You are also required to learn money management system( Which is easier
then requiring a decree).
Then follow system that money management system.
In forex trading is there scope for interpreting your own system based on your
own current emotions?
Its appears so simple:
You feel happy, you follow system.
You feel sad, you follow system.
You feel you are going to lose all your money, you follow system.
You get greedy, you follow system.
Today I have started to virtual trade properly, using babypips tutorial system on forex-tester-2. I have not broke the system. I hope not to do so ever.
Look at the maximal drawdown for a particular system. If that drawdown is lets say 10% and your account shrinks 15% then throw the system to the trash can and try another one.
As long as your drawdown is not beyound 10% then your system is obviously working and there is no reason to feel good or bad. I mean, you probably feel so, but that should not lead to a trading decision. Very simple. Like if an oven gets too hot and make fumes and you switch it off.
I think it probably is the most important aspect of trading.
The word “system” is your potential problem here. I may be wrong but I remain convinced that the traders who really make a go of it are those who learn how to trade based on price action/movement around key areas and with key patterns.
I might agree that blindly following a system that gives you defined entry, exit and MM is almost certainly less stressful, but what happens when the bad run comes (it will come, I truly promise)? Your system loses 12 times on the bounce. You are not in control though, the system that you blindly follow is in control of your dwindling equity. Then the psycological demons might kick in. Do you start to tinker, take profit too early just to stop the rot or even ditch the system entirely? Have you got the nerve to stick with it, even if none of us know whether it really has had it’s day as a profitable system or whether it may bounce back again? That’s a tough, tough period to test you out.
Price action is price action in any type of market, now and 10, 20, 30 years from now. It’ll never change and once you’ve gotten a grip on how to fathom out what the chart is telling you, you only have one more hurdle to overcome. That hurdle is the biggest one and it’s to stop that demon on your shoulder from closing winning trades too soon and not stopping the losing ones soon enough. Once you have all this nailed, you are on the road to riches.
I’m no trading snob and am more than prepared to accept that there may be rigid systems that will work ad-infintum but will always believe that the retail trader is better served to learn how to trade with the flow of the big money. That’s all we really need to do to siphon off our tiny bit of the pie that will revolutionise our lives.
There’s 2 types of psychology when you are trading:
Your psychology and the psychology of the market.
Mastering your psychology involves staying level-headed when experiencing profits or losses. We have this idea wired in our head that profits are good and losses are bad. Our perception of potential risk (which is what trading is about) depends on whether we are feeling good or bad. So problems can arise when we are feeling TOO good or TOO bad.
Then there is mastering the psychology of the market. This I would divide between momentum and support/resistance factors. Increasing momentum can be a sign of confidence in a price trend, while decreasing momentum can be a sign of indecision in a price trend. This toggle switch between decisive and indecisive is the meat and potatos of market psychology.
Looking deeper, there are specific technical support/resistance levels which the market uses to collectively confirm its own momentum. Analyzing these levels and the markets reaction to them is complex and is where a trader’s skill and experience come into play. But it is in these reactions to specific levels that give clues to the psychology of the market, and its intent on travelling in a specific direction.
That is a technical perspective of course, and we all know the fundamental factors have their own psychological implications, but even fundamental drivers will have to deal with the technical price levels at some point!
So in short, at least the way I trade, psychology is very important!
Its appears so simple:
You feel happy, you follow system.
You feel sad, you follow system.
You feel you are going to lose all your money, you follow system.
You get greedy, you follow system.
You seem to have a different idea about your psyche than most, is all that you’ve created here not come from your psyche, is all that processing nothing to do with thought or behavior.
You feel happy, (your ego tells you this is good) you follow system.
You feel sad, ( your experience tells you it’s ok) you follow system.
You feel you are going to lose all your money, (your discipline is at breaking point but) you follow system.
You get greedy, (you recognise greed and) you follow system.
For anyone who does not have a system to follow, the mental aspect is the most important thing because you will be trading with emotions a lot.
Even after creating a system, following it is not as easy as you think sometimes because no system is perfect. Without being emotional and keep following your system is only possible when you are mentally strong enough.
The reason, I think, is that beginners try to focus on profit/loss too much. And that is exactly why they feel happy or sad. The experienced traders do not focus on them much, but they just trade by following their trusted systems. Win or lose, they just use their systems. That is all.
Psychology is absolutely crucial, or lack of it if you like, just like any trader in any walk of life you cannot get emotional about your work, if you run a clothing retailer for instance, you cannot stock the items that you like - the ones that you are emotionally attached too.
So for instance you have a system - you buy clothes, you put them in the shop, you sell them and make a profit, but you will surely be selling different clothes in winter and summer, and so it goes that even though you might have a trading system, you need to instinctively know how and when to apply it.
If you think that there are systems that you can follow blindly in forex, you are totally WRONG, even ones that you can sort of follow blindly on a daily basis will need tweaking regularly to adapt to general market conditions. So it follows that psychology will always come into play, do you stick with your run of losses? Because it has always come right before? Or maybe this time there is a sea change in market behaviour? Are you changing just because you are losing or do you need to tweak your strategy to make it profitable again?
I intend to use a system for managing systems that have various success rates.
My knowledge isn’t good enough to know if you call this money management but
this is what I intend to do.
I assume most knewbies or even pros do not have such a system management system. So as a result they rely on their judgement, instincts and their emotions take over.
One system I will have is when to drop a system based on
how quickly it looses me money over a specific time frame.
psychology is one of the most important aspects of trading. If you have a TRADING PLAN it will help you reduce the emotional part of trading. I say TRADING PLAN because a system is just a part of your tarding plan. There is no holy grail, the holy grail is your plan.
perfect answer