Do you think not having the right trader’s ’ mind-set ’ really is the reason so many traders fail to make money, or, could it be just a pure and simple lack of sufficient technical skills from not having devoted sufficient time to learn how to trade. It is probably due to both of course, but I think there is far too much emphasis put out there in books and the net, on developing the right psychology to trade, when I’ll bet you that most people fail because they just lack the knowledge of the markets to do anything but fail. After all, if you needed to gain a diploma before being allowed to trade, there would be a hell of a lot more success stories. I’d love to know what you all think.
Hey pip slayer, I agree it has to do with both but I think the jump from demo trading to live trading requires a huge psychological leap. Do you trade live? You’d notice the difference immediately. When I went from demo trading (on a profitable, back-tested system) to live trading I blew about 30% of my account from simply not being able to handle the change. The realization that holy crap I have real money on the line here! It does affect your judgment, fear and greed creep in you don’t follow your rules like you should not taking valid signals etc.
I think psychology is the most important factor, provided you have the necessary background technical information. If you ever heard about the Turtle traders experiment, it shows that different people with the same exact system have drastically different results because of psychology.
Yes, I’ve been trading live, but only for 3 months, having demo’d and back tested for a couple of years. I wrote the thread really just to fish for other people’s opinions, because i am really not sure about this myself. you are right in saying that there is a world of difference between trading a demo and a live account, but I can honestly say that my losses are more due to not having read the price action properly than they are to any irrationality on my part. Yes, I make all the same types of errors we all make, getting out too soon, jumping the gun etc etc, and these are most definitely psychological, but more often than not following a loss, it is most definitely just the result of a pure and simple bad technical decision. We all know that trading is far from easy, but i dispute the fact that it is 99% psychological as so many pundits will tell you. I’m sure it is once the reached the pinnacle of technical prowess and can pick winning trades at wil, but how long is it going to take before you reach that level.
Your example of the turtle’s says it all though really doesn’t it? I guess it’s pretty hard to argue against that! Thanks for the reply!!!
Also, a lot of trading systems and techniques are frankly not that complicated. There will always be people who just don’t put the work in but basically, following sufficient time spent practising an effective strategy, the mechanics of Forex trading do not have to be that complicated. So I have always felt that psychology, risk management and money management must all be key areas that differentiate between successful traders and those who don’t quite get there.
Yes, the simpler the strategy the better that’s for sure. But I still think that just as many of us are ill prepared for the psychological challenges of trading when we start out, so do we grossly underestimate the technical skill needed to put on winning trades day in day out. Trading looks like it should be dead easy, but it obviously is not. Would be traders are enticed into putting their money on the line way before they are ready, I was. It is this group I am sure, who make up the bulk of blown accounts, and they are out of trading before they’ve even considered the psychological aspects, which really in my view come into play only when a trader has an edge that works. Putting money on the line before one is 100% confident of one’s abilities as a trader is usually very costly, but I’m sure that this is what most people end up doing.
Psycho-babble is given far too much weight, psychology isn’t, by this I mean, there are a plethora of ebook and stuff about ‘psychology’ saying stuff like - Cut your Loses Short and Run with your profits, You need really good discipline, etc etc etc… reading this stuff will normally get you nowhere, while there are proper techniques you can use to tackle your psychological issues like NLP for instance.
You need psychology tools to tackle psychology issues, rather than just read about them.
Psycho babble is just that. Psycho babble. Psycho has NOTHING to do with trading. If you can follow a profitable plan, you are set. If you can’t that, then go flipping burgers or something like that. If you can follow a plan, you can manage it in every business. If you can’t, you will fail in every business where it needs a proper plan.
The most issues come around if you believe your psycho book can help you making a losing system to a profitable one while just saying every morning to yourself you can become a gazillionare. And I assure you, there are a lot of losing systems out there!
The only rules regarding psycho are: Keep emotions out and follow a profitable plan with proper risk control. The latter most important. Even that gives no warranty, but you get the odds rather on your side than not doing it.
Thanks for your thoughts. I agree, far too much nonsense out there claiming that all you need to trade successfully, is a good money management plan and the discipline not to sabotage your trades, as if the art of trading itself has nothing to do with it. I believe most people fail because they haven’t put the required time and effort into learning how to trade. If they have, then they are unlikely to be the kind of people who are not going to be able to deal with the psychological challenges.
You’re right, trading is like any business, it will fail if it not properly researched, rehearsed, and organized. Most business starts ups fail because the above are not adhered to. A business of mine floundered a few years ago because I was far too idealistic about its potential, I saw only what I wanted to see. So many people coming into trading are similar, particularly those that have purchased a ’ winning system '. I was one of them, naively believing that all i had to do was to do exactly what it said on the box and I’ll soon see the dollars piling into my account. When I realised this was nonsense, I set about learning how to trade properly, because I could see the vast potential in it. Now a couple of years down the line, i am still learning, about the markets and about myself, but I’ve come a hell of a long way. Many thanks for your reply!
Yes, you need to be realistic, I keep saying that people are willing to spend thousands of pounds going to college for 3 years to gain a degree in the hope of finding a reasonably well paid job to get them out of the financial hole they’ve created, and work in an office somewhere with some idiot boss for a number of never ending years, but expect to pick up forex in 3 weeks!
I have to admit i envy that. Every single month for ~20 months, that is like compounding knowledge, lets hope drawdown does not come crashing in, of course that would need a lot of alcohol.
That is the key-- following a fixed plan. In trading is includes margin management, not over leveraging your trades. Bascially it just includes all the fundamental things the trader should have learned before he went live. It means keeping fear and greed out of the picture.
Let me add, it is assumed you have a winning trading system, so that should not even be a factor. If the trader has not at least gotten to square one which os the development of a winning system, then he should still be trading on the demo.
Here’s what I’ve found: without strategy, psychology is pointless. If you just tell someone to randomly flip a coin for bull or bear, then set a 1:2 risk reward ratio, and carry it out in a disciplined, calm manner, that probably won’t make your account grow over time. Without psychology, a strategy is likewise pointless. Its putting the whole package together.
One frequent problem I’ve discovered is you have many professional traders out there who have already gotten a ton of screen time and know the innards of technical analysis and price behavior quite well. You ask them for advice, and they say simplistic stuff like “You have to know where the money is going, the rest is all up to you”. Yeah thanks guys!
Unfortunately once someone has gotten really good at something, they are almost on another planet, where they can’t tell you exactly what it is they do right. For them, technical analysis and market behavior is as basic as anatomy 101 is to a cardio surgeon - oh yeah, of course the heart has four chambers, duh! The main thing they always struggle with is psychology, which lends itself well to cliches and requires little effort to expound. That’s why you get this stuff like “The enemy is me”, as opposed to more specific concrete stuff. But in all fairness, if you want specific concrete stuff, that’s value being offered, and that means $$$
I think the 3 basics of trading are all intertwined-- methodology, money management, and the psychology, or mental management. I also beleive they have to be developed in that order. There is no concept of money management until a methodology is developed. The mental part does not begin until the trader goes live and the 1st 2 are developed.
I’ve talked to people who have visited my blog and they complain that greed or whatever got the best of them in a trade. After further questioning, you find that they never even had a winning methodology developed.
Your point is valid. Anyone of the basics is pointless if all 3 are not working at the same time.
Thanks for your very valid reply. I wrote the post because it is my contention that too much emphasis is put onto the psychological aspect of trading whilst downplaying the vital importance of actually having a strategy that works, as if all you have to do is buy a ’ proven ’ system from someone, and as long as you develop the right mindset, you are almost guaranteed to be successful. Just how many people have been conned into that little number!! Trading cannot be taught, it can only be learned, and it takes a lot longer than most people coming into the business have any idea of. My 5 year old son is learning to ride his bike. I, like most adults, have been riding a bike all my life, but no matter how hard I try and teach him to stay balanced, he still topples over and suffers another demoralising fall, but of course he will get it sooner or later provided he keeps on at it, not because of me, but because of his ability to learn. Trading is no different, and you’ve got to master the charts to the point where you have a winning strategy long before the psycho searching comes into play.
I’d go on to add that what should, in my view, matter from the get go is establishing certain important habits from the get go, regardless of whether or not you know what you are doing. For example, I built a pretty strong habit to never loosen a stop. I only loosen a stop if I accidentally put it in too close, or I allow myself a 10-20 second period when I enter the trade to be sure I assessed the situation accurately. After those 20 seconds (usually less), its there and it only moves closer, never further, from the current price. That’s a very good habit to start building from the get go. Also, entering a trade just because you’re bored is dumb, and I’ve done that plenty of times. Revenge trading, or taking a position when you’re obviously ticked, is also a bad habit to get into.
Outside of that, you really don’t know if you’re entering too late or too early, or exiting too late or too early (fear vs greed) until you’ve really worked out your approach. I’m still in the process of doing that now, and I’m getting better at it all the time.
As Mark Douglas says in his rules of consistent trading, “I objectively identify my edges” and “I act on my edges without reservation or hesitation”. Its a bit hard to do that if you haven’t identified your edge yet.
