Trading Psychology

Trading psychology is ‘something’ that a trader creates from existing personality traits that are not initially related to trading, but surface from trading without method understanding. The outcome of course is fear, but wouldn’t this be the case when doing anything that was perceived as ‘dangerous’, and which was being done without the necessary understanding and skills? Trading, with its inherent characteristic of accepting financial risk while participating in unknown outcomes, is certainly ‘dangerous’, and thus the more preparation and understanding that is needed. Trading psychology has become so widely discussed and promoted through books and consultants that it has become a very convenient rationalization and excuse for losing. It is said that trading is 90% psychological and 10% methodological. The trading method viewpoint will suggest that not only are these statistics not the case – trading psychology does not exist. Trading method will be the determinant of profitability, and this will be done through:

• The ability to understand the method’s inherent strengths and weaknesses
• The ability to maximize these strengths and minimize the weaknesses.
The importance of trading psychology and planning saying that:
• You can’t trade without a plan that first defines a trading methodology
• The plan should then further defines the components of the trading methodology that can be turned into trading setups
• The specific setups and trade quantity needs to ‘match’ the trader’s personality. The objective is to have created a plan that includes core repetitive setups with a positive expectancy that you can recognize realtime AND that you have accepted the implications of in terms of related risk reward – BUT this might not be enough – there still may be issues as related to emotion AND fear that circumvent the implementation of the plan.

So trading psychology plan is a plan that includes a series of steps that start where method implementation ‘hangs-up’.