How to succeed when so many fail. The root cause

He has a very entertaining blog at TraderFeed.
I usually understand it… I think.

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I’m sure. That’s “only me” - I didn’t intend it as a “veiled criticism” or “caustic aspersion” of him at all, I hasten to add: it’s just that I have Asperger’s syndrome and am for this reason close to devoid of anything approaching “psychological insight” at all. :8:

Well I appreciate where your comments are coming from but people do say the market is just a crowd subject to the regular instinctive and emotional impulses of every crowd or mob or herd we’ve ever seen.

As a seasoned market practitioner, maybe you actually do have more psychological insight than you give yourself credit for?

On the subject of the brain and the primitive region of the brain that controls our emotional reactions to the outside world, I will post a link to an article, written 10 years ago by Dr. Janice Dorn, which I saved (and posted in this forum back in 2012), which ties nicely into what Godspeed108 wrote about the amygdala and its role in trading decisions.

I’m not sure where Dr. Dorn is these days. Her website – thetradingdoctor.com – which I enjoyed immensely back in the day, has disappeared.

There’s no article in Wikipedia about Dr. Dorn; but, there is a CNBC profile of her, which I will link to.
(I don’t know how long ago that profile was posted.)

Anyway, I think Dr. Dorn’s comments about the trading brain have the ring of truth to them, and truth is eternal – so, the fact that her article is 10 years old shouldn’t detract from its usefulness to us ten years later.

Dr. Janice Dorn This is Your Brain on Tradinghttp://babypips-media-production.s3.amazonaws.com/forums/6/5/5/2/5/11262.attach.pdf

CNBC profile of Dr. Janice Dorn – http://www.cnbc.com/janice-dorn/

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Here’s a [I]Time[/I] magazine article which I copied, and posted in the forum, back in 2012. The article was written by Dr. John Coates as a sort of preview of his forthcoming book, [I]The Hour Between Dog and Wolf[/I]. I found this post when I was searching for the link to the Janice Dorn article.

This John Coates article isn’t about the amygdala and its role in the trading brain. It’s about the role of testosterone in trading success [I]and trading failure.[/I]

Risk Factor
By John Coates Monday, July 09, 2012

Every so often we read of a star trader who lost so much money that he gave back all the profits he made over several years and shook his bank to its foundations. How does this happen? Were the bank’s risk managers mistaken about this trader’s skill?

Maybe. But recent research suggests an alternative explanation–that the winning streak changed the trader. Human biology can help explain what drives traders to acts of folly.

When we take on risk, including financial risk, we don’t just think about it; we also prepare for it physically. Body and brain fuse as a single functioning unit. Consider what happens on the trading floor when news flashes across the wire. Traders’ senses are placed on high alert. Breathing accelerates; a thumping heart gears up for action. Muscles tense, stomachs knot, and sweating begins, a sign of anticipatory cooling. We do not regard information as computers do, dispassionately. We register it physically.

My colleagues at the University of Cambridge and I have conducted a series of experiments on London trading floors and found that during a winning streak, our biology can overreact and our risk taking can become pathological. When males enter competition, their testosterone levels surge, increasing their hemoglobin and hence their blood’s capacity to carry oxygen, and in the brain increasing their confidence and appetite for risk. The winner emerges with even higher levels of testosterone, and this heightens his chances of winning yet again, leading to a positive feedback loop known in animal behavior as the winner effect. For athletes preparing to compete, traders buying risky assets or even politicians gearing up for an election, this is a moment of transformation, what the French in the Middle Ages called “the hour between dog and wolf.”

At some point in this upward spiral of testosterone and victory, however, judgment becomes impaired. Effective risk taking morphs into overconfidence, and traders on a winning streak may take on positions of ever increasing size with ever worsening risk-reward trade-offs.

What happens to traders’ biology if these positions blow up? Their stress response goes into overdrive. The uncertainty people feel during a crisis can raise stress hormones and promote feelings of anxiety, a selective recall of disturbing memories and a tendency to find danger where none exists. The stress response may foster irrational risk aversion, impairing a person’s ability to manage positions taken on in more optimistic times.

In short, traders’ biology may cause them to take too much risk when on a winning streak and then too little when the market needs it most during a crisis. Risk managers at banks need to understand this biology. The statistical tools they rely on cannot catch the subterranean shifts taking place in their traders’ risk appetite.

Risk managers could, however, learn from sports scientists how to spot and manage exuberance, fatigue and stress. They may have to manage their traders much as coaches manage their athletes. And that means occasionally pulling them off the field until their biology resets.


Coates, a research fellow at the University of Cambridge, was a trader at Goldman Sachs and Deutsche Bank. He is the author of [I]The Hour Between Dog and Wolf[/I]

Dr. John Coates’ book [I]The Hour Between Dog and Wolf[/I] builds on research that he and his colleagues did at least 4 years earlier. This REUTERS ARTICLE briefly describes that earlier research.

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A very interesting thread with some very interesting points and articles. Psychology and the devastating, paralysing effects of poor psychology are under-discussed and very often underestimated. Generalised anxiety alone _ and the symptoms that ensue as a result of this - can wreak havoc with trading decisions . Unfortunately humans do not exist in a bubble of constant stress-free perfection and so the need to monitor ourselves and determine if we are “fit to trade” will always be an ongoing process. Sometimes we get it right…and sometimes we don’t. Hopefully we are more often right than wrong.

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To become successful in trading trader should work with patience. It is called key to success. We face failure many times but it is not the end of trading. Here you can find any good opportunity next time. You can manage your trading if had realistic goals and good strategy to work.

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We can not say if others are fail we can not make success in forex. I am very positive about myself because forex is my passion. It is giving me profit and in future my more goals will be achieved by forex. Every trader is different and all need a lot of hard work to improve their trading.

In theory, if you are disciplined, if you work hard and study hard you should succeed. Still, 95% of traders fail - do 95% fail to do any of these three things?

Failing in any field is not a problem but the real problem in forex is that many new traders do not want to learn even after repeated failure and just want to cover up losses and they end up losing more and more.

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It’s really a problem when after a few successes trader still follows past practices. You have to understand your mistakes in proper time.

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Trading should be done with proper money management skills and strategies so that root cause of failure can be reduced and must spent maximum time in demo account to improve our trading skills.

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The root cause is less knowledge and practice. We start live trading just after month demo trading. In demo it is easy to make profits traders think now they can handle live trading successfully this is a mistake they do , they stop their learning for better trading.

I agree with imbest, the underlying cause is less information and practice. Newbie begin live trading soon after month demo trading. In demo it is anything but difficult to make benefits traders figure now they can deal with live trading effectively this is a mix-up they do, they stop their learning for better trading.

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Unethical advertising by various brokers promising quick, easy and big profits certainly doesn’t help matters. Newbies are ignorant and sometimes naive and they believe those promises and lose all their money.

In case of failure we had to find the root cause so it is important that we had to make and follow some good trading plans and strategies with proper money management skills then proper entry and exit can be done.

When you fail you are not going successful with trading need more practice with management. First learn the ways to manage account. Then use a specific amount of demo not thousands. As I trade with just $200 of demo seeing either this amount grows or not. If I loose all it says me I need much practice.

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We should learn from our mistake to overcome the failure factor and this can be done once we properly learn the basics of Forex. We should spend three to four month in demo account to increase trading knowledge.

You have no idea how much this post struck deep within my heart. Thank. you.

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Me too, Always kew it was there, but not how it worked.

To the early posters; Do any of the resources you quote, have suggestions as to how the problem can be overcome or the effects mitigated ?

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