We frequently hear that trading is 80% psychology and 20% strategy. I’ve also read it in the forum in different threads, inparticular where people talk about the strategy being the least important part of trading and that there are profitable systems available and easy to find. But I don’t agree with this at all. I believe the psychology part is easier than finding a consistently profitable strategy.
I read in one post someone talking about trading like driving a car at a traffic light. When the light is red, you stop, when its green you drive. That’s it, simple as that. There is actually no psychology required. It’s the law, we just follow the rules and that’s what I found in my own trading. If theres no setup it’s a red light so i just sit and wait. Just like you would at a traffic light.
Funnily, I’ve also seen people say things like 'if I taught you my system, you wouldnt be able to trade it. Which I find very strange because if you can trade it then so can others. They just need to follow the rules. Once I found a consistently profitable system, I had the conviction to trade it with no fear just like driving a car. That part took me years, the trading itself just automatically fell into place. I have no need to revenge trade or have fomo because I know another trade is just around the corner.
I’d be interested in getting other peoples opinions on why we place so much importance on the psychology of trading.
Most users struggle with the aspect of putting their own money at risk. That is the scariest thing a person can do especially when there’s uncertainty if you’ll make any profit or lose it all. The strategy part is easy honestly, what happens when you get a few losses? You’ll say this isn’t working and try to find another way or approach I think that’s the bigger problem. When individuals face a string of losses they automatically think the strategy doesn’t work anymore. The psych part if you can get it down packed I feel you can use any strategy to eventually make money.
Psychology is what drives the market. Fear greed complacency and stupidity has for centuries, been responsible for all of the major boom and bust markets.
If you read “The Way of The Turtle” you will soon understand that simply following rules is not the be all and end all to being a successful trader. Not all the turtles were successful purely because fear and uncertainty meant that some of the turtles could not follow the rules no matter how hard they tried.
However I don’t know if it is as much as 80% 20%. That could be debatable.
What one needs to learn about trading psychology is all out there for free.
Most new traders lack the patience and discipline to be profitable with any strategy and blow their account long before they ever could learn it. For most new traders the psychology behind markets and ability to stick to a plan is a major problem. I am happy you don’t fall into revenge trading, this is a good sign for your future as a trader. Unfortunately, the large majority fall into trading way too large when they have a string of winners and become euphoric and then they hit a string of losers and continue upping their position size in an attempt to make their money back until they have no account left. Trading is then deemed by them as a scam and they never attempt it again.
As far as it being hard to find a profitable strategy I have traded quite a few over my career and pretty much all of them could have been traded profitably even though at first I failed to trade them profitably. Once I got a good grasp on trading psychology I was able to realize this. For me personally pyschology was the missing link.
Heck, You only need to be right about 40% of the time. It’s not hard to find a strategy that does that. As a matter of fact I’ll offer one up right now. You can trade between support and resistance areas plotted on the daily chart.
Assuming the trade starts going your way and you don’t get stopped out, have an ounce of patience and hold the trade as it approaches the opposing support resistance area to see if it breaks through instead of immediately closing the trade. If it does break through, let that sucker run. Remember that broken support typically becomes resistance and vice versa and have the psychology to let it work itself out. If it pulls back to the area after breaking through and gives you another trade signal, trail your stop into profit and add to the position.
I have had trades near +50R riding a trend and pyramiding the position just like this.
If your account is large enough a few trades of this size and you won’t even need to trade much the rest of the year. Even if its a smaller account and you work as well as trade, one trade like this could still be a nice vacation or retirement fund contribution. In my experience the markets offer a few trades with this type of potential each year. The rest of the time is just sitting on your hands and waiting. Another area related to pyschology where many new traders fail.
Not everyone has big problems with their trading psychology and you seem lucky enough to be one of those people. I wish I was more like you in that regard when I started. Haha.
Haha I’ve heard hedge funds or trading substitutions have an in house psychologist to work with their traders. No doubt they’re making a great living! I normally just download books so it’s a bit cheaper lol.
Do you think the people who get gamblers mentality or chase losses only become like that because they dont have conviction in the long term profitability in their system? I feel if they knew in the long run they would make money they wouldnt over risk on trades.
I guess it comes down to how much work you put in to analyse and back test your strategy.
I also went through all the mistakes people associate with trade psychology but I believe it was because I didnt have a profitable strategy.
Sounds like a simple system, I have a few questions before anyone can trade it.
How profitable is this system?
What do you count as support and resistance?
When or why do you enter the first time (before if it starts going in our direction)? Do you enter on touch of the support level?
How much % do we risk per trade?
Where is your stop loss?
When would you add another position?
When you do add where is the stop loss for the second position?
What is the ‘trade signal’?
Where do you trail to, each higher low for a buy?
What is the maximum number of additional positions you would add?
When would you add additional positions after the first 2? is there a seperate setup for them as the market may not go back down to a previous resistance turned support.
Do you have an example of a chart with a trade setup?
There are a lot of intricacies that come with a profitable system. If it is mechanical or has discrete rules then its possible to control your emotions. If it becomes discretionary then I think it may be more difficult.
Did you revenge trade? Did you blow your account? Did you fail to practice money management or generally not follow your rules at any point during this unprofitable system? The system very may well have not been profitable which I hope you discovered back testing or at least demo trading, but an unprofitable system does NOT cause you to use poor money management, blow an account or revenge trade. You would simply lose a measured amount of money slowly over time and hopefully at some point say this system doesn’t seem to be working under current market conditions and look for something else. And you wouldn’t even be emotional about it. You can only lose, even with an unprofitable system, what you consent to losing.
It looks to me like you have a lot of study and screen time ahead of you to find those answers out. That’s what building a strategy means. But all jokes aside I will try to address some of your questions.
I developed my trading system through trial and error and hard work. I had mentors that pointed me in the right direction but I don’t place stops or manage trades 100% like they do.
I can’t tell you how profitable the system will be for you. I don’t know what your account size is or how selective you will be with your trades. You’ll probably mark some support and resistance areas that aren’t very good in the beginning and have some failed trades that could have been avoided. (This is how you learn) Having 15 years now in the markets my ability to plot support and resistance and read general price action is very much improved from when I started and even 5 years ago.
When or why you enter the first time is something you will have to research. Spend time on the charts maybe you like trading “pin bars” from SR areas. Maybe you like engulfing candles from a SR area. Maybe you view both as valid signals (I know I do).
A very effective entry signal for adding onto a trade is a strong daily (5pm new york) close through your SR area. (This would show that the SR area was invalidated by the market.) I often take a “blind” entry with a close above an area or you could wait for the retest and another pinbar or engulfing bar to form or you could even enter half ( or a quarter) of your normal position based on the close and another half (or quarter) of your full position size on the retest if you get it.
I know you probably won’t like this answer but I had a mentor that used to say “The stop has to be where the stop has to be and the juice must be worth the squeeze.” In other words where is your trade idea invalidated? That is where your stop goes. You’ll need to do some back testing here.
Many people would say a few pips beneath the pin bars low, or beneath recent lows. If you don’t like setting your stop based on price action you could try and do some form of 1.5 * ATR if that is what floats your boat.
For me stop loss placement is simply looking at the chart and saying if I have support at this level where would my trade idea be invalidated? Set the stop there. On a pin bar setup for example I would set my stop a few pips below any recent daily wicks that pierced my SR area but price ultimately closed the day back within the SR. Those wicks show demand and a wick means nothing only the close. Everyone hates getting stopped out by a wick and then seeing the trade take off without them so set your stop 5-10 pips below not just the entry pinbar’s wick but all recent wicks that pertain to your SR area. Then if doing so gives you a good RR ratio (the juice being worth the squeeze) take the trade. Otherwise the stop being where it “had to be” made the juice not worth the squeeze and thus doesn’t fit your plan.
Another thing about stop losses that you may not like because it is not mechanical is that there is a place where your trade would be invalidated when you first enter and that is your Hard Stop. You set your stop there. Then think about why you took a trade if it was because you thought a an area would hold then a daily close through that area (against you) would be for me a signal to kill the trade early. My win percentage is low because I kill trades quickly when they don’t respect my trade idea instead of hanging on. It’s nothing to make up a portion of a percent of your account on the next trade. I keep my winners BIG and my losers as small as possible and win rate means nothing to me. I don’t even keep track of it at this point in my career I just look at if I made money each month.
As far as how much you risk per trade that is up to you and your risk tolerance. I would say 1.5-2% of you account should be your MAX risk at all times. You will inevitably have strings of winners and strings of losers. Trading is about surviving those losers and less so about the winners.
I understand that my answers may be frustrating. Trading can be frustrating. I never had anyone explain to me all the intricacies of there system during my whole career. Some things you just have to learn through doing. All the successful traders I know use their experience in a discretionary way and no that should not make you emotional. You still can only risk say 1.5 percent max per trade and the minute your stoploss is hit you must be out of the trade. If you choose like me to close any trade once it closes through your SR area (against you) then you have to close the trade. No discussion.
You have to follow the “discretionary” rules you make for yourself. This isn’t about trading off of hope or feelings you very much so must have rules.
The answers the majority of your questions will be answered through chart time and some intense reading about price action. I know it is frustrating but you can develop a strategy for yourself. It takes time, back testing, and study. And then years of market experience. But it can be done.
I too have just started looking at this strategy. Finding SR zones is definitely a challenge and will take practice. Yesterday I pulled up a chart and plotted a few zones, then when I was done I looked at it again and saw like 24 lines, lol.
So the challenge is learning which ones are most important. I will watch these areas closely over the next few weeks and I’m sure things will become clearer. But I do like this idea and think it could work well for me long term.
i d say pick a market aproach and stick with it. the more u practice the more u get confidence. imo the psichology of it all comes from not having confidence in ur trading aproach. always trying new things, always experimenting will get u knowhere imo. yes, do that after u are consistent, but untill then stick to something that u see gets u results and use that aproach and refine it and fine tune it over and over again, prectice makes perfect and to get consistency imho u need repetition. ofc not doing the same thing that doesn t get s u results over an extended period of time and expect different results cos that s madness, but be consistent in ur aproach and u ll see how easier it gets after a while of doing only that. this is just my rant, my opinion, but it s what helped me to better grasp market conditions, and stay on track with my aproach no matter what. u all know what they say, if can t trade then teach ahaha… and it s almost true in most of the cases. consistency is the holy grail in trading as for what i m concerned, and the only way to get that is by repetition. and by repetition u get the confidence in ur trading aproach which will soon rule out the psichology of it all. don t know if it makes any sence to u all, but it makes sence to me anyways, have a good year guys and let s try to finish in green this hole decade cheers
Back testing and demo trading does not always result in a profitable system. Sometimes it’s worked then but on a live account it doesnt maybe because market conditions have changed or maybe the time tested was not long enough etc. I also used systems from books and online. No matter how much I changed something and it would work when I tested it. On trading a live account I was making continuous mistakes eg revenge trading, changing the system, taking more risk because I just didnt have the conviction that it worked when I had a string of losers. Or maybe not the patience to see it through and my psychology would fail me. The problem with psychology is you cant consent as it’s like an automatic or subconscious reflex. You know it’s wrong but you still do it lol. You talk yourself into it, ‘oh I can afford to risk this trade’.
Lol. I thought you were actually sharing a profitable strategy. When you said it’s not hard to find a profitable strategy what you meant was you need years of experience (which I would mean to be hard). I’ve read many threads where people say it’s easy to find a profitable strategy but when asked they cant back it up. It’s always a very generic answer. The strategy you mentioned is so discretionary that you couldnt even hypothesise how profitable it is. I understand you’ve worked hard and therefore maybe dont want to share it. I understand that. Like I said I think the strategy is the hardest part and you’ve also proved that point. The psychology falls into place with conviction in the setup and following set rules.
He did, and it’s a simple one. But it’s up to us to make it work. He could share every detail of this strategy step by step and walk everyone through an entire thread full of successful examples and perfect setups, but in the end how many people do you think will actually profit from it long term? My guess…5%, and that’s being generous.That’s because most aren’t wired for this psychologically and lack the patience and discipline required to play the long game.
This question was the exact reason for this thread. I feel that developing a profitable strategy is harder than controlling your emotions. People saying profitable strategies are easy to find but there are no details. I could say ‘the 20ma and 50ma crossover is profitable but you need to make it work’. This is not going to build any confidence for others to trade it and therefore discipline will go out of the window when they get a string if losers. If I tell you how to trade it and when to trade it and how profitable it is then the person can trade it with conviction. It’s much less likely this person will become impatient or lose discipline as they know it works, just follow the rules.
Pschology is the first thing people blame and say you need to control that but people can follow rules if a system is explained properly. A lot more than 5% would be successful in that case. It might even be a circular discussion… but you have to start somewhere
Enduring a robust stragy can be difficult because robust strategies don’t make pips every month, maybe there are 3-6 months of DD .
You need a lot of patience so psychology is needed.
Having said that all the patience and the discipline of the world won’t turn a losing strategy into a winning one.
You pick a ruleset from your favorite blogger/youtuber, you code it, you test it and in 99.9% of cases it will lose pips every year.
Psychology is the first thing people blame, but how many of them take the time to fix the problem? Most people will blame psychology but on the next day they will go back to the system and try to figure out what went wrong with the system, and what about the psychologic part? How many of them take the time to fix the problem.
I once saw a guy in a video saying that trading is an art and people try to turn it into a science, and i think he is right, people try to put it into a science and into a system.
They want the system in order to take the psycologic factor out of the way. You do this when you find a setup and repeat, repeat, repeat, you place a 20 pip stop and a 40 pip take profit, you have a 1:2 RR and all should be good.
Why do most fail then? In my opinion is because a trader should be flexible, sometimes you have to be greedy and sometimes you have to control and reduce risk, Sometimes market conditions are good, sometimes they are bad, sometimes there is more volatility some times there is less, sometimes market will range more, sometimes will trend more. This system that people hope to find and repeat for a long time to become rich doesnt exist.
Trading is very hard psychologically because you will have to trust more in your future decisions and in yourself instead of your system. Your system will fail at a certain point the question a trader faces is if his decisions will fail him at some point in the future.
Nothing is guaranteed, there will always be that doubt in your head.
Very good point and I have to agree that trading is an art not a science.
Mechanical systems (probably more the science of trading) are great to start with because they are SUPPOSED TO take the psychological aspect of trading out of the decision making process. To a point this works but it limits the ability of the trader to take advantage of the unpredictablility of the market. The other problem is that the rules surrounding the mechanical system take diligence and discpline to apply and that can be very difficult for a lot of traders especially newbies.
Discretionary traders which employ more of the art of trading which allows for instinctive re-action to what buyers and sellers in the market are doing and then profiting from that market volatility. There is something to be said for a gut feeling, something that most experienced and successful traders are able to use.
anyways, have a good year guys and let s try to finish in green this hole decade 
cheers