If you talk to many very successful traders they know the importance of trading psychology. But they are not consumed by it. In last 10 years I have interacted closely with many successful traders, few market wizards , and some hedge fund people, none of them had ever hired a trading psychologist. And most of those people are at top of their game. The key to their success is their belief system.
But if you talk to struggling traders they often think trading
psychology is important and some claim it is the most important thing.
If psychology is an issue for you and you think it is affecting your
trading , what concrete steps can you take to resolve it.
There is lot of talk of trading psychology , but what exactly are the 3 or 5 things you can do to improve your psychology.
If you want to increase your muscles you go and lift weight
If you want to improve your stamina, you go and run daily
If you want to reduce weight you eat less and exercise more
What exactly do you need to do to improve your psychology.
There is lot of talk of trading psychology , but what exactly are the 3 or 5 things you can do to improve your psychology.
If you want to increase your muscles you go and lift weight
If you want to improve your stamina, you go and run daily
If you want to reduce weight you eat less and exercise more
What exactly do you need to do to improve your psychology.
First starting point if you want to improve your psychology is by examining your beliefs
You can only trade what you believe in.
Your beliefs drive your behaviour.
If you believe only way to trade is using mechanical methods ( that is a
belief) and as a result all your behaviour will flow from it.
If you believe one should only trade triple ETF and not waste time on
individual stocks (that is a belief) and as a result all your behaviour
will flow from it.
If you believe that only way to trade is with big risk (that is a belief) and as a result all your behaviour will flow from it.
Every trade has deeply held beliefs. The bundle of deeply held beliefs
drive what kind of set-up they will trade, what kind of time frame they
will trade and also all elements of trade like entry, exit , risk, and
number of positions held.
Beliefs are not necessarily based on science or logic. In trading there
are many beliefs based on to others pseudo-science . Personally I would
never trade based on Elliott Waves , because it is not in line with my
belief system. I believe it is not scientific and hocus focus. But there
are traders who build their entire trading around it.
Your beliefs drive your trading actions. If you want better results in
your trading you start by examining your beliefs about market, how they
operate and about your trading and beliefs behind those trading
decisions. A critical study of them might show you where you need to fix
things.
It is difficult to change beliefs. Contrary to what self help books and
many motivational authors and speakers will tell you it is not easy to
change beliefs. Beliefs persist for lifetime in some people. So much of
human behaviour is driven by beliefs. Religion survives because people
are driven by beliefs.
When you are kid you have many simple beliefs, like monster exist or
eating sweets will lead to cavities, or my parents are going to be
forever, but as you grow and get exposed to science your beliefs change.
New knowledge and new discovery leads to change of beliefs. Same thing
with markets and and trading. More you educate yourself and expose
yourself to different beliefs you will re examine some of your deeply
held beliefs and start changing them. Your surroundings and people you
interact with also helps to change or reinforce your beliefs. If you
want to change beliefs change your surroundings, friends, family and
incentive structure.
For traders same thing applies. If you hang around with traders who all
the time whine and "believe" market is manipulated, you will also imbibe
same beliefs, you will get rewarded in that setting for those beliefs.
If you change that and say start interacting with a highly motivated
trader with 10 year plus track record and no negative years , your
beliefs will change. In that setting you will not be rewarded for your
beliefs about manipulation.
First starting point if you want to improve your psychology is by examining your beliefs
Align your beliefs with market structure by educating yourself about how
markets work. Align your belief with what has shown to have worked in
the market based on history and statistics. Align your belief with a
style of investing growth, value, contrarian investing. Align your
belief with time frame (day trade , swing, position). Align your belief
with right kind of market paradigm
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