Trading Psychology

When I first started trading during my university days, I remember pondering about the true value of trading to society. I was studying engineering at the time and I saw my friends graduating to become engineers, bankers and lawyers. I personally saw that engineering was possibly one of the most noble of careers, since of course there is a direct contributor to the improvement of living standards of society (think computers, roads, bridges, plumbing, electricity, gadgets, cars and so on). Each and every occupation out there has a purpose for society. But what about trading?

I suffered a major trading loss recently and I was pondering about my profit and loss calculations. For example, a trading account can start at $500 and be traded up to something like $2000. So that’s a 300% profit on your initial investment. However, what if you have traded your account all the way up to $4000 (or have started your account at that figure) and found you’ve literally burned that trading account down to zero – in your books that would account for a 100% loss.

I am confident that many traders go through negative thought cycles while trading. Negative thoughts such as the fear of losing money and the thoughts of greed and being a money glutton may haunt you in your trading career. So how do you defeat your negative trading psychology? You have two choices: to face your negative thoughts or to simply ignore it.

An important skill to learn is how to execute a trade with confidence with a trading checklist. One of the most common exercises of a retail day trader is to “pull the trigger” or entering a trade. You look at the days news, fundamentals and technicals and when you decide to open a position you simply call your broker or execute the trade online using your software or browser. Simple isn’t it? But have you has times when you got stuck between the decision making stage and the actual exercising your decision? Have you ever missed a trade because you hesitated, got cold feet or were simply indecisive at the time you needed to execute your planned trade?

So you’ve mastered your skill set in trading: reading stock charts in a technical manner and perhaps understanding the stock performance using an understanding of sound company fundamentals. While you continue to grow your knowledge of these essential skill sets of trading through the actual practise of trading, there is another factor to consider developing: your psychology whilst trading the markets. Have you ever told yourself, after seeing a stock move in your favour: “I saw that coming (but I didn’t have any money invested in that trading idea).” Have you ever wondered what stopped you from taking that trade?

Control. We like to control things. We like to control things to a certain extent. To have some grasp of the environment around us. Most people like things to be predictable. For example: waking at the same time each day, having control of the choice of breakfast, a train or bus arriving at a certain time. Work which is predictable... controllable, where certain actions you take would produce certain results. Everyone operates within their own parameters. Whenever the unexpected arrives, it could be a pleasant or horrible surprise. The market can be predictable but it also can be an unpredictable beast. Only YOU can control your trading.

You are insignificant to the market. Remember that. The market does not care about you. Nor does it knowingly give or take money from you. The market is its own beast. A great trading genre writer, Mark Douglas once wrote in “The Disciplined Trader” that “The markets are always in motion; they never stop, only pause.” The market is in constant motion, open or closed, the field of market participants have perceptions which change with each new input of data.

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?