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TAG workbooks are packed with valuable information
presented by all the speakers (usually 20 or more) at each conference. As I was
thumbing through this particular workbook, there was a common theme espoused by
the majority of presenters at the conference: In order to succeed at trading,
it's not only important to strive to learn more about markets and trading tools,
but it's also very important for a trader to know himself or herself. This is
part of the all-important--but sometimes overlooked--aspect of "trading
psychology."
I will admit that when I first got into this
fascinating business, I was skeptical of the whole "trader psychology" thing. My
main concern at that time was learning as much about markets and technical
analysis as I could--and my trading mentality or psychology would take care of
itself. However, the more I learned about the markets and about trading, the
more I realized human nature and psychology play huge roles in both.
The following are some valuable "nuggets"
regarding trading psychology that I pulled out of the TAG workbook. It's my hope
that one or more of these "nuggets" will help you better understand your own
trading psychology and the importance of psychology in trading markets.
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Remember that becoming a profitable trader is a
journey, not just a destination. The perfect trader does not yet exist. Try to
become a better trader each day and enjoy the progress you make. Concentrate on
learning the craft of technical analysis and on improving your trading skills,
rather than focusing solely on the amount of profit or losses in your
trading.
-
Congratulate yourself and feel good about a
trade when you have done what you were supposed to do, according to your trading
plan--regardless of the profit or loss on the trade.
-
Don't get overly excited about the winning
trades or too depressed about the losing trades. Try to maintain an even keel
and a professional outlook regarding your trading.
-
Do not expect certainty in a trade. You are
looking for a preponderance of evidence, not proof beyond the shadow of a
doubt.
-
The pain of standing aside and missing a good
trade that your method told you to take is much worse than the pain of losing on
a trade that you entered and exited properly and according to your trading
plan.
-
Your own life experiences shape how you think
about trading. If your first experience with trading was a negative one, the
odds are high that you will not trade in that particular market again for a long
time--and maybe never. The psychological impact of loss and defeat can be much
greater and last much longer than the effects of physical pain. If you were not
defeated psychologically by a negative trading experience, then the loss does
not have such a negative and lasting impact.
-
Education plays an important role in shaping
the way traders think about trading. A formal business education can give you an
edge in understanding the economy and the market in general--but it is no
guarantee of success in trading. Most of the information you learned in a formal
college setting will not give you the specific knowledge necessary to be a
successful trader. To succeed in trading, you must learn to perceive opportunity
where most others see none--and you must seek out the information which gives
you the knowledge necessary for success.
-
Your ego and winning can make you broke.
Winning can create powerful emotions that distort reality. The more you win, the
better you feel, and your ego takes over. The joy of winning is what gamblers
seek. A gambler will lose as many times as necessary just for the thrill of
winning once.
-
Always remember this: You are the sole person
responsible for winning or losing in trading. Don't blame the market or your
broker. Losses are an opportunity to focus on whatever problem occurred during
the trade. Don't get caught up in personal denial.
-
A successful trader quantifies, analyzes and
truly understands and accepts risk. Emotional and psychological acceptance of
risk is what determines your mental state in each trade. Individual risk
tolerance and preferred trading timeframe make each trader unique. Select a
trading methodology that reflects your preferred timeframe and risk
tolerance.
-
The market is not physical. It's an
amalgamation of the mindset of all trading participants. The daily tug-of-war
between the bulls and the bears reveals what they are thinking on a daily basis.
Make sure to look at the market's close in relation to the session high and
low.
-
Never buy just because the price is low, or
sell just because the price is high. Never average a losing trade. Don't become
impatient with the market. Always have a good reason for initiating every trade.
Remember, the markets are always right.
-
Traders need to listen to the market. To listen
effectively to the market, traders need to know and pay attention to their
trading methods, but also pay just as much attention to themselves as they pay
to their charts and the market. The trader's challenge is this: Learn who you
actually are, and then consistently and consciously develop the qualities that
allow you to trade well.
-
As traders, the more we can detach ourselves
from the emotions of hope, greed and fear, the better our chances for trading
success. Why are there hundreds of good technical analysts but few good traders?
Because they need to spend more time on their personal psychology than their
analytical methodology.
-
"If I had eight hours to chop down a tree, I'd
spend six hours sharpening my axe."--Abraham Lincoln. I like this maxim, because
it is similar to trading: Research and learning are very important. Preparation
for trading takes much longer than executing and watching the trade.
-
The market has far more patience than the
majority of traders. There is an old saying that the market will do whatever it
takes to drive the largest amount of traders crazy. Trends can persist as long
as there are traders fighting them. Don't fight the tape.
About the
Author
Jim Wyckoff has been involved with the stock,
financial and futures markets for more than 20 years. He was born and raised in
Iowa, where he still resides.
Wyckoff became a financial journalist with
Futures World News for many years, cutting his teeth as a reporter on the
futures trading floors in Chicago and New York, where he covered every futures
market traded in the United States at one time or another.
Not long after he began his career in financial
journalism, he began studying technical analysis. By studying chart patterns and
other technical indicators, he realized this approach to analyzing and trading
markets could level the playing field between “professional insiders” in the
markets and individual traders.
His extensive studies of technical analysis and
knowledge of markets led to several positions, including chief technical analyst
at several well-known companies. He says his mission is not just to generate
profits for traders but to also provide them with educational and insightful
information because, in the fascinating business of trading, one never stops
learning.
Wyckoff received a Bachelor of Science degree at
Iowa State University, graduating in 1984 with a major in journalism and a minor
in economics. He and his wife have two children, a son in high school and a
daughter in college.
When he’s not analyzing markets and educating
traders, Wyckoff says he loves adventures, from driving a Jeep across the
highest mountain pass in the continental United States to extreme winter camping
in the Boundary Waters to hiking in the jungles of South America.
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