Trading Psychology

No one can go on trading at top speed all the time!

There are many fools trading in the worldwide markets. Trading stocks, forex or commodities anyone can make these dumb trading mistakes. But to be a highly successful trader you must admit to your mistakes and act to fix your previous follies.

Trade Without a Plan

What the Turtle Trader trading book does is question the age old debate between nature versus nurture. Do genetics and people’s innate qualities predetermine someone’s success in the markets? Or is it someone’s personal experiences from learning, interaction with peers and direct personal practice with trading the markets determine success?

I was asked recently about what they should do when you are trading and come up with a major loser of a trade. A major losing trade is a trade which you just let go to run its course. It is no longer part of your trading portfolio but has migrated into your investment portfolio by default. Instead of cutting your losses short as every trader should do, by calculating the exact stop loss level to exit at, you held on with hopes that the price will reverse and start heading the direction you wanted it to go to.

Good trading is not enough to succeed in the markets. The secret to successful trading is in great money management. The skill of money management is required because the real business of trading is making money with money through controlling risk. And an integral part of great money management is a great risk management strategy. The heart of that strategy is the magic 2 percent. So why two percent?

In the stockmarket, for every trade that is buyer and a seller. In a theoretical, highly efficient market: if the seller puts in $50 into the market – the buyer would also take out $50. But we've been told a lie. Trading is a minus sum game. In reality, the seller would be really selling $45 worth and the buyer, gets $45 worth of stock. So where does the $10 ($5 + $5 on both sides) go?

I was surfing radio channels this morning when I overheard this quote from a market commentator: "...thank god for the resource boom - its masking our incompetence." As our markets are in uncertain times - Having the recent market crashes and the possibility of a recession in the United States. (I haven't been following the figures - but when are they going to call it?) [Aside: In macroeconomics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.] Where are we headed?

There are quite a few key articles about trading psychology and trading thought in MyShareTrading.com that may interest you to read. Some articles offer up tidbits of information that may help you cope through trading troubles, issues and problems. While some other articles point out issues in trading that you could sit and ponder about. Good luck with your trading.

• Psychology of Trading

Jerome Kerviel. Rogue Trader. As this case unfolds, more and more information is being revealed. He was the quiet guy with a not-so-impressive education background. Many of his peers may have been picked from the prestigious Grandes Ecoles, the Harvards and M.I.T.'s of France, and wielded advanced degrees in math or engineering. Kerviel came to work with a business school background and started work in the bank in the back office. Can we learn a valuable lesson from this case?