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Psychology

What it means to be a "Trader"...Fact; - The top 3 Hedge Fund managers, in excess of +11,000% net lifetime earnings, have no more than 3 trades, total, constituting >85% of their total, life-time earnings. - Every last one of the top life-time earners ("Trading Legends") - in excess of +11 000% (eleven thousand percent net return(!!) - have made their fortunes in Commodities and FX. (Soros, Druckenmiller, Jones, Lewis, Kwane, Trout, the Richies, etc.) No stocks / equities / or similar dog sh#&t! - None, nada, zero! Now, most morons attribute the above facts to the "power of leverage". Are you friggin kidding me?! That is absolute nonsense! In what universe does "leverage", in itself, contribute to trading success??... But if you want "fast money", know this; Commodities and Forex have real hedgers and therefore it is a positive sum game for speculators. Whereas stocks?... It is the same idiots trying to make money ripping each other off. It is truly a zero sum game, a pyramid scheme. To make any money on any of those bags of odorous excrement (20x, 100x, 200x earnings) one would have to not only hold them for years but also *** be right about the trade ***! Otherwise what?... Are you going to hold the bag on some dog crap for 5 years, at a time, just to learn that you were wrong?! Is that the plan?... At the same time a Commodity or a Forex trade will provide you with the "meat of the move" in days, weeks or a couple of months, max. You will at least know, right or wrong, about the trade's prospects, aeons before some garbage stock trader ends up holding the bag for the better part of his natural life. Traders are like snipers; They sit in wait for the right moment and are there for one, singular, solitary reason: For the kill! No more, no less. Whatever it takes. What Traders are not; A) Traders are not "investors"; B) Traders are not "scalpers", nor "grinders"; C) Traders do not exist to "forgive", to "let off the hook" or to "give back". Traders have zero problem to tear you from limb-to-limb and to eat your still beating heart in the front of you, as you watch. - And all that before ever breaking a sweat. ... because anything short of that is a loosing proposition! E.g. "trading" is not a forgiving business so you better be right! Man (as in: The Species) has two (2) fundamental and overwhelming driving forces: Fear & Greed. (Man is also territorial! E.g. trading is not a team sport.) Every time you enter a position you are taking on massive risks. That is the name of the game: The buying and selling of risk. Thus, being careful and selective is much regarded as in good form. Here is what you are up against; images-wixmp-ed30a86b8c4ca887773594c2.wixmp.com - In 2019 the 5 major FX Dealers have booked $147 Billion US in profits; - Top life-time earners, between 1980-2010, made: +11 000% (eleven thousand) - Total; - Top earners between 2010-2020 are currently earning: +3000% (three thousand) Annually(!!); - A typical, top FX Dealer (UBS) has ~210 traders, working in 3 shifts, 24/5; - A top FX Trader clears $6-$13 Million in bonuses, annually; - The average Trade Portfolio size (per trading floor) is $4.7 Billion US; - The average dealer risk limit per $100 Million is 3.5 pips. In short, these people do not get up every morning to let you take their Rolls Royces or to have their wife leave them because they can no longer afford the private schools for their children. They do not go to the office, day after day, to let you load your $50, $500, $5 Million, in the correct market direction, with nice tight stops, for you to sleep easy because little risk is involved. No Sir! Put yourself in their shoes! They must buy when you want to sell and vice versa. So when you spot that big, one-way move... So do they! - But they have no choice in the matter because that is what dealers must do - e.g. the opposite of what you have decided. So how could they ever make money? Simply, by taking that nice, tidy, one-way, mega move and shove it back up where the sun don't shine, as often as possible, all along the way. It is simple as that. So the next time you sit down in the front of the computer to make a trade just remember who is on the other side of that screen. Ergo, you better be ready - by whatever means - to do the same thing to them as they are sure to be about to do it to you! "... and when you see it, you bet the farm!" - Stanley Druckenmiller
Education
by Nemo_Confidat
4
Mental Tips of TradingIntroduction - To lower stress levels, trade less and get away from watching every single price chance. Day traders could trade only the open and closing hour, swing traders could just take opening and closing signals. You could go from every tick to just checking in every hour or so if you have options or hard stops in. Most of the days, trading is random noise, and randomness will cause stress. Focus on your timeframe, and only the quotes that really matter when they matter. How to not be stressed while trading? - Only trade when the odds are in your favor. It is much less stressful trading this way. - Do not blame yourself for losses if you followed all your rules. The market giveth and the market taketh, just keep taking your entries and exits. - If you don't know what to do, DO NOTHING. - Do not listen to any unsolicited advice about the trade you are in. Follow your own plan and shield yourself from distraction. - Know yourself as a trader, and only take your kind of trades. Take trades that will leave no regrets because they were good trades, regardless of the outcome. - Believe in your ability to follow your trading plan. You must have faith in yourself to lower your stress level. - Keep your EGO our of your trading, run it like a business, with the profits and losses as your focus and not your ego. Coherence - Your brain and heart works the best when there is synchronization between all systems, this is called 'coherence'. Researchers throughout the '90s established that with every beat of the heart, intricate messages are being sent to the entire body. - As people experience emotional reactions like frustration, irritation, anxiety, or anger, heart rhythms become chaotic, which interferes with communication between the heart and the brain. - If you are not in tune with yourself, you can cause DORMANT fears of failure to awaken, and you will undoubtedly miss good opportunities through making IRRATIONAL trading decisions. Emotional Intelligence in Trading - The Emotional Quotient (emotional intelligence) is our ability to recognize and assess our own emotions, to manage these emotions in order to achieve our purposes. - EQ is also the ability to discriminate between different emotions of the people and label them correctly, by using the emotional information to guide thoughts and behavior. @here How does this apply to trading? - Emotional intelligence makes a great part of a trader's performance. It has proven that the human brain has the power to increase EQ by effort (trying, being persistent, following rules, backtesting strategies) and education (studying, performing research). - Self-awareness: Every trader should be aware of his/her qualities, strengths and weaknesses so then he/she could manage better his emotions and take right decisions when trading. - Motivation: Very well motivated traders are more challenged and are more abled to take right decisions in the market. - Self-control: Controlling emotions is a crucial element of the trading process. It is important for a trader to regulate his emotions by targeting them to a proper and emotionally balanced activity. - Being able to monitor our own emotions is perhaps the greatest skill we can have. Traders who can handle their negative emotions are the most successful ones. How to stop being impulsive and over-trade - Did you know that there is an actual ANATOMY to 'Impulsive Emotional Hijacking'. Wang was prepared. After careful observation and charting, he planned his trade - and knew what he was looking to do. Now he is going to trade his plan. He brought his charts up and declared, "I'm going to make money today.", he said it with the confidence of his winning mindset as he glanced at the P/L of his trading account. Just sitting there watching the pre-market activity, Wang could feel the excitement building :vince: . So much opportunity, and it looked promising. Wang was ready to take advantage of it, this time he was going to build his account up -- not blow it up. As the market opened, he sees that TSLA FB SPY just taking off like a rocket. "Man, that was sweet. I could have rode that one!" He muttered to himself as his excitement grew. He IMAGINED what the money would look like in his trading account. It felt good, then he saw another potential trade. "There was real opportunity this morning." he thought. Wang sits on the sideline while others were taking advantage of the action, and that got his competitive JUICES flowing. Then another one came up, not willing to let another one get away from him, he jumped on this one. Almost immediately, it took off. "YEESSSSIRRRRRR" Then suddenly it turned against him, heading for his stop. He caught his P/L in the corner of his eye taking a nose dive. WANG felt a surge of energy and resolve flow through him, "It'll come back. I'll give it some more room, I can feel it." So he moved his stop to let this one play out. It crashed right through and stopped him out. Now, after this loss... He wanted to get even, so he quickly found another setup that looked good to him and jumped in ready to win and vindicate himself. That trade turned against him almost immediately and stopped him out, sounds familiar? Over-trading, or impulsive trading (to be more accurate), is a common problem. It blows up trading accounts too many times to be counted. It is common 'wisdom' that a trader needs to plan his/her trade and then trade his/her plan. But just like WANG in the example, traders end up jumping into trades that they have no business being in. They know what to do... They just cannot do it in the heat of the trade. It's perplexing. WangYesterday at 7:56 PM Notice, initially, WANG starts with the best of intentions. He does his homework, studies his charts, and planned his trade with the intention of trading his plan. We know that he did not do that in the heat of the trade, but we do know what he started out with a credible plan. Then something happened, but what? He started out by ATTUNING to the market so that he had a feel for it. Then he took the first step into his personal abyss - He declared "I'M GOING TO MAKE MONEY TODAY." This is an affirmation and visualization that many traders make as they prepare for their day and it is a mindset that they keep engaging in throughout the day. Their minds are focused on making money today, you can hear the urgency - TODAY. The problem with this line of thinking is that you DO NOT control whether you win or lose in trading. If you keep pushing that you are going to win, when you have ABSOLUTELY NO CONTROL over your declaration, what do you think is going to happen? Your survival brain eventually REBELS against you. Let me take you down the rabbit hole again --> WANG is an alpha personality, he believes that his will should prevail and that he can make winning happen. He came by that attitude honestly as he was a man who always strived for success, and now he has focused that energy on trading. In his other approach to life prior to trading, he knew how to win, to make things happen, and (especially) not to lose. It served him well, until now. WANG's identity is built around winning - not managing probability. His determined and forceful attitude molded his personality. The problem is that this mindset, forged by winning repeatedly, did not prepare him for trading environment where randomness of the markets prevails. The toughest part, though, was losing. WANG hated to lose, and that trait manifested when he revenge traded. His grit simply would not let him lose, he would attack even harder and determined to get his losses back no matter what. What I am asking YOU to see is the short fuse on the alpha's winning mindset. It happened so fast and the hijackings was so natural to him that he never noticed it - until after the damage was done. Yep, he done blew up his account. :cryroll: How do you fix this mentality in trading? It comes down to self-mastery, where winning becomes focused instead solely on landing on the right side of the probability and losing only means that you have landed on the wrong side probability. Are you ready? ---> - While trading, there is no thrill of winning, nor agony of defeat. It was only probability - either way. What matters is the mind you bring into the moment of performance. This is the game changer, it is the psychological edge where you are no longer PROVING yourself. - You are only performing, that is the mind that gives you the edge of what's possible. A new kind of mentality has to rise from the impulsive blunders of the past. This one is rooted in PATIENCE. - Instead of stalking opportunity, the new WANG waits in ambush for the opportunity to COME TO HIM. Like I always say, be a sniper and not a machinegunner. Trading is about embracing uncertainty, while the brain you brought to trading is wired for certainty, prediction, and control. Rewiring your brain begins with calming the emotions that coordinate action/behavior between the trader and the environments of the market. "I was doing so good, my mind was in the zone and it felt like a state of flow. I made $1200 in the morning and stopped for the day, just like my trading rules dictate. Couldn't have been happier. Wow, this was really working!" The very next morning ---> "I'm in a good mood and ready for the day, then I turned around and gave all my profits back - and then some. It's baffling, I thought I had my head together but before I knew it - I got stuck into a vortex that sucked capital right out of my wallet. Why does this keep happening? It's a common problem. - Most "students" of trading seek consistent profitability on a regular basis. You get some momentum going and begin to see your trading gel. Your confidence begins to grow, showing that you can, indeed, make consistent money by trading. Then it just blows up right in your face, not only do you lose the gain you made - you lost some more. Often a whole lot more, one minute you have a growing confidence that you can do this trading thing. The next minute, that confidence burns down and frustration grows from the ashes. So, what's behind the self-sabotage? - Winning makes you feel good, and you want to win - to make money. When the trader in the example "wins" $1200 in a single trade, it made him feel good. Why? Because winning triggers a hormone called 'dopamine' (at the center of the reward chemistry of the human brain), and that is the problem. - The euphoria of "feeling good" is an emotional state that causes thinking to become skewed into believing that the good times are going to roll on forever and that he/she (trader) has the power to control the outcome of the trade. However, winning (in this trader's understanding) produces this sense of power that is dangerous to the management of uncertainty. - The emotion of euphoria that appeared when the trader won also warped the kind of thinking and analysis that he/she was capable of producing as a trader. - The winning trade led not to power, rather, led to euphoria --> over-confidence --> then caused the trader to believe he was making the winning happen. - Factors that give rise to an effective trading mind are: Discipline ; risk management ; courage ; self-soothing ; and impartiality. Feeling GOOD has ABSOLUTELY NO PART in a profitable trader's mind. First thing to accept as a trader is that "feeling good" is not desirable as a trading emotion. - You have to be able to notice if and when "feeling good" has started contaminating your trading mind, and that is way easier said than done. Many traders believe that if they could get past their fear of loss, they would not have problems in trading. But you would then only be able to deal with losses, you need to learn how to deal with winning and the over-confidence that can easily develop when a trader starts winning. You have to learn how to deal with the euphoria associated with winning. It's just the evolution of the trader beginning to adapt to the demands of successful trading. Most impulsive trading is primarily rooted in the emotions of LUST, rather than 'greed'. Many traders experience the awakening of 'lust' (wanting more, more, and more) after winning and pocketing in money. Greed is about wanting more than your reasonable share, so there is a balance between lust's "wanting more, more, and more" and greed's wanting more than your reasonable share, which plays into the phenomena of "giving it all back and more". The potential of a successful trader's mind is in the balance and mastering the mind. You can be the designer of the mind you bring to the engagement of uncertainty and risk, rather than its hostage. No matter what you have been told, the brain/mind that you brought to trading CANNOT bring you success in trading. In fact, it will lock you into failure. Rebuild the brain/mind against the WILL of your survival brain, because it is built for SHORT TERM SURVIVAL and gives you the signal that you need to be in control which you cannot due to market's uncertainty. Your survival brain is freaked out by the uncertainty, risk, and speed of day trading. You experience this as fear or aggression in your trading that takes over rational thinking in moments of stress. This will not change with experience or trying harder or trying to exert control. -- Your brain has to be RE-TRAINED. If you can get your brain unstuck, your emotional part of the brain can be developed to engage uncertainty, risk, and the speed from a patient and disciplined response rather than the reactive response that is common among traders. 'Emotional Regulation' and 'Mindfulness' are the essential skills needed in order to adapt your brain/mind for performance in trading. When trading, focus on what you can control. Let your MIND manage your performance. We all understand that losses are hard. But the year is young, and there are lots of opportunities ahead to make it all back. The only thing is that the opportunities will ONLY appear to those that are PREPARED and able to MAINTAIN a sober mind. Train yourself to approach trading in a way that's sustainable as opposed to letting it be something that consistently plays with your emotions and wears you down. Meaning... 'Risk management and 'mindset management'. It is crucial that you understand the market is NOT A CASH COW you get to milk whenever you want. The market is its own beast, remember that. There comes a moment when a "struggling" trader has to acknowledge that what they are doing is not working. Your trading performance is not going to change until this realization humbles you to the core. You have no control over whether you win or lose - but most traders are consumed by winning and losing. They are possessed by something that they can never control. What you can learn, though, is to control the mind that you bring into trading performance. Let go of the illusion of 'control over outcome' and embrace building the mentality that you need to be managing uncertainty.
AMEX:SPYEducation
by TradeAtEase
46
6 IRRATIONAL BEHAVIOR AND THINKING PATTERNS - THINKING CLEARLY !Hello everybody and welcome, I hope you'll have a pleasant time reading this. And I also hope it'll somehow be useful to you. --------------------------------------------------------------------------------------------------------------------------------- Let's face it, your biggest enemy in trading is not the market, not the hedge funds, not the banks, it's you. Thinking clearly is one of the hardest things to do when trading/investing. We've all, at least once, done something and asked ourselves afterwards, "why did I do this ?" or "how didn't I see this" ? Did you know that this is called the "Hindsight bias" ? Yes, it's a well-known phenomenon in psychology. Before we begin, let me explain the diagram. Developing clear thinking takes time. You'll find it very hard at first, but as time goes by, if you keep your focus on it, you'll notice your performance increasing exponentially (this also applies to your life in general !). --------------------------------------------------------------------------------------------------------------------------------- 1. Confirmation bias The confirmation bias, is the distortion of information to make sure that it fits our beliefs. Let's think about it that way : if you think that the world is an awful place, you'll find facts to back your belief about the world. What happens when you encounter a fact that denies your belief ? You either ignore it or distort it in order to make it fit your belief. It's about the same thing when you're trading. Sometimes, especially new traders, hold bags, meaning that they hold on to losing positions for a long time, hoping for a recovery. No matter what, the trader will find himself putting more weight on the information that confirm his belief (that he's right) and will ignore the information that refutes it (that he's wrong and should sell). In order to avoid the confirmation bias, you need to weigh every new information the same way . 2. Hindsight bias The hindsight bias, is directly correlated to the confirmation bias. We tend to understand things better in hindsight than we do in the present moment. To take the previous example of the trader that holds bags a little further : what happens when the trader decides to cut his losses ? He immediately says : "Oh, all the information I had indicated a clear downtrend, why didn't I cut my losses earlier ?". The hindsight bias. In hindsight, everything appears to make sense. In Trading, the best way to avoid this bias, is to react to the market information that's available to you, rather than trying to predict it or to hope for something to happen. In other words, when you have an edge, you trade your edge and you remain open to any information the market gives you, be it information that confirms or invalidates your initial belief. 3. Loss aversion We feel better losing nothing than winning something - say hello to loss aversion. Overall, humans are more sensitive to negative things than to positive things. Think about how much we complain. Sometimes, it's justified, but often it isn't. We complain about things we don't have, but omit to be grateful for everything we have. In trading, loss aversion, is the pattern that makes us hold on to a losing position for a long time. After all, an unrealised loss is less painful than a realised one. To avoid loss aversion, you have to work on your mindset and start thinking in probabilities. 4. Outcome bias This is another very, very important psychological trait that messes with our trading. Human beings tend to judge a decision by its outcome, rather than gauging the decision process. In the best case scenario, you have an edge and you act on that edge every single time you see it appearing on a chart. The problem is, because trading is all about probabilities, sometimes, your edge won't work. Does this have something to do with the process ? Absolutely not, it's just how trading works. But, when you aren't aware of it, you start questioning your trading strategy, even though, the outcome is not correlated with the process. Just be aware that the outcome is not a reflection of the process . 5. Action bias Whenever we do something to compensate for our inaction, we fall for the action bias. We rather do something useless than nothing at all. If you watch football, you've probably witnessed this bias a lot of times. When the opposing team shoots a penalty, the goalkeeper, either dives left or right, even if chances are that the opposing player shoots right in the middle. Why ? Well, diving looks way better than just standing still, whatever the result is. As Jesse Livermore would say, " Money is made by sitting, not trading ". Considering this bias, for us human beings, it is hard to sit and do nothing. Just think about what you do when you have to wait, be it in a waiting room or at the bus stop. This could be an explanation why most traders fail. They struggle letting their trades unfold and get caught into thinking that their inaction is harmful. Eventually, they end up overtrading, taking trades they otherwise wouldn't, to avoid inaction. "All of humanity's problems stem from man's inability to sit quietly in a room alone", Blaise Pascal. 6. Overconfidence effect Overconfidence is a very evil trait to trading. When we are overconfident, we tend to overestimate our knowledge and take bigger risks. Financial markets are unforgivable with overconfidence. Markets really are unpredictable, therefore we shouldn't even try to predict them. We need to go with the opporunities that the markets make available to us . The best traders are aware of it, therefore they try to be humble and respect the markets. As an example, we could imagine a trader that is on a 5-trade winning streak. He feels great, he feels invincible. What happens ? He takes bigger risks and one day he'll inevitably issue a huge loss.
BITSTAMP:BTCUSDEducation
by UnknownUnicorn6734025
4
Why Beginners Lose Money Even in an UptrendIf you like this analysis, please make sure to like the post! I would also appreciate it if you could leave a comment below with some original insight. In this post, i'll be focusing on the psychology aspect of trading and investing that most people overlook. Contrary to common belief, in my personal opinion, understanding a trader and investor's own psychology is significantly more important than educating oneself on trading techniques and learning how to read financials. 'Buy low sell high' is the motto. As simple as it sounds, why do most people lose money trading or investing? There are four major mistakes that most beginners make: 1. Excessive Confidence This stems from the idea that people think of themselves as special. They think they can 'crack the code' in the stock market that 99.9% of people fail to, and eventually make a living trading and investing. However, taking into consideration the fact that more people lose money in the market, this form of wishful thinking is the same mentality as going into a casino feeling lucky. You may actually get lucky and win big the first few times, but in the end, the house always wins. 2. Distorted Judgements While simplicity is key, the approach most beginners make in trading and investing are too simplistic, to the extend where it's hard to even call it a trading logic or reason to invest. They spot a few reoccurring patterns within the market, and this is almost as if they discovered fire. It doesn't take long to realize that the "pattern" they spotted was never based on any solid reasoning, or worse, wasn't even a pattern at all in the first place. 3. Herding Behavior The fundamentals of this is also deeply rooted in a gambling mindset. Beginners are attracted to the idea of a single trade or investment that will make them a millionaire. However, they fail to realize that there is no such thing. Trading and investing is nothing like winning the lottery. It's about making consistent profits that compound throughout time. While people should definitely look for assets that have high liquidity and some volatility , the get-rich-quick mentality drags irrational beginners into overextended/overbought stocks that eventually drop drastically. 4. Risk Aversion Risk aversion is a psychological trait embedded within all of mankind's DNA. Winning is fun, but we can't tolerate losing. We tend to avoid risk, even when the potential reward is worth pursuing. As such, many beginners take extremely small amounts of profits, in fear that they might close their position at a loss, trading with a terrible risk reward ratio. In the long run, their willingness to not take any risks leads to losses. Depending on the price action, they also go through seven phases of psychological stages: - Anxiety - Interest - Confidence - Greed - Doubt - Concern - Regret As we can see in the chart for the S&P500 (SPX) , there are price points at which beginners would buy during their 'confidence' phase, and sell during their 'concern' phase. As a result, they would be losing money even when the market moves in an upward trend. Even when the market is at a clear uptrend, it goes through phases of impulse moves, and corrective moves. However, as beginners are swayed away by their emotions, they fail to recognize the overall trend, resulting in them buying high and selling low . Conclusion The most important thing that beginners need to realize before they start trading or investing is that human beings are emotional beings, and as a result, they are not different from the rest of the people in the market. All successful traders and investors throughout history have had superb meta-cognition. They understand their own psychology, as well as that of other participants in the market, allowing them to make rational decisions with patience, rather than hasty decisions based on emotions.
SP:SPXEducation
by Michael_Wang_Official
121