Forex psychology

Beginner Questions
13

Well, I would have to disagree… since we know our psychology is the most difficult challenge to conquer, we should always be working on that front (simultaneous with the strategy development part).

I read somewhere that trading is 80% psychological and 20% methodical. That sounds about right in my experience. You can have the best strategy in the world but fail miserably if you don’t have control of your psychology.

Likewise, my guess it that you can have a horrible method but still succeed if you are on-track in the other critical areas (namely money mgmt and psychology). Van Tharpe mentions that it’s possible to succeed with even a 30% success rate, assuming proper money mgmt (if I’m recalling correctly).

If you focus only on the method, you will be itching to jump into the market before you are ready, and that will surely cause pain.

When I first went to workout at the gym (years ago), I asked a trainer how I could reshape my body. I thought first I should get rid of this college beer belly, and then figure out how to lift weights. But he said: No, what you want to do is begin training with both weights and cardio. The cardio will attack the fat but at the same time your strength training will build lean muscle. As your body transforms, the lean muscle will accelerate the fat loss as well, until one day they are working in harmony.

14

Thinking about important aspects of trading is never a waste of time.

Testing and developing is an ongoing state of affairs, psychology in trading is also an ongoing state of affairs. You don’t suddenly wake up one day with everything solved just because you have a positive back test result.

I would like to know what is so nonsensical and ignorant about developing a winning attitude. Would you apply your wisdom to sports people for example?

I suggest you dismiss it in such terms because you have little idea of what one is.

15

You know, I think it is more about self-control and mental-control rather than “psychology”. It is even more about setting up a reasonable money management and following it. Ultimately, it has nothing to do with psychological things to learn. But yeah, if you don’t manage your money, you will go insane when losing money! Just my opinion.

16

No amount of money management or psychological strength will make a system with a negative expectancy a winner. Full stop. By way of example, roulette is a negative expectancy game. Over the long run there is no way you can come out ahead. No system you develop to manage your bets (money management) will change that. No matter how much discipline you have in sticking with your system, you won’t come out ahead. You may get lucky for a while, but if you keep playing you’ll end up with nothing.

This is why Brett Steenbarger, the guy who literally wrote the book [I]The Psychology of Trading[/I], doesn’t rate trader psychology any higher than having a positive expectancy system or employing good money management. All three are equally important.

Van Tharpe mentions that it’s possible to succeed with even a 30% success rate, assuming proper money mgmt (if I’m recalling correctly).

You’re missapplying Tharp here. His point about low success rate systems is that they can still have positive expectancy. He never suggests a negative expectancy system can be a winner.

When I first went to workout at the gym (years ago), I asked a trainer how I could reshape my body. I thought first I should get rid of this college beer belly, and then figure out how to lift weights. But he said: No, what you want to do is begin training with both weights and cardio. The cardio will attack the fat but at the same time your strength training will build lean muscle. As your body transforms, the lean muscle will accelerate the fat loss as well, until one day they are working in harmony.

This is hitting the nail on the head. You need to be working on all elements of your trading in unison because they all feed off each other.

17

The “psychology” part is in understanding the sources of your difficulties and recognizing the patterns you have in your behavior.

18

Right…

But I still think a good system and good money management would cure the mental torture. Without them, yeah, one has to be extremely strong minded to trade!

19

And I would argue that you should be factoring your psychology in to the process of working out a good system and money management plan as it’s often conflict between them that creates the breakdowns.

20

I dismiss it because its nonsense :rolleyes:

I think psychology is extrememly important in sports. In two athletes of equal ability, the one with the “wining attitude” will most likely do better. I’d even go as far as to say that people with less natural ability may surpass those with greater ability simply down to attitide. The same can be seen in many walks of life. In a previous career I’ve used NLP consultants to work with sales staff, and obtained fantastic results by doing so. I’ve advocated the use of coaches and mentors in many areas of business. I’d even go as far as to say a lot of the personal development technologies available have real merit in helping people achieve their goals and improve their lives.

The problem is, this isnt applicable to trading. Its about positive expectancy, you either have an edge, or you dont, and no amount of psychology or money management is ever going to change that.

I honestly dont care about the results of a trade, or if Im profitable or not over a period of a day or a week, a month or a quater. All that matters is that my returns are within pre defined parameters. I dont start the day believing I’m a winner, or trying to developing a positive mental attitude, in fact I realistically expect to lose money most days. The truth is that most equity curves that i’ve ever analsyed tend to make new highs less than 20% of the time and I’m no exception.

I’d probably go so far a to argue that a healthy dose of cynisism is probably a far better attribute to possess for a trader than a faith in ones own ability

21

Trading in the Zone by Mark Douglas is certainly worth reading, but Brett Steenbarger books are better in my opinion.

22

I obviously agree with the latter part of what’s been said here seeing as I said the very same thing a couple posts back. It’s the first part I have a problem with.

The psychological part of trading is like the psychological part of sports. It comes down to the ability to execute in optimal fashion under pressure. There’s all kinds of stuff that can happen between the ears to lead to sub-optimal execution. Doubt and tension will trip up a trader doing analysis to pulling the trigger on a trade just as it will trip up a golfer trying to make a putt or a basketball player making a free throw.

23

My old best mate is a successful city trader (we’re out of touch now and it would be a bit cheeky to get intouch just because I’m learning forex).

With much respect I can say my friend is not the most intelligent of my friends (he’s probably the richest though:)) but he has great self disipline, he’s cool under pressure and is a consistent tryer. His psychological advantages.

I’m quite impatient so thought a short term trading strategy might suit me but on reflection a longer term trading plan that doesn’t have me looking at charts all day with an itchy mouse finger is more appropriate and works to avoid my psychological disadvantages (which I intend to work on).

I have too much of the basics yet to cover but when time allows I thick a bit of psycological insight would be of use.

Listen to me I’ve had more than 8 weeks demo accounting and only lost a grand;)

24

Thanks for explaining your views further simbafx.

I think we are talking about the same thing in fact, it’s just a case of defining a couple of ideas that seem to lend themselves well to multiple interpretations.

I think psychology is extrememly important in sports. In two athletes of equal ability, the one with the “wining attitude” will most likely do better. I’d even go as far as to say that people with less natural ability may surpass those with greater ability simply down to attitide. The same can be seen in many walks of life. In a previous career I’ve used NLP consultants to work with sales staff, and obtained fantastic results by doing so. I’ve advocated the use of coaches and mentors in many areas of business. I’d even go as far as to say a lot of the personal development technologies available have real merit in helping people achieve their goals and improve their lives.

I share your views here.

The problem is, this isnt applicable to trading. Its about positive expectancy, you either have an edge, or you dont, and no amount of psychology or money management is ever going to change that.

This is where you switch off “winning attitude” but I just see continuation. Mental states and your own personel behaviour structure can and will effect your trading. The emotional and behavioral characteristics of an individual are that individual, whether he be an athletic 400 metre hurdler or an overweight forex trader.

[B]Trading is a performance activity[/B]

Quote from Mr Brett Steenbarger Brett Steenbarger Bio :

There are many possible explanations for why people succeed in markets. The idea of trading as a performance discipline is that the process of mastering markets is similar to the process of mastering any performance domain, such as athletics or public speaking. We begin with certain talents such as the abilities to process information quickly and synthesize large amounts of data, the capacity to sustain attention, and personality traits that enable us to keep a relatively steady mindset in the face of uncertainty.

This developmental course is typically a lengthy one and involves numerous setbacks as well as milestones. What sustains the growth process is a very strong interest in the performance field and a learning process that nurtures continued motivation and a sense of growing mastery. Talent and interest will not turn into expertise if they are not channeled into ongoing learning, review of performance, and efforts at improvement.

I’d probably go so far a to argue that a healthy dose of cynisism is probably a far better attribute to possess for a trader than a faith in ones own ability

Through certain installments of a trading life I would say cynicism was an absolutely essential attribute. :wink:

26

You all need to listen to Simbafx he is absolutely right. Slogans such as develop a winning forex attitude ARE pure nonsense , shpeel to make you buy books. The psychology of forex trading applies to one thing only, the LEARNING stage.

It is important to have the right attitude while learning this game, just like any other learning curve you need a lot of patience, and a mindset to study and learn as much as you can for at least a year before even thinking about live trading, and to have the discipline not to jump the gun and begin live trading before you have a good trading method worked out and properly tested.

You will know when you have properly learned what you need to know when you realise psychology is no longer a factor to your trading because your trades are no longer shots in the dark that leave you stressing out when losses occur, or even worse, stressing because you dont understand WHY those losses are occuring.

27

There is only one way to trade profitably, that is to trade only when the probability is high that a successful trade will take place, this means identifying a set of circumstances that will result in a profitable trade more often than it does not. Just as Simbafx says, to give you an edge.

If you do not manage to identify a set of trading criteria that fits that explanation and trade according to that set of rules it doesnt matter what your psychology is, how much you believe you will be profitable or how much you WILL yourself to win, or how much time you spent on your money management you will not win unless you are very lucky and god is on your side.
If you are a mere motal, over time the odds will roll against you and any gains you made WILL dwindle into losses.

28

Not sure who you’re arguing with there, no one is suggesting sitting in front of the screen chanting “I’m a winner!” is the key to success.

If you do not manage to identify a set of trading criteria that fits that explanation and trade according to that set of rules it doesnt matter what your psychology is… you will not win unless you are very lucky and god is on your side.

That must be one hell of a set of rules.

29

You will know when you have properly learned what you need to know when you realise [B]psychology[/B] is no longer a factor to your trading because your trades are no longer shots in the dark that leave you stressing out when losses occur, or even worse, stressing because you dont understand WHY those losses are occuring.

a : the mental or behavioral characteristics of an individual or group
b : the study of mind and behavior in relation to a particular field of knowledge or activity

How can this become no longer a factor?

30

I do like “Trading in the Zone”

31

Overrated in my opinion.

32

I dont like it either, but it’s worth reading just for the bit about the 5 fundemental truths of trading.

  1. Anything can happen.
  2. You don’t need to know what is going to happen next to make money.
  3. There is a random distribution between wins and losses for any given set of variables that define an edge.
  4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
  5. Every moment in the market is unique.

As much as I despise the book, I’m glad I read it !

33

It is.

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