Trading Psychology

Trading Psychology Problem Discussion



Is Trading Psychology The Cause For Trading Losses

Is it overstated when it is said that trading psychology as the reason for trading losses is 90% trading psychology, or any similar high overweighting of trading psychology over trading method? To say this also seems to be saying that regardless of method, a trader with control of all emotional issues would be a profitable trader, and I can't accept that as the case.

If a trader was able to trade 'any' method profitably they would do so because of (1) their understanding of the method's inherent strengths and weaknesses (2) their ability to maximize these strengths and minimize the weaknesses. But regardless, how could a trader ever overcome any amount of trading psychology related issues without this complete understanding of method and how they intend to trade it, and thus the resulting confidence that they will be trading profitably.

Trading psychology has become so widely 'discussed' and 'promoted' in books, articles, consultants, etc - that it has become available as any necessary excuse for losing and not taking responsibility, as a trader keeps trying to trade against the market and against themselves. For instance, keep trying to buy the bottom of a strong downtrend, or keep trying to take indicator trades inside of a range that isn't wide enough to provide a partial profit; is this method, or is this psychology?

Sure, all of the trading psychology issues and emotions regarding losing and being a loser are going to surface, but I think the root problem here is one of method, and then its interrelation with psychology. Will the trader realize this, chances are a psychologist will have another answer, to them this will still be a psychology issue with a root cause of WHY is the trader trying to pick the bottom. I think we need to separate psychology from trading psychology, with a concept that any general psychology issues will be 'brought' with the trader and certainly surface while attempting to trade, but if these are not a root problem, trading psychology issues are going to be best controlled by method understanding.

FIRST - separate tpsych from personal psych
controlling tpsych through method
sabotage
causing your problems and the things you are trying to avoid

Controllable Mistakes

decisions that you can consistently make because of repetition and evaluation of the tradeoffs
ignoring ticki and not realizing that enter against - especially a reverse with a ticki counter to the previous move
missing a trade and not looking for a next trade
missing a trade and taking first indicator reverse
forced trades - no market alternatives
emotion -vs- consistency
random exits - trading to get back to breakeven


discuss trade scenarios on chart below
trade from initial entry until reverse gains 24 ticks on initial entry - if trader A makes 4 ticks do they have a profitable trade

Additional Charts Discussed In Audio

note: charts are thumbnails - can be expanded by clicking on them

Wasted Trades

eliminate trading decisions
eliminate wasted trades
profitable trade -vs- good trade
some amount of room must be given to a trade - even against your exit
eliminate trap trades
overtrading a range that isn’t partial width

Consider: entering a trade that you really don't have a reason for or are committed to then on the smallest retrace you exit the trade and then it goes your way - AND then you realize it actually was a good setup.

Missing Trades

what is a missed trade
WHY?
missing trades on purpose
preparation – when do you know you have a setup
increased preparation time
where is the next trade -vs- I missed the trade
where is the next trade -vs- waiting for the first reverse

Consider: most traders think trading is fast chart momentum trades in congestion but miss filling the winning trade that breaks out and never get in until the next congestion or until there is an indicator reverse.

Additional Trading Psychology Considerations

price -vs- bar noise

focus -vs- awareness

Consider: trade reading ‘slows’ down price movement by turning focus to decision/actions at a price instead of a constant watching the last bar/tick

trading at repeating prices instead of constant adjusting by a tick as if this was of primary significance

again where the trader is placing focus

overreaction to a tick – creating whipsaws and emotion that could be eliminated

Consider: 1 tick and bid/ask – what if last price is the bid and exit isn’t hit but if the last price is the ask the exit is hit.

trading speed and access through available platforms allow for additional patience and timing without constant risk of ‘missing’ a trade

trade what can define and understand in terms of setup-risk

chasing a trade

fear of missing a trade

reverse trap trade – counter trade because ‘missed’ direction trade which loses then reverse to direction trade which also loses

Consider: I do not care about best price as much as best setup clarity and best movement out of the trigger. I am not afraid of missing a trade and not having another entry. But I do not want to wait any longer than necessary.

maintaining focus with ‘large’ number of trades in a range that isn’t partial width

fear of missing a trade – and still missing it

maintaining trading confidence after series of consecutive losses – again inside a range that isn’t partial width

maintaining extended focus staring at ticks

impact of consecutive losers

it's only 1 trade out of a series of trades

loss-loss/win-add win