Trading Psychology Management
Trading psychology management is not
simply controlling your emotions, and the issues typically referred
to as trading psychology; trading psychology management would be a process
used to control the actions that you take while trading that cause
these emotions to occur, which then cause you to make trading
emotion decisions instead of trading method decisions.
What are you doing to include trading
psychology management as part of your approach to learning to trade,
as part of your approach to progressing as a trader?
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If
you are going to trade, you are going to be affected by
psychology - this is the only guarantee from trading that
anyone will ever get.
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Traders spend so
much time searching for that perfect trading system, but they do so
little to actually prepare to become a trader - preparation that
includes their learning approach, preparation that includes their
mental approach to the emotions and stress inherent in trading.
WHY Is That The Case?
Are You
Actually The Cause Of Your Trading Psychology Issues?
This would be the situation if your
approach to trading isn't one of a learning progression that
includes a continuum of: study, performance, feedback,
adjustment - with feedback being the most important component to
this progression, as it's feedback that is necessary for the
understanding of things that you are doing wrong, but cannot
determine for yourself. Unfortunately, many people will not
put themselves in a position where they will allow feedback.
This is a primary example of trading psychology management
avoidance. Since feedback is also stressful it's avoided, but
the avoidance interrupts the learning progression, which in turn
keeps the person from being able to 'go forward' as they also aren't
able to effectively learn on their own - leading to more stress and
emotion - etc etc etc.
This would be the situation if you are
doing anything while paper trading, that you wouldn't plan to do if
real money trading. Why would you spend your valuable time
'practicing' trades that are non-method, what do you think this
accomplishes besides invariably creating bad habits? Isn't the
reason for paper trading the learning of base method setups that you
can trade with real money, before you have real money at risk, don't
you want to be a real money trader?
This would be the situation if you are making a large
percentage of non-method trading decisions AND then
'excusing' those decisions through rationalizations and
justifications. What is your goal, being right or being
profitable?
This would
be the situation if you are taking a large percentage of
non-method trades like those 'missed' trade chases, those
breakouts at resistance or support, those multiple
congestion trade 'flips'. Why are you trading
non-method trades to this extent, have you not defined base
method setups?
These situations are
all
actions interrupting learning and leading to losses that come from emotion and
continue to escalate emotion to an extent where method does not exist. The outcome makes
profitability impossible, yet you can't 'blame' method because your
aren't trading method - you are the cause.
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Trading Psychology Management Objectives
Understanding The Concept Of Trading
Psychology Management
I asked the
question:
are any of the
following examples of trading psychology management: (1)
controlling emotion and stress (2) only paper trading base
setups (3) not making rationalizations and excuses for the
'things' that you do (4) knowing the strengths and
weaknesses of your trading method (5) not trading with
opinions and biases?
I would suggest that
controlling emotion and stress isn't trading psychology management,
this is too simplistic like 'cut your losses short and let
your profits run'; it's also a given. It's the remaining items
that are trading psychology management, because it's these items
that can be viewed as being method or non-method, and non-method
actions-decisions lead to trading psychology problems.
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If you are going to trade your method
profitably, you must first be able to keep yourself from
replacing trading method decisions with trading emotion
decisions. |
Trading psychology management is the conscious attempt to
eliminate those 'things' that are done while trading that
trigger psychology. This is extremely necessary in
order for trading to be based on trading method decisions,
and not be based on emotional decisions - this is also to
say that emotional decisions will not replace trading method
decisions.
Trading psychology management is the basis
for the study and evaluation of the trades which have been
done. When trading decisions are emotionally directed, the
decisions behind those trades are essentially irrelevant and
meaningless, and with this, the ability to correct trade
setup misreads and make trading method adjustments is lost.
Accepting The Necessity Of Trading
Psychology Management
Everything begins with acceptance, and again this
isn't simply acknowledging that you have emotions and stress
that you need to control in order to trade. This is acceptance
that method is the only basis for decision, and that anything else
that is 'said', 'felt' or 'done' is irrelevant justification.
Miss a trade because you don't see the setup real
time and what do you say in response: that the market was too
fast, or that you weren't prepared to take the trade? The
method answer is one of preparation: were the setup components for
'your' base setup in place, and then you didn't execute when the
setup triggered, or did the trade occur before it was setup, and it
really was too fast?
Trading psychology management will not let you
make the 'excuse'. Instead, it will 'force' an accurate
assessment, which will in turn eliminate the emotions involved,
because regardless of what you may try to say, your subconscious
knows the 'truth'. Once you have accepted responsibility, you
have then put yourself in a position where you can ask method
questions like: how can I prepare differently in order to see
my setups 'quicker' real time, and how can I include a first
continuation setup for the times that I miss my initial trade.
Trading psychology management attempts to
'cut-off' trading psychology by not allowing the 'trigger' points to
be viewed or discussed. Trading psychology management will
only allow discussion in the context of trading method; is the setup
method base and what are the components of that setup -vs- I didn't
take the trade because I thought the market was too low, or I didn't
take the trade because I was afraid that consolidation might be
coming.
- Approach To Learning To
Trade
- Progressing As A Trader
Taking a viewpoint that ultimately the way to 'control' trading
psychology is through trading method, trading psychology
management begins with the trader's approach to learning 'their'
trading method. This is not dependant on the given trading
method - this is a function of learning to trade a method.
The basic trading psychology issue with trading method comes from
the trader not understanding the strengths and weaknesses of their
trading method. Since the trader has no basis for
selectivity or discretion, they attempt to trade every 'signal'
that the method gives. By doing this, the trader has not
only diminished the profitability of their method, they also do
not gain the understanding needed to evaluate 'why' a given trade
may work, and then another seemingly identical trade does not
work. The trader's results will thus appear to them as being
random, which of course will lead to emotion and stress,
hesitation and fear; in this situation the necessary confidence in
method cannot be attained.
Consider a method based on price momentum divergences. This
would be a method where the base setup was a trade counter to the
current swing, with a concept that the swing will reverse as
result of the divergence. What are the strengths and
weaknesses of this method?
- The strength to this method is when the current swing is
actually a pullback in a bigger swing and the price momentum
divergence occurs at support or resistance. For instance,
you have a strong down market and there is a buy swing that
pulls back to resistance, which was also the last price where
there was a break down in the sell swing, and there is a price
momentum divergence high - a price momentum divergence sell
would not only be a base setup to that method, it would be
additionally selective-significant because it also was done in
the context of the strength of the trading method.
- The weakness to this method is when the current swing is
also with the market's directional strength, and a price
momentum divergence is more typically a 'pause' in that move,
instead of an indication of a reverse. In this case, a
price momentum divergence buy may be a base setup, however it is
now done in the context of the weakness of the method. The
trader who understands this could make a discretionary decision
not to trade the initial trigger of the setup and/or add another
component to the setup before taking the trade.
Trading psychology management will include the trader's
understanding of the interrelation between psychology and method,
and thus incorporate this in their approach to learning to trade.
They will realize the need for a learning progression, and that
this will begin with learning their method and the trade setups
that are most selective to the strengths of that method.
Trading psychology management will provide for progression as a
trader, as there is a plan for controlling trading psychology
through trading method, along with an approach to learning trading
method in a way that will allow understanding and adjustment to
why-what is being done.
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