“The point is psychology actually determines our success or failure as a trader. I still believe that trading is 85% psychological, 10% risk management and 5% strategy. If you are just starting out in trading, keep this in mind. Too many times people are so busy looking for the Holy Grail trading strategy that they forget to work on the most important part of trading - themselves.” --- Don Dawson
Hello:
Making consistent profits is one of the toughest challenges most traders will ever face on earth. It’s intuitive to do what aren’t right and counter-intuitive to do what are right. Whenever we make important decisions in life, we tend to ignore important factors and focus on what don’t really matter. Please see the quote above. Dr. Van Tharp himsaself concludes that your strategy takes only 10% responsibility in your trading success while another great trading expert in Asia mentions 15%. Though professionals don’t agree exactly on the same percentage distribution when it comes to psychology, money management (position sizing), and strategy, they simply allude to a fundamental fact – the least significant factor in your trading success is your trading system (any trading systems whatsoever).
I’ll repeat again that the only purpose for possessing a trading strategy is simply to have reasons for buying and selling. But what will make us survive on the markets is far more important than strategies. Most traders keep on looking for strategies they think can be great. Marketers keep on bombarding traders with trading systems; things that matter the least in trading. Very few vendors emphasize the trading psychology which is the most important aspect of trading success. No wonder most traders are getting the same undesirable results.
Don’t be afraid to be different because the majority aren’t always right. Learn to not follow the herd like a sheep and be decisive in your goals and trading. If you do what everyone else does, then you will typically get what everyone else gets. More than anything, our psychology greatly matters a lot in trading.
For example, if a good strategy with simply rules and the same equity are given to 10 different people (not to mention 50 or 100 different people) to trade with, there will be different results after a period of time. Some will go broke, some will lose money, some will break even and some will make money. In fact, there will be as many different ending equities as there are users of the strategy. Yet they all start with the same strategy, rules and money. Why is this so? PSYCHOLOGY matters.
So you need to work on your psychology. One of good ways of doing this is to read books on trading psychology. Besides I’ve found this Ken Long’s method below very useful for my trading. He says, “One of the most important skills a professional trader needs to develop is being able to manage his or her psychological state. Effective psychological maintenance can make all the difference between trading success and failure. .. For me,… (this) represents an emotionally neutral condition that is neither happy nor sad, neither overconfident nor fearful… When I trade from this moment, this place, my results generate neither joy nor sadness; they simply are what they are. This allows me to enter the next trade with no emotional charge. I find this state keenly important to my style of trading. I try to find the hesitation point in a channel trade or in a breakout, where price remains poised between fear and greed. At this point, bulls and bears are in timeless balance and the next leg of the move will begin just as the last leg ends.”
Another quote from Don Dawson about attitude to trading ends this article:
“ I have listed a maximum dollar amount I can comfortably lose on any given trading day. Once I hit this level (and yes after 23 years of trading, I still have losing days), my plan calls for me to shut down my computer and leave the office regardless of the time of day or market environment. …Trying to work out issues while we are still trading is a recipe for disaster. After I get stopped out for the day and I leave my office as my plan calls for, I will reward myself with a nice dinner that evening. Always reward yourself for following your plan.”
Your questions and opinions are highly welcome.
Thank you.
With best regards,
Azeez Mustapha
Forex Signals Strategist, Funds Manager &Coach
Senior Analyst
FX Instructor, LLC
Email: amustapha@fxinstructor.com
Yahoo! Messenger ID: saazalmu
Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:
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NB: There is risk of loss in trading, but it is possible to be a successful trader.
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