Trading psychology

tech/a said:

I'm aghast at this thread.
Particularly GB's in put.

If GB has psychology as an interest then fine.
But if your actually that baffled by the decision
making process and its consequences---seriously get some help.

Thank God I have no issues making decisions.

Black/White
Right/Wrong
Good/Bad

"I used to be indecisive but now I'm not so sure"

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Well you haven't spoke to many traders then Tech. Everyone's different, we all have our fears.

I'm a little surprised how easily you dismiss it...a little disappointed too as i thought you would have some gems from your past to contribute.

It seems now, from your posts in Pavs threads that you're quite comfortable with your losses but can we assume you were always like this?

CanOz said:

Well you haven't spoke to many traders then Tech. Everyone's different, we all have our fears.

I'm a little surprised how easily you dismiss it...a little disappointed too as i thought you would have some gems from your past to contribute.

It seems now, from your posts in Pavs threads that you're quite comfortable with your losses but can we assume you were always like this?

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I've been in business 35 yrs.
I make decisions all day everyday.

My father once said to me.
Son you have no respect for money.

He was and is dead right!

Far from Cavalier I've become adept at being able to recognize when I'm wrong quickly
Not placing myself in a position where an outlier event is likely to bankrupt me
and taking control to as greater degree as possible over my own affairs.

If I cant control the decision making process then I wont be involved.
Other than sitting on a plane!---So financially.
Of course we do need to trust and delegate to some professionals.

I've escaped Bankruptcy twice each time I was aware that
the Banks had the problem---did they really want to write off X$s?
The answer was NO! So while it appeared I had no control I actually had plenty!

Today where $$s are less of an issue its about managing risk and utilizing
resources without losing control.

Business has definitely honed the skill.
If there is one thing I hate more than anything its NO DECISION
If its right then get on with it.
If its wrong then deal with it--then get on with it!

Even with a very structured process, there's a lot of decisions that need to be made.

I filter 2000 odd stocks down to maybe 10-20 stocks each day. Amibroker does that - no decision.

Then I look at XAO and while I have an on-off filter, I do apply discretion on top of that.

For each of the 10-20 stocks there's numerous decisions such as:

- whether to enter at all (which includes a whole host of decisions in itself)
- if entering, can I get it at my price, and if not, do I want to chase it a few points if it's a great looking trade?
- do I want to wait for a retracement to my price, either today or in the following days? Would it be met?
- do I want to risk 1 or 2%?
- do I want to trade such a high priced stock and be using up more capital?
- do I want to trade a stock which has such narrow R:R parameters and again use up a lot of available capital?
- are there fundamental stock-specific risks to consider?
- and so on... Better be quick, it's breaking out right now. You know the feeling. Entering intraday is often more profitable than EOD and you have that pressure to deal with. Not everyone trades EOD when there's no time-pressure.

Decision-making is a psychological process, so psychology is extremely important in trading. As shown in the articles presented (above posts), this process is not at all straight forward. It is influenced very strongly by memory, fear and desire.

Placing a SL and TP level is easy and requires no decision (in my approach). The rest of the process of a discretionary trader requires a lot of skill in decision-making. Sometimes a trader is in-trade and has to decide when to exit if neither the SL or TP targets look like eventuating in the required time frame. A good way to ensure your decision making is objective is to have a process for accessing that part of the mind that is beyond fear and desire.

Business has definitely honed the skill.
If there is one thing I hate more than anything its NO DECISION
If its right then get on with it.
If its wrong then deal with it--then get on with it!

Love this i go through this every day

I have made a decision for the benefit of the company i work for, then somebody decides it can be done cheaper ( normally somebody higher than me) then the weeks go by and no decision made so we go for the original decision but with lost time and it ends up costing more (I am sure many people have to put up with this)
And as tech says and i will back this 110%, If its wrong then deal with it--then get on with it!
But this is getting away from the thread a bit

I started trading 3 years ago and done alright (24%) then the next year done ok (13 %) the next year nothing but i did not sell so traded a paper loss average 67%,
As my boss said why did i not get out sooner this is the psychological part Kicks in, i could not stand to take a loss, (my mistake)

But i have to admit i have not lost to much financially as i am still learning and did not go in big while trying to learn.
To me simple! follow the forum, develop ideas and try them, eventually it can be done right, for me technical analysis is the go, but i cannot find the time to study, so i will stick to Fundamentals at the moment with my experience in the mining and energy sector

Just my thoughts
Cheers
Des

Des P said:

Business has definitely honed the skill.
If there is one thing I hate more than anything its NO DECISION
If its right then get on with it.
If its wrong then deal with it--then get on with it!

Love this i go through this every day

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Yes, but a string of bad decisions can send your business bankrupt...twice. It's not just about decisiveness, it's about quality decision-making. The 'quality' aspect is addressed by the articles I have posted. I guess one can always say it's the bank's problem - not cavalier?

Decision-making is a psychological process, so psychology is extremely important in trading.

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For you and for people like you

As shown in the articles presented (above posts), this process is not at all straight forward. It is influenced very strongly by memory, fear and desire.

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For you and people like you.

Yes, but a string of bad decisions can send your business bankrupt...twice. It's not just about decisiveness, it's about quality decision-making. The 'quality' aspect is addressed by the articles I have posted. I guess one can always say it's the bank's problem - not cavalier?

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Generally businesses go BROKE due to one BIG factor.

(1) First time it was 18% interest rates and when I could not service the Interest (on over $2 mill of Industrial Property in 1987 that was a damned lot) with business profit they raised it to 24%---that was really helpful! Lost a lot----a marriage being one casualty.

(2) Second time a large client went belly up and owed me a small fortune--painful!

Dismantle fear and you'll be totally free.

And you'll spend far more time on things that really matter
and far less time on working out what you SHOULD be capable of and why your not!

Its like the simplicity in trading.

If there is no supply then prices rise.
If there is no doubt or fear you are also free to rise.

My opinion and experience is that your challenge (And people like you) is NOT psychological but PRACTICAL.

Copied form a different forum - but relevant I think ...................

Gonna work on my emotional side this Christmas; I have 8 samurai biographies plus Yip Man; what impresses me about samurai was the deliberate attempt to control emotion and cultivate a practical way of thinking; and this self-discipline was part of their journey to becoming unbeatable, as was the case with Tesshu, for example.

Posts here and in other trading forums tell us not to emulate another trader as we'll never fully copy their character, and hence never make their trading our own. And I think this is right in that the path to profitability is shorter if you're honest about who you are. But once you attain profitability, where do you go from there? How do you improve?

Samurai were told by tradition to copy and learn from anyone better than themselves. I think at any junction on the road we can look at successful traders and copy their character. I was a journalist in London for several years and copied the behavior of public-relations people in order to be better on the phone and easier to talk to. Controlling emotions, and cultivating those that will benefit me in trading, will be harder, but well worth the effort.

Question, when you realize that an emotion is affecting your trading and making it harder, or impossible, to make money (impatience, boredom, fear) do you suppress it? Or do you deal with it? You deal with it, or it will resurface later on.

And so how did a samurai deal with fear to become fearless in the face with death? The samurai considered himself dead already, and accepted the fact, and gave no thought to self-preservation (see Tesshu). The samurai became focussed and fearless as a result, and not reckless. Incidentally, imagine being able to face any madman with a sword or a gun and not think about staying alive; that must have been tough, and must have taken several years to achieve.

Trading. Perhaps we're going to be invincible if we believe we're already penniless? The aim is to eliminate fear and focus on technique, like a samurai. Two of the friends I’ve made on this forum declared something like: “I’m going to trade live with $5000 and consider that the cost of my education”. Accept the loss in advance and you’ll give no thought to self-preservation. They eliminated fear to focus on technique.

Also, the "trade small so you don't care" of BPA about each individual trade is also fear control. And the other day Al stated in the room he could trade *much* larger than he actually does. Trading small is a way of eliminating anxiety. You focus on not losing money, but eliminate the fear of going broke. Brooks Ryu.

Thanks Cav

Some people just shouldn't trade.

Its a miserable "job", only gets better with skill. The rest is denial about your lack of skill.

Unfortunately some refuse to, at the same time, give their all and or fail. End result is a lifetime hobby that lacks pleasure or achievement. Sad.

Well its nice to get a different "view" anyway...

I agree that it gets easier with skill, but TH you are extremely competitive by nature...perhaps a prerequisite for this "job"?

People are all different...

tech/a said:

For you and for people like you



For you and people like you.



Generally businesses go BROKE due to one BIG factor.

(1) First time it was 18% interest rates and when I could not service the Interest (on over $2 mill of Industrial Property in 1987 that was a damned lot) with business profit they raised it to 24%---that was really helpful! Lost a lot----a marriage being one casualty.

(2) Second time a large client went belly up and owed me a small fortune--painful!

Dismantle fear and you'll be totally free.

Click to expand...

If 18% interest rates were the cause, then every business in a similar field would have gone bankrupt in that period... but they didn't. If you over-borrowed, then you made a bad business decision. Was it greed or FOMO that made you over-borrow? That's emotional decision-making.

If a large client goes belly up, you relied too heavily on one source for cash flow. Again a bad business decision.

Dismantle fear and you'll be totally free. Sounds sort of familiar. Did you just take what I said and re-package it? Now that's a good decision.

CanOz said:

People are all different...

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Yeah thats why I reckon more and more that some (many??) just shouldn't trade. Aint nothing wrong with failure, just do it well and fully when the time comes.


NEXT trade..................... (in many case that should be no more trades, IMNSHO)

Risk is that something won’t work out as you planned/prepared for. Sizing can’t fix it unless you go so small that you won’t have any upside left either. You’ll never be right enough to totally avoid negative (beyond expectations) outcomes.

So if you are going to trade (or invest aggressively) you better get used to the fact that sometimes you are going to find yourself outside your comfort zone – and those times are the ones that really matter.

I’m not sure about this psychology stuff done from inside a comfort zone. The environment beyond comfort is very different, natural instinct is about all that remains, perhaps prior visualisation can help but I think actual physical repetition clocked up under similar circumstance is what really counts – I think that’s what they call experience.

Failure is an important part of accumulating experience. Experience is a more robust foundation for success then luck.

Queue the Micheal Jordan video.

craft said:

So if you are going to trade (or invest aggressively) you better get used to the fact that sometimes you are going to find yourself outside your comfort zone – and those times are the ones that really matter.

I’m not sure about this psychology stuff done from inside a comfort zone.

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Yes, you can't make things too safe, because without risk there's no profit and nor is there the challenge of overcoming fear. There's probably an optimal level of psychological/financial risk that needs to be pushed further outwards as one succeeds. In case of repeated failure, this boundary should be pulled inwards towards more safety.

Gringotts Bank said:

In case of repeated failure, this boundary should be pulled inwards towards more safety.

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That's fear of failure. That's a problem.

I would say in the case of repeated failure - learn from it. Its telling you to adapt or get out. Only Hunkering down (unless just riding out a statistical possibility) achieves nothing.

Gringotts Bank said:

If 18% interest rates were the cause, then every business in a similar field would have gone bankrupt in that period... but they didn't. If you over-borrowed, then you made a bad business decision. Was it greed or FOMO that made you over-borrow? That's emotional decision-making.

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There were a number of "Reasons"
Properties were bought 4 years earlier when interest rates were 10% and all businesses in the complexes were not under stress. Cash flow was not an issue.
Many who held property in my situation did go bankrupt in fact Banks altered their way of lending and increased their initial capital requirement to 40% straight after.

Bad business and or poor decision making--open to argument.

If a large client goes belly up, you relied too heavily on one source for cash flow. Again a bad business decision.

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Again like many others who place business with companies who for all outside appearances are financially sound we suffered an outlier.

Sure it altered the way I did business and gave me the experience which gives us indications that something just isn't right. Hones my skill in litigation and securing of asset to minimise loss.

Bad decision---open to argument.

Dismantle fear and you'll be totally free. Sounds sort of familiar. Did you just take what I said and re-package it? Now that's a good decision.

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Sorry didn't see it.

Gringotts Bank said:

In case of repeated failure, this boundary should be pulled inwards towards more safety.

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No it shouldn't, it should be stopped. Its broken.

It's easy to focus on the "fear" or other psychological issues as the reason for failure. But it will be wrong for one to assume they would automatically succeed if only they could overcome their fear.

May be we've all watched too many Disney kids movies where the young girl with a great voice but a fear of singing and performing in public, finally achieved success with inspirations from whoever... so we walk away with the message "conquer your fears and you can do anything", while forgotten the underlying premise that "the girl had a great voice".

If you are struggling to trade profitably and think that fear or other emotions are the main reasons... are you really really sure?

skc said:

It's easy to focus on the "fear" or other psychological issues as the reason for failure. But it will be wrong for one to assume they would automatically succeed if only they could overcome their fear.

May be we've all watched too many Disney kids movies where the young girl with a great voice but a fear of singing and performing in public, finally achieved success with inspirations from whoever... so we walk away with the message "conquer your fears and you can do anything", while forgotten the underlying premise that "the girl had a great voice".

If you are struggling to trade profitably and think that fear or other emotions are the main reasons... are you really really sure?

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I use techniques, (lines, levels, sizing etc) to reduce fear. They give me confidence. If I'm feeling very confident, then I do away with most of that and just trade on pure feel. For myself, I have proven that confidence is primary, and technique is secondary, not the other way around. Technique is a tool to achieve confidence, but confidence can also be generated without this.

I know what your next post will be (because we've been here before!)... All I can say is we have different world views.

Hmm, for me, between live and sim...skill and technique proven over a significant sample of trades on a sim account with a selection of plays gives me the confidence to do the same live...So it is proven technique first, then that gives me confidence to trade it live.