Your Mama Doesn't Trade ... So Wise Up to Yourself!

TradeRunner · February 18, 2011

I compare it to an area where I have reasonable experience and expertise: golf.

Do sporting analogies with regard to making a living (professional) really work because they are a great deal more competitive than trading? For example where in the rankings would you have to be to make a living from playing golfing tournaments? Top 100?

I would argue that cut off point in sports where you can make a living from just playing that sport tends to be a finite number of positions/rankings whereas in trading it is a ratio between successful and unsuccessful and the number depends on the total trader population.

Edited February 18, 2011 by TradeRunner

ScottB · February 18, 2011

todds, I am with you on this. I have been a professional trader for 10 years and I must say the first 2 years were a disaster. I lost so much money doing so many stupid things that it is a wonder I survived financially or emotionally.

I was lucky enough to meet a few good traders along the way and although they didn't give me any secrets that amounted to an "edge" what they did was tell me honestly - this isn't a game, if you want to gamble go to Vegas, to get good at this is going to take years and thousands (that was daunting) of hours of screen time.

Luckily charts facinated me (after all these years, still do) and I spent that time. For scalping, I found looking at charts wasn't enough and I didn't get good at that until I spend more thousands of hours watching a DOM and then trying to reconcile what I had seen there with what a chart of that same period looked like.

I could go on and on but you get the idea. A neighbor told me about an ad he had seen and wanted to start trading currencies. He knew that is what I do and so asked me about it. I was honest and told him to save us both a lot of time and just give me his money now; that he was going to give it to some professional trader and it might as well be me.

Scott

TheNegotiator · February 18, 2011

Do sporting analogies with regard to making a living (professional) really work because they are a great deal more competitive than trading? For example where in the rankings would you have to be to make a living from playing golfing tournaments? Top 100?

I would argue that cut off point in sports where you can make a living from just playing that sport tends to be a finite number of positions/rankings whereas in trading it is a ratio between successful and unsuccessful and the number depends on the total trader population.

Hmm. Interesting. The way I would see it though is that they are both very competitive. I am not a golfing buff but I would think that there are some golfers who do pretty well for themselves outside the top 100. But maybe we should be thinking multi-sport for trading. I mean, there are so many different types of product and trading style and player in the markets that perhaps even all the sports couldn't cover it! I think trading is highly competitive and something that takes years of practise to master if you even have enough ability to make it. But hey, everyone has their own view!

TheNegotiator.

TradeRunner · February 18, 2011

I think trading is highly competitive and something that takes years of practise to master if you even have enough ability to make it. But hey, everyone has their own view!

I wasn't saying it isn't competitive just not as competitive a becoming a professional tournament golf player. I know nothing about golf -100 is just a figure I picked out of the air. Maybe todds will chip in with a more accurate figure. While trying to come up with a more educated number I did find this on wikipedia that made me smile:

"The great majority of professional golfers (at least 95%) make their living from teaching the game, running golf clubs and courses, and dealing in golf equipment"

I did find this tennis ranking sites that gives current 2011 and career earnings:

http://http://www.atpworldtour.com/Rankings/Singles.aspx?d=14.02.2011&c=&r=101#

I think that this shows the number of players tennis players that could live of their tournament winnings would be in the hundreds.

I hadn't thought of the multi-sport / different trader types aspect. And also how many traders (trading their own money) make a living off just their trading income? Maybe that number is also very small as well.

TradeRunner

ScottB · February 18, 2011

If you had a scalable strategy that makes $100 per day per contract (futures), you couldn't spend all the money.

At 1 futures contract per 5k in your account you can support yourself (depending on your lifestyle) with a 20 - 25k account. If you look at that in ROI terms, the numbers are ridiculous.

Where new traders often go wrong is thinking a 2k account is somehow going to support them. That simply won't happen over any period of time for the vast majority of traders (technically anything can happen).

Personally, I would only trade 1 futures contract for every 10k in an account. That gives you enough cushion that even a bad day allows you to still trade the same number of contracts the next day.

todds · February 18, 2011

I wasn't saying it isn't competitive just not as competitive a becoming a professional tournament golf player. I know nothing about golf -100 is just a figure I picked out of the air. Maybe todds will chip in with a more accurate figure. While trying to come up with a more educated number I did find this on wikipedia that made me smile:

"The great majority of professional golfers (at least 95%) make their living from teaching the game, running golf clubs and courses, and dealing in golf equipment"

I did find this tennis ranking sites that gives current 2011 and career earnings:

http://http://www.atpworldtour.com/Rankings/Singles.aspx?d=14.02.2011&c=&r=101#

I think that this shows the number of players tennis players that could live of their tournament winnings would be in the hundreds.

I hadn't thought of the multi-sport / different trader types aspect. And also how many traders (trading their own money) make a living off just their trading income? Maybe that number is also very small as well.

TradeRunner

TradeRunner, I agree, regarding making a living playing a sport like golf the opportunities are limited. In golf it's the top 400-500 in the world and one must "qualify" to play in events. I was never good enough to be a professional golfer but was good enough to be competitive at the state and national amateur level. It still took many years of complete immersion to get to this level. If my trading equals my golf skills I will do quite well. I suspect many people can say the same thing about their own life achievements.

The analogy was about the fact that trading is a performance activity, big money attracts talented motivated people, and one must be really good to make a living. I think it is what it takes to be “really good” that people don’t understand. It is about technical proficiency first and foremost. In trading, this is edge, and is the most difficult to attain in my opinion. It comes from acquired knowledge, attention and lots of experience, just like mastering any other field of endeavor. Confidence follows technical proficiency.

My point is that there seems to be a sort of mysticism that people attach to trading, as if it is somehow different than other difficult endeavors. If there is a difference it is that we are allowed to enter the arena long before we are ready.

For traders with some success in another worthwhile field, I do not believe their difficulties are about the "issues" they bring with them to trading, or some other latent psychological demons. If I am having trouble pulling the trigger, it's because I don't believe in my edge. Why should I believe in my edge? For the first two years of my trading life I got my head handed to me nearly every time I entered a trade because I picked terrible entries. Why should it be any different next time? If I'm having trouble staying in a trade it's for good reason. For the first two years of my trading life my trades rarely went anywhere because I was picking crummy trades. My technical proficiency was a mess. These are logical and healthy reactions. It is only through acquired knowledge, attention and experience that we improve our skills and slowly begin to have confidence in our judgment. I am trying to keep it that simple and not get sidetracked on other things.

MightyMouse · February 18, 2011

If you had a scalable strategy that makes $100 per day per contract (futures), you couldn't spend all the money.

At 1 futures contract per 5k in your account you can support yourself (depending on your lifestyle) with a 20 - 25k account. If you look at that in ROI terms, the numbers are ridiculous.

Where new traders often go wrong is thinking a 2k account is somehow going to support them. That simply won't happen over any period of time for the vast majority of traders (technically anything can happen).

Personally, I would only trade 1 futures contract for every 10k in an account. That gives you enough cushion that even a bad day allows you to still trade the same number of contracts the next day.

Scott,

100 a day per contract is super good. With a 25k account, one would be plugging along at 500% a year.

So, you can restate the above by saying that if you can make 500% a year, you can make a living, depending upon your lifestyle.

MM

ScottB · February 18, 2011

MightyMouse, you can look at it that way. One thing to consider with smaller account sizes is the worth of your time (opportunity costs).

If you are spending 10+ hours a day trading 1 lots and are making $100 per day, once you subtract your opportunity cost (what you could be making at a regular job) you likely actually have a negative return (I would argue that is the case). You are essentially working for $10/hr and returning 0% on your investment.

Only once you surpass what you could earn in a regular job you can begin to calculate a return on investment. So if I can earn $300 per day at a regular job I have a negative return on investment until I am making $301 per day.

At that point, assuming I am trading 3 contracts to do that and have 15k in my account, I am getting a return of $1 per day on 15k. Using 240 trading days per year (high but technically possible) I am getting 240/15000 = 1.6% return on my money. Now when you adjust that for risk, it still stinks.

However, once you get rolling and are trading 10 contracts (100k account), you are returning $700 per day ($1,000 - labor costs of $300) on 100k and with the same 240 trading days it is $168,000/100,000 or 168% return.

Check the math but hopefully my analysis makes sense.

For the record you don't have to come up with the math, if you are married, your spouse will.

Scott

MightyMouse · February 18, 2011

MightyMouse, you can look at it that way. One thing to consider with smaller account sizes is the worth of your time (opportunity costs).

If you are spending 10+ hours a day trading 1 lots and are making $100 per day, once you subtract your opportunity cost (what you could be making at a regular job) you likely actually have a negative return (I would argue that is the case). You are essentially working for $10/hr and returning 0% on your investment.

Only once you surpass what you could earn in a regular job you can begin to calculate a return on investment. So if I can earn $300 per day at a regular job I have a negative return on investment until I am making $301 per day.

At that point, assuming I am trading 3 contracts to do that and have 15k in my account, I am getting a return of $1 per day on 15k. Using 240 trading days per year (high but technically possible) I am getting 240/15000 = 1.6% return on my money. Now when you adjust that for risk, it still stinks.

However, once you get rolling and are trading 10 contracts (100k account), you are returning $700 per day ($1,000 - labor costs of $300) on 100k and with the same 240 trading days it is $168,000/100,000 or 168% return.

Check the math but hopefully my analysis makes sense.

For the record you don't have to come up with the math, if you are married, your spouse will.

Scott

Scott,

The math works but, though possible, 500% returns a year are not sustainable.

MM

ScottB · February 18, 2011

MM, I agree completely; actually that was my point. Too many traders push to make the rent, etc and therefore take chances they shouldn't or stay in trades that are not working.

I have friends on the fx desks at major banks; their high end goals are in the 15 - 20% range. If that is the best they can expect, why would I think I can make 100% plus?

Ingot54 · February 19, 2011

The analogy was about the fact that trading is a performance activity, big money attracts talented motivated people, and one must be really good to make a living. I think it is what it takes to be “really good” that people don’t understand.

It is about technical proficiency first and foremost. In trading, this is edge, and is the most difficult to attain in my opinion. It comes from acquired knowledge, attention and lots of experience, just like mastering any other field of endeavor. Confidence follows technical proficiency.

My point is that there seems to be a sort of mysticism that people attach to trading, as if it is somehow different than other difficult endeavors. If there is a difference it is that we are allowed to enter the arena long before we are ready.

For traders with some success in another worthwhile field, I do not believe their difficulties are about the "issues" they bring with them to trading, or some other latent psychological demons.

If I am having trouble pulling the trigger, it's because I don't believe in my edge. Why should I believe in my edge? For the first two years of my trading life I got my head handed to me nearly every time I entered a trade because I picked terrible entries. Why should it be any different next time?

If I'm having trouble staying in a trade it's for good reason. For the first two years of my trading life my trades rarely went anywhere because I was picking crummy trades. My technical proficiency was a mess. These are logical and healthy reactions.

It is only through acquired knowledge, attention and experience that we improve our skills and slowly begin to have confidence in our judgment. I am trying to keep it that simple and not get sidetracked on other things.

Brilliant insights there Todds - and I suspect you have a whole lot more to share than this. You have nailed in one post, the essence of the entire thread.

Traders are sidetracked too easily - the best indicator, the best market, the best coach, the best system and so on ... until out of frustration, they "see the light" and suddenly it is all about psychology. My contention is that it is NOT.

The pathway to success in trading may be to stabilise on ONE instrument, focusing the strategy in a way that matches the personality of the trader, until the strategy is mastered. The worst development in the world, has been the invention of instant coffee, if you grasp my meaning!

To continue the sporting analogy - it is like an athlete who moves from track-and-field to tennis. If he doesn't make it there, he moves to baseball, then to football, golf, swimming, basketball and then switches back to tennis. All the while, he fails to focus on any single sport for long enough to master the finer details that might have made him a champion.

Instant gratification in other aspects of life may work for a time - but as an approach ot trading it is guaranteed to fail. There is no quick road to success in trading. Nothing can replace the experience of screen time, and more screen time.

I imagine Roger Federer watches the replays of his own games, as well as the games of his opponents, when planning a strategy for an up-coming match. He will not be watching a replay of his game against Lleyton Hewitt when he is to face Rafael Nadal. His focus will be on the strong and weak points of NADAL - how he handled the characteristics of his other opponents would be reserved for another day.

It does not help a trader to be attempting to trade the GBPJPY for the first time, when he normally only trades the EURAUD. The two are chalk and cheese, and require separate skills to manage them (imv).

In order to obtain the skill-set necessary to handle trading, one must be prepared to focus on the instrument traded, and perhaps even more specifically, one or two of the individual component entities within that Instrument group. There will always be the exception - but if a trader wants to develop the skills, there is no other way that to focus, and specialise.

As you pointed out, Todds - it is about Technical Proficiency ... an edge ...

Not too many traders trade successfully without at least knowing the trend, or the range, regardless of the other aspects of TA.

FXGirl · February 25, 2011

In the interest of having a fuller discussion of the link between the technical issues and psychological issues of trading, I’d like to share some observations about becoming a successful trader that I think often get over looked or are give short shift.

First, everyone brings attitudes and assumptions (rules, if you like) about money and what it means to trading. In addition, everyone brings expectations of what the rewards will be. And everyone brings a level of risk tolerance to trading as well. So from the very beginning, there are psychological issues that impact trading.

Second, when we start to trade, we struggle with mastering the technical issues, key among them is developing a system (edge) that works. Unfortunately, trying to develop an edge comes at the time that we know the least about the market – a perfect formula for frustration and failure (psychological issues here!). As Todd has said, “For the first two years of my trading life my trades rarely went anywhere because I was picking crummy trades.” Trading is not like other endeavors (golf or tennis have been used as examples in this thread) because there is no way to create a graded learning experience for the novice where the level of competence is matched to a slightly higher level of difficulty. In trading we just get thrown into the deep end of the pool and have to learn to swim.

Again, as Todd has said, “If I am having trouble pulling the trigger, it’s because I don’t believe in my edge.” Oh, so true. If you keep getting your head handed to you on a plate, why would you develop any confidence in your ability to trade? But wait, confidence and belief are psychological issues. So here is my third observation: Developing technical expertise cannot be separated from psychological mastery. These two issues are always, always, confounded. There is no such thing as developing an edge independently from the psychology of trading. If you don’t believe me, think of the difference in the mindset of a child who grows up receiving constant criticism as opposed to one who receives appropriate encouragement and feedback. Which experience is most like learning to trade?

Fourth, as Ingot said, “Nothing can replace the experience of screen time, and more screen time.” Again, this is so true. Trader’s intuition, unconscious pattern recognition (implicit learning), only develops when we see the same pattern (with slight variations) in market movement again and again. If the point of having a trading plan is to have a clear set of entry, exit, etc., criteria and to execute that plan precisely according to the rules, then where do we use our trader’s intuition? We use it to refine our trading plan and hopefully improve our win/loss ratio. And we use it when we sense that what we are seeing in the charts isn’t working the way our system anticipates – and we don’t stick to the plan. So if we use it to know when the plan isn't going to work, is there a different set of rules for traders who truly reach the level of having great market intuition? And how would we know when we reach this level?

I think this leads to a very important question: How do we separate out trader’s intuition from impulse? Now we are back to psychological issues. Unless we are paying attention to what we feel, there is no way to separate intuition from impulse. For me, intuition varies from being similar to glimpsing something in my peripheral vision to a revelatory “ah ha” or “knowing what the market will do”. On the other hand, impulse is a product of unease, anxiety, or fear, and for me is usually accompanied by physical phenomena such as tension in my shoulders and/or shallow breathing. Others may have an entirely different take on distinguishing between the two – I’d love to hear about it.

Fifth, and I’ve said this before on another thread, the point of trading is to make money not prove that we are smart, tough, capable, etc. So why would we, as beginners, go through the time, pain and cost of developing our own system of trading if we could start out using an existing successful system? (For the moment, I’m going to set aside the issue of how you identify a successful system or set of signals.) Why not just learn a successful system and use it? What makes us feel that the only way to become a real trader is to develop our own system? Sounds like a psychological issue to me.

Ingot54 · February 26, 2011

If there are truly psychological reasons for trading problems, then I don't know what they are, and despite some good responses by Rande and FxGirl, I am unconvinced that a trader experiencing negative outcomes will be helped by the vagaries of psychology.

Psychology can be useful in treating traumatic stress conditions in the acute phases - but it will take Psychiatry to manage ingrained and resistant problems, in my view.

The saying goes around like this:

When asked why she became a Dermatologist, instead of a General Practitioner, the reply was: "My patients never actually get sick, they never really get cured, and they don't wake me up in the middle of the night." (and she could have added: "And they pay me a fortune because I am a specialist.")

On my list, (trading) Psychologists rank about the same - they never actually treat the acutely unwell, they don't actually have a cure, and they are not bothered by their clients after hours. That may seem a little unkind, but it was not meant to be personally directed at anyone.

But the facts speak for themselves. Without the fronting up of many thousands of dollars for courses, books, one-on-one sessions, assignments, more "homework" and so on, you won't get a Psychologist to help you. And there is no guarantee you CAN be helped in this way to begin with.

When you fail to reach a positive outcome, does the Psychologist refund your money ... or does he just say "I have given you the tools, I have done all I can for you, now just go and apply it."

Delving into the realms of psychology conjures thoughts of pathology that requires counseling and therapy, both ideas of which I reject at this point in time. For starters, we only have someone's opinion that the "problem" is based in issues that can only be "helped" by psychology and "applied remedies."

The main "issues" I believe traders have, are related to previous unsuccessful attempts to break into trading as a means to bring money ... and that is as simply as I can state it.

1) So what kinds of things happen to a trader, to bring out these anxieties/problems?

2) Were these pre-existing - perhaps the trader is unsuited emotionally/psychologically to trade?

3) Did the problems develop as a result of negative trading experiences?

4) Were these trading experiences a result of poor preparation technically, and thus can be rectified in the same way?

5) Can Psychological therapy/counseling really bring a trader with a poor strategy/approach to trading to a condition of positive outcome?

My contention is that the reasons traders are experiencing anxiety in the first place (more about that in next post) is exactly as Todd said in post #56:

We have an expectation that trading is somehow a mysterious pursuit, and that to be "successful" means we are making heaps of money. Indeed, there are forum members on Traders Laboratory who post with an "air of success", but we really have no idea about that. But somehow we want to "be like them" ... to be able to say "I made it."

What is success after all? To me, it begins with making more money through trading than I am losing, and from there it moves forward into better outcomes. There are no rules that state we all have to become full-time traders, though we think this is what we should be doing. This week I made 2 trades - both successful - and the total dollar value was about $400 profit. Last week I made three trades, with a nett loss of $120.

Am I successful? I say that I am. Because I am learning the things that work FOR ME, and the things that don't.

Do I need more breakthroughs? Yes I do, and in my own way, in my own time, I am achieving them.

So where do the anxieties come from?

See the next post!

Ingot54 · February 26, 2011

If there are truly psychological reasons for trading problems, then I don't know what they are ... I am unconvinced that a trader experiencing negative outcomes will be helped by the vagaries of psychology.

Delving into the realms of psychology conjures thoughts of pathology that requires counseling and therapy, both ideas of which I reject at this point in time. For starters, we only have someone's opinion that the "problem" is based in issues that can only be "helped" by psychology and "applied remedies."

The main "issues" I believe traders have, are related to previous unsuccessful attempts to break into trading as a means to bring money ... and that is as simply as I can state it.

1) So what kinds of things happen to a trader, to bring out these anxieties/problems?

2) Were these pre-existing - perhaps the trader is unsuited emotionally/psychologically to trade?

3) Did the problems develop as a result of negative trading experiences?

4) Were these trading experiences a result of poor preparation technically, and thus can be rectified in the same way?

5) Can Psychological therapy/counseling really bring a trader with a poor strategy/approach to trading to a condition of positive outcome?

So where do the anxieties come from?

Again, I have to defer to the post by Todds, he has stated the issue better than I can.

For traders with some success in another worthwhile field, I do not believe their difficulties are about the "issues" they bring with them to trading, or some other latent psychological demons.

In other words, it is unlikely that a person who has achieved "success" in other fields would be wrought with psychological problems to the extent that it would interfere with their ability to manage trading well.

Indeed, Todds goes on to nail the true reason traders lose confidence and begin to experience difficulties:

If I am having trouble pulling the trigger, it's because I don't believe in my edge. Why should I believe in my edge? For the first two years of my trading life I got my head handed to me nearly every time I entered a trade because I picked terrible entries. Why should it be any different next time?

If I'm having trouble staying in a trade it's for good reason. For the first two years of my trading life my trades rarely went anywhere because I was picking crummy trades. My technical proficiency was a mess. These are logical and healthy reactions.

I agree 100% with this - it is a healthy reaction to become fearful and anxious when trading, if you get punished by the market for having poor technical skills.

And why wouldn't someone "believe in their edge"?

Because their "edge" was faulty, based on technicality.

So the problem is NOT with the psychological makeup of the trader, or the acquired psychology secondary to failed trading experiences. The problem lies in the lack of skills of the trader, and until THIS issue is addressed, the trader will continue to feel anxiety, and the rest of the negative emotions that can affect the execution of a winning trade.

How can you deal with a faulty technique by providing expensive therapy for anxiety which is labeled by therapists as "fear" and "greed"?

You can not.

Indeed fear and greed are also healthy emotions or attributes - we are in trading for the money - unless we are truly challenged to find a better hobby!

It is only through acquired knowledge, attention and experience that we improve our skills and slowly begin to have confidence in our judgment. I am trying to keep it that simple and not get sidetracked on other things.

Therein lies the remedy - not in a $3k or $7k course/webinar/book/worksheet/ etc.

Once the trader understands their true edge, and executes it flawlessly, he will begin to experience confidence. Try telling a losing trader that losses are a normal part of trading, when all his trading does is drain his account.

But a winning trader will embrace losses, and agree whole-heartedly that indeed losses are a part of trading. The difference is that a confident and winning trader is not anxious about losses, because he knows his edge will provide more wins over time. The losing trader on the other hand, becomes more anxious with each loss, and begins to doubt whether trading will ever fulfill his dreams.

By addressing the technical deficits, the anxiety problem disappears eventually.

And this could be a reason many traders trawl the forums looking for that wonderful indicator that they can use with confidence, to turn their trading around.

I am open to discussion on this, but so far, this has been a far more believable and logical reason for traders lack of success.

I have always believed that if we get the method right, the money will follow. Once a trading plan is in place, with a trading strategy providing an edge, and once sound money management is utilized, the rest will eventually follow. But it will take time. Trading needs to be learned like an apprenticeship. Except in the trading world, there are few master traders willing to take on a new trader, and bring him through to the end of an apprenticeship, and to a full trading qualification.

Oh yes - there are plenty of "trainers" out there who will take your money, but few genuine mentors who know how to bring a trader through the trading minefields to success.

I believe money earmarked for psychological therapy would be better spent under the guidance of a decent mentor, if you are fortunate enough to find someone inclined to help. It is obvious that many would-be traders are willing to part with money in order to learn the art, but forums are filled with the tales of disappointment and rip-offs.

fajim2004 · February 26, 2011

The cure for the first 4 trading problems listed below is simply a highly productive edge in the

markets that can produce a consistantly upward equity curve with very little drawdown.

As for # 5, unless a therapist or counselor has a highly consistant trading edge that he or she is

is willing to instruct or teach a client,,,,,,,, its just an additional waste of time and $$$$$

Quote:

Originally Posted by Ingot54

If there are truly psychological reasons for trading problems, then I don't know what they are ... I am unconvinced that a trader experiencing negative outcomes will be helped by the vagaries of psychology.

Delving into the realms of psychology conjures thoughts of pathology that requires counseling and therapy, both ideas of which I reject at this point in time. For starters, we only have someone's opinion that the "problem" is based in issues that can only be "helped" by psychology and "applied remedies."

The main "issues" I believe traders have, are related to previous unsuccessful attempts to break into trading as a means to bring money ... and that is as simply as I can state it.

1) So what kinds of things happen to a trader, to bring out these anxieties/problems?

2) Were these pre-existing - perhaps the trader is unsuited emotionally/psychologically to trade?

3) Did the problems develop as a result of negative trading experiences?

4) Were these trading experiences a result of poor preparation technically, and thus can be rectified in the same way?

5) Can Psychological therapy/counseling really bring a trader with a poor strategy/approach to trading to a condition of positive outcome?

So where do the anxieties come from?

Rande Howell · February 26, 2011

If you accept the assumption that trading is a mirror into how effective your beliefs are (the the barometer is your trading account), then your psychology is the organization of those beliefs. And it is those beliefs that do your trading. If you can adapt those beliefs so that you produce successful trading, great. The problem is that the vast majority of traders do not do this one fundamental thing. You can take the long way to adaptation of those beliefs, or you can find a mentor to shorten the learning curve. It's your choice. I consistently see traders move from one level of trading competency to a higher level in 3 months. And they view the money they have willingly spent with me as an investment into their future. You are going to invest money either through the school of hard knocks or you may decide to shorten the learning curve. If you cut to the chase, the trading account will speak about whether you need help or not.

One other thing. My early work involved emotional regulation of anger, fear, and impulse with populations that included violent prisoners, fear based populations, trauma victims, and impulse disorders. I have found these very skills to be very useful in working with traders. Why? Because the vast majority of traders trade from fear, anger, or impulse. That's just the human condition.

Rande Howell

ScottB · February 26, 2011

Rande, out of curiosity (I don't have a well informed opinion on this subject) I have a question.

If you looked at the traders you (or really anyone) mentor as individual trades, how many would hit the profit target and how many would stop out?

I have been trading a very long time and my trading improved dramatically as I became comfortable with my setups and that came from screen time. As I continually saw setups work that I didn't take because... fill in the blank - everything from some guy on CNBC saying something to a volume chart in gold to I suddenly had to go to the bathroom, I started to get the picture that the setups were an edge, not a guarantee.

The end result was as I became more comfortable with my edge, I questioned it less and I became more successful. Once you are playing with house money, it all becomes much easier.

MightyMouse · February 26, 2011

The cure for the first 4 trading problems listed below is simply a highly productive edge in the
markets that can produce a consistantly upward equity curve with very little drawdown.

As for # 5, unless a therapist or counselor has a highly consistant trading edge that he or she is

is willing to instruct or teach a client,,,,,,,, its just an additional waste of time and $$$$$

Quote:

Originally Posted by Ingot54

If there are truly psychological reasons for trading problems, then I don't know what they are ... I am unconvinced that a trader experiencing negative outcomes will be helped by the vagaries of psychology.

Delving into the realms of psychology conjures thoughts of pathology that requires counseling and therapy, both ideas of which I reject at this point in time. For starters, we only have someone's opinion that the "problem" is based in issues that can only be "helped" by psychology and "applied remedies."

The main "issues" I believe traders have, are related to previous unsuccessful attempts to break into trading as a means to bring money ... and that is as simply as I can state it.

1) So what kinds of things happen to a trader, to bring out these anxieties/problems?

2) Were these pre-existing - perhaps the trader is unsuited emotionally/psychologically to trade?

3) Did the problems develop as a result of negative trading experiences?

4) Were these trading experiences a result of poor preparation technically, and thus can be rectified in the same way?

5) Can Psychological therapy/counseling really bring a trader with a poor strategy/approach to trading to a condition of positive outcome?

So where do the anxieties come from?

Break it down into a simple 2 person market. You and I are the only traders. In order for me to make money, I need to make you think that you are wrong, i need to scare you into closing out your position at a loss, I need to pretend that you can't do a thing right. In sum, I need to do everything i can to make you cough up your position at a loss.

After the trade you can internalize it and think that something is wrong with you for taking the trade where you did, and perhaps figure out a way so that when MM begins to taunt you again you hold firm to your predetermined plan. Or, you can realize that MM is a manipulating liar who will do everything in his power to make you lose and next time either stay out of the market or learn to combat me so that at least you are on even ground and then eventually learn how to dupe me and take my money.

You need to be aggressive to trade. I do not mean maniacal. Strategically aggressive.

Lots of traders are psychological disasters, but when it comes to trading they know how to bring home the corn.

FXGirl · February 26, 2011

Ah, Ingot, dear Ingot:

1. The truth is, you can’t be a successful trader if you don’t have an edge that works (we can all agree on that).

2. Nobody is arguing that psychological help is a substitute for having an edge.

3. But if you have an edge and can’t trade it, something psychological is getting in the way.

In an ideal world, when someone started to trade he would be given a trading system with clear, concise rules and a known win/loss ratio. Then, if he were unable to come close to that win/loss ratio, we would know that psychological issues were impacting his trading. Oh, that the world were so simple!

But people don’t learn to trade that way. They struggle to develop an edge. They read, they study, they seek expert advice, they back test, they win, they lose, they try another approach, etc. And during that process their psychological architecture, or as Rande puts it, their belief system, impacts how they approach developing their edge and how they respond to the experience of frequent losing trades. Rande is spot on when he says, “it is those beliefs that do your trading.”

Regarding your points:

1) So what kinds of things happen to a trader to bring out these anxieties/problems? Obviously, they have losses.

2) Were these pre-existing – perhaps the trader is unsuited emotionally/psychologically to trade? Sure, almost any reaction we have as an adult has echoes from the past. If you believe that “perhaps the trader is unsuited emotionally/psychologically to trade”, you have acknowledged that psychological issues can impact the ability to trade. It’s all a matter of degree.

3) Did the problems develop as a result of negative trading experiences? Of course they did… in conjunction with the unresolved issues, inaccurate beliefs, and ineffective strategies (just like we all have) that the trader brought with him when he started trading.

4) Were these trading experiences a result of poor preparation technically, and thus can be rectified in the same way? Maybe and maybe not. We’d have to examine this on a case-by-case basis.

5) Can Psychological therapy/counseling really bring a trader with a poor strategy/approach to trading to a condition of positive outcome?

Oh, Ingot, now you are just being silly. If you don’t have an edge, you won’t be successful no matter how psychologically healthy you are. But if you have an edge but can’t trade it, you won’t be successful either. Or if you don’t have an effective belief system, you won’t every get as far as developing your edge.

There is no getting around that the market is, in any moment, unpredictable and that trading is full of ambiguity and risk. Everyone has to find a way to deal these attributes; having a technical edge is a fundamental part of the process, the rest is psychological.

You have said, “Once a trading plan is in place, with a trading strategy providing an edge, and once sound money management is utilized, the rest will eventually follow”. How long would you like “eventually” to be? Would sooner be better?

ScottB · February 26, 2011

There is an old song that seems appropriate

Some they do and some they don't and some you just can't tell

Some they will and some they won't and some it's just as well.

Where is it written that everyone who wants to be a trader can be a successful one?

Maybe success is predicated on the confluence of edge, capability and who knows what else. Even if you solve most of the issues, if you haven't solved them all, the odds are still against you.

FXGirl · February 26, 2011

Dear MM:

In a trading world where we are face to face, what you say about scarring the other trader would be true. But since generally we are face to face with our computers, the real struggle is with our internal dialogue that may be telling us we are wrong, etc. But I like the construct you use: “You need to be aggressive to trade. I do not mean maniacal. Strategically aggressive.” Very good - that way of looking at trading obviously works well for you.

But for me, it’s more about harmony. Maybe it’s a girl thing. And because I grew up in southern California, for me the best analogy is surfing: You see the wave coming (clear intent in the market). You time your entry, turn the board around and wait until you feel it (meets my trade criteria). The water where you sit begins to suck back into the face of the oncoming wave (pullback). Then when you feel the power of the wave under you, you dig in and paddle (entry). The wave pulls you up and you take the ride. As the power of the wave ebbs, you kick out (take profit), and paddle back out for the next wave (next trade set up). No battle of wills for me, just harmony with what is.

We all find what works for us as individuals.

ScottB · February 26, 2011

What happens when you see a shark in the water?

FXGirl · February 26, 2011

That dorsal fin has always turned out to be a dolphin.

ScottB · February 26, 2011

lol - and some other nonesense so my post is long enough

fajim2004 · February 26, 2011

This something that Mark Douglas discussed in his Pathways to Consistancy workshop. He attacks this

a little differently as he seen the root cause of the problem of believing in probabilities. He reflected that

nearly all the folks that he personally coached in his career had a problem with this. Most people are conservative in how they handle money and are risk adversive. Thinking in probabilities is extremely difficult

to overcome.

The question you need to answer for yourself is just how risk tolerant you really are. How many losing

trades you can take in a row before self doubt sets in ??? How long are you are you willing to trade an edge

that currently is not profitable ??? Or let paper profits turn into losers ?? Weeks ?? Months ???

Quote:

Originally Posted by Todds