a lot of experience and perfect self-control.

Second, somewhat humorous… as you progress, you may find that you stop experiencing those crowd-like emotons altogether and your impulses are fully in line with your own reading now. When it happens, your attempt to read YOUR impulses as a window in CROWD’s impulses may backfire as you start trading as a contrarian to yourself rather than crowd, eseentially becoming a part of a crowd again. OK, that was half-joke.

This article concludes our description of the stages of a trader’s advancement as far as psychology is concerned. In the next two articles we will look closer at some of frequent trading problems and analyze what causes them.

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Best Forex traders worldwide, give you advice for FREE to buy or sell. ZuluTrade converts this advice to a live trade in your broker account automatically, again for FREE! Unique service, I have already opened an account!

http://moonlightforex1.zulutrade.com

————————————————————————————————-

About the Author

RealityTrader, lead by seasoned trader Vadym Graifer, is dedicated to provide traders with a solid understanding on how the market functions and how to implement time-proven techniques in a step-by-step and consistent manner.

Vadym is the author of Techniques of Tape Reading (McGraw Hill 2003), How to Scalp Any Market (2005),Master Profit Plan (Trafford, 2005) and A Taoist Trader (2010). Vadym is a frequent featured speaker at International Trader’s Expos, private seminars and Financial Forum Conferences.

Realitytrader provides a community where traders can refine their trading skills with helpful hints and tips from those that trade the market everyday in a safe, affordable and non-threatening environment.

RealityTrader is dedicated and committed to teach you everything about this evolving market. Evolve with us, not after us.

The Importance of Psychology in Trading

The Importance of Psychology in Trading by Jim Wyckoff

In past articles, I have told my readers about the quality trading seminars I have attended through the years and how beneficial they are to anyone seeking knowledge and wisdom on the road to becoming a successful trader. The other night I was browsing through the workbook from a Technical Analysis Group (TAG) conference I attended in 1996. These TAG workbooks are packed with valuable information presented by all the speakers (usually 20 or more) at each conference. As I was thumbing through this particular workbook, there was a common theme espoused by the majority of presenters at the conference: In order to succeed at trading, it’s not only important to strive to learn more about markets and trading tools, but it’s also very important for a trader to know himself or herself. This is part of the all-important–but sometimes overlooked–aspect of “trading psychology.”

I will admit that when I first got into this fascinating business, I was skeptical of the whole “trader psychology” thing. My main concern at that time was learning as much about markets and technical analysis as I could–and my trading mentality or psychology would take care of itself. However, the more I learned about the markets and about trading, the more I realized human nature and psychology play huge roles in both.

The following are some valuable “nuggets” regarding trading psychology that I pulled out of the TAG workbook. It’s my hope that one or more of these “nuggets” will help you better understand your own trading psychology and the importance of psychology in trading markets.

Remember that becoming a profitable trader is a journey, not just a destination. The perfect trader does not yet exist. Try to become a better trader each day and enjoy the progress you make. Concentrate on learning the craft of technical analysis and on improving your trading skills, rather than focusing solely on the amount of profit or losses in your trading.
Congratulate yourself and feel good about a trade when you have done what you were supposed to do, according to your trading plan–regardless of the profit or loss on the trade.

• Don’t get overly excited about the winning trades or too depressed about the losing trades. Try to maintain an even keel and a professional outlook regarding your trading.
• Do not expect certainty in a trade. You are looking for a preponderance of evidence, not proof beyond the shadow of a doubt.
  The pain of standing aside and missing a good trade that your method told you to take is much worse than the pain of losing on a trade that you entered and exited properly and according to your trading plan.
• Your own life experiences shape how you think about trading. If your first experience with trading was a negative one, the odds are high that you will not trade in that particular market again for a long time–and maybe never. The psychological impact of loss and defeat can be much greater and last much longer than the effects of physical pain. If you were not defeated psychologically by a negative trading experience, then the loss does not have such a negative and lasting impact.
• Education plays an important role in shaping the way traders think about trading. A formal business education can give you an edge in understanding the economy and the market in general–but it is no guarantee of success in trading. Most of the information you learned in a formal college setting will not give you the specific knowledge necessary to be a successful trader. To succeed in trading, you must learn to perceive opportunity where most others see none–and you must seek out the information which gives you the knowledge necessary for success.
• Your ego and winning can make you broke. Winning can create powerful emotions that distort reality. The more you win, the better you feel, and your ego takes over. The joy of winning is what gamblers seek. A gambler will lose as many times as necessary just for the thrill of winning once.
• Always remember this: You are the sole person responsible for winning or losing in trading. Don’t blame the market or your broker. Losses are an opportunity to focus on whatever problem occurred during the trade. Don’t get caught up in personal denial.
• A successful trader quantifies, analyzes and truly understands and accepts risk. Emotional and psychological acceptance of risk is what determines your mental state in each trade. Individual risk tolerance and preferred trading timeframe make each trader unique. Select a trading methodology that reflects your preferred timeframe and risk tolerance.
• The market is not physical. It’s an amalgamation of the mindset of all trading participants. The daily tug-of-war between the bulls and the bears reveals what they are thinking on a daily basis. Make sure to look at the market’s close in relation to the session high and low.
• Never buy just because the price is low, or sell just because the price is high. Never average a losing trade. Don’t become impatient with the market. Always have a good reason for initiating every trade. Remember, the markets are always right.
  Traders need to listen to the market. To listen effectively to the market, traders need to know and pay attention to their trading methods, but also pay just as much attention to themselves as they pay to their charts and the market. The trader’s challenge is this: Learn who you actually are, and then consistently and consciously develop the qualities that allow you to trade well.

• As traders, the more we can detach ourselves from the emotions of hope, greed and fear, the better our chances for trading success. Why are there hundreds of good technical analysts but few good traders? Because they need to spend more time on their personal psychology than their analytical methodology.
• “If I had eight hours to chop down a tree, I’d spend six hours sharpening my axe.”–Abraham Lincoln. I like this maxim, because it is similar to trading: Research and learning are very important. Preparation for trading takes much longer than executing and watching the trade.
• The market has far more patience than the majority of traders. There is an old saying that the market will do whatever it takes to drive the largest amount of traders crazy. Trends can persist as long as there are traders fighting them. Don’t fight the tape.

About the Author
Jim Wyckoff has been involved with the stock, financial and futures markets for more than 20 years. He was born and raised in Iowa, where he still resides.

Wyckoff became a financial journalist with Futures World News for many years, cutting his teeth as a reporter on the futures trading floors in Chicago and New York, where he covered every futures market traded in the United States at one time or another.

Not long after he began his career in financial journalism, he began studying technical analysis. By studying chart patterns and other technical indicators, he realized this approach to analyzing and trading markets could level the playing field between “professional insiders” in the markets and individual traders.

His extensive studies of technical analysis and knowledge of markets led to several positions, including chief technical analyst at several well-known companies. He says his mission is not just to generate profits for traders but to also provide them with educational and insightful information because, in the fascinating business of trading, one never stops learning.

Wyckoff received a Bachelor of Science degree at Iowa State University, graduating in 1984 with a major in journalism and a minor in economics. He and his wife have two children, a son in high school and a daughter in college.

When he’s not analyzing markets and educating traders, Wyckoff says he loves adventures, from driving a Jeep across the highest mountain pass in the continental United States to extreme winter camping in the Boundary Waters to hiking in the jungles of South America.