I am sure it is simply because I am a newer trader, but I was wondering if anyone had suggestions for dealing with trader psychology issues. Things such as; 1) loss aversion (fear of taking loss) 2) position anxiety (worrying about when you take a position whether you are taking a position at the right time) 3) patience in position (controlling your desire to take your gains early when you feel the price will continue to go in your favor.) And any other psychological conditions you have come across during trading? I have found that a trading plan specifically assists with some psychological conditions. Setting acceptable loss parameters is another. Controlling my patience I am still dealing with I am not certain I have this one figured out. What are some conditions you have encountered and in what ways have you overcome them or in what ways do you deal with them?
Psychology is the hardest part about the market. I'll try to answer each one individually, but they may end up being the same answer once I get started. 1. Loss aversion. First thing is first, don't risk money you can't afford to lose. If you're not thinking clearly because you're putting in more than you're willing to lose, that will add stress. Never create a position that is so large that you'll never recover, or even be uncomfortable with. 2. Entering at the right time, if you're a trader, is about developing some sort of system that works for you. Once you have that system, find plays that fit into it. You'll be less worried about timing because you'll only be entering into trades when they meet your criteria. If it doesn't meet the criteria, DON'T trade it. Period. If you have no trades on the table, and haven't for weeks, just enjoy the break and research time while you wait. 3. Every trade you enter you should have a target, and a stop loss (trade plan). This can change throughout the course of the trade if you want, but it needs to change for a non-emotional reason. Maybe the fundamentals change, maybe a positive or negative important news article comes out, etc. When you enter though, have a target and a stop. Having a trading plan for every trade will help remove emotion. There's nothing wrong with taking some profit off the table if it goes up quicker than you expected, or exiting early if you get uncomfortable. The key is to just only play for what you can afford to lose. A $1K position doesn't realistically have a chance at losing $1K, assuming it's a standard long equity play. Set your stop somewhere that makes sense and you're really only risking X% basically. Always have a trading plan that's solid, but fluid at the same time when necessary.
One of the problems with trading psychology is recovery. So often, traders fail to "re-set" after the last trade, so they end up trading the current trade as if they were still in the last trade. If a trader were to objectively stick to @T0rm3nted 's steps, it could help with this problem. Plus, over time, Experience = Confidence, and Confidence = fewer psych issues. Good luck!
Three eyes That advise about letting yourself re-set after you take a trade is awesome. I actually was debating this very thing (with myself) the other day. My trading rules force me to reset after a max loss (a red day) by not allowing me to trade for 5 days. The debate I was wondering about is should I amend my rule to restrict a day or two of no trades after a win as well as the 5 day rule for a loss? This could potentially allow my mental state to reset, as you say, and be able to trade without the previous trade interfering.
Personally I wouldn't need a reset unless my mindset was changed, and my mindset stays pretty calm as long as I stick to my trade plan. The only time I'll intentionally reset is if I ignored my trade plan because of emotional reasons.
I do follow a pretty ridged trading plan myself. However, I have notice that the more I trade (the more experience I have) the less impact a single trade has on me. I have learned lessons from my mistakes and perhaps questions like this will aid others in learning from my mistakes. It is always better to learn from other peoples mistakes. Instead of having to make those same mistakes yourself. I guess in a way I have felt the psychological brunt from both side. The elation from a big win, and the despair from a big loss. I know that after I have had a big win I tend to be more daring and willing to take a greater risk. In so doing I end up given up those gains that brought me to elation in the first place. Imo one should (this is a recent discovery for me) take time after a big win to enjoy that win. Let it fuel you for a week or so. By the end of that time period you have gotten used to seeing your account with the gains there and no longer consider them as gains, but as just a part of your account. You will take better care of the base dollar amount of your account if you see it not as previous winnings, but as the natural balance on your account. I have also taken bad loss and felt the need to recover that loss, driving me to take another more reckless trade and end up taking an even greater loss( even if it is a small loss for the trade the combined losses accumulate) Imo after taking a loss one can benefit from taking time off. You don't have to trade, you don't even have to look at the market. ( I do and I take paper trades when for the week that my rules say I cannot trade) yet taking that time to let go of that loss allows a person to come to a state of mind that makes for good trading. If your mind is still focused on those losses you took two days ago you are not clear headed enough to trade. I know this mentality may be obserd to some people, but it is my opinion and the random trader who reads this may or may not benefit from the advise but if you are new to trading try it. You may find that you become one of the 10% of people who actually make it in the markets. (That is you are able to keep your head above the water and not bust account after account after account.)
Exactly, do whatever works for you. If you can stick to your system regardless of how your last trade went, that's all that matters. If you need time off, take it. I don't force time off because if I find a play I like that fits my system, I want to take advantage of it. I don't want to be looking at it 1 day after a huge win or loss and be thinking "well this fits my system perfectly but I need 3 more days off first". You can miss a lot of opportunity that way. If your system finds lots of plays though, you may be in a different spot than me. I can have 10 positions open at once, or I can have 0 open for months.
I find that interesting. The system I developed recognizes significant moves in price over short periods of time. Anything from 10 to 15 cents all the way up to 10 points or more. It just depends on which chart time frame I look at. It I look at a daily chart and see my indicators lining up I know the move will last for more than a week. Or if I am looking at the hourly chart I know the move will last for Aproximately 3 days to 1 week. Or I can drop down to the 5 min or 1 min chart and observe the conditions for a single day. I would be interested to see what the criteria are for your system @T0rm3nted or even to discuss the different systems we use.
I don't have any sort of screener or anything. I'm usually just looking at charts fairly regularly and looking for any type of clear support I see and attempting to play a bounce that has a clear upside. There's no screener/numbers/etc.
So are you simply taking your trades on support and resistance lines, channels, or path of least resistance etc. Without the use of additional indicators? How do you determine at what point you desire to enter a trade. Do you pattern trade and look for setups like a bullish/ bearish flag or a double top/bottom?
Those indicators assist me and give me confidence when they are there as well, but no, I don't necessarily require them. I'll look at the MA's, RSI, how many times support has been tested (whether that be MA support, some round number that's been tested multiple times, etc.), MA crossovers, etc. It's subjective, but I'll set my stop at X% below the support level I'm trying to play a bounce off of. Usually something like 5%, and my targets are usually 10-30% depending on the situation. They're all different, it's just what's worked for me best. Locating support, calling it quits when I no longer like the setup or drop below my stop.
Here is a list of the most important points to develop a positive trading mindset: Develop an effective morning routine. Wake up earlier than usual. Working out or meditating early in the morning can help you to approach the market relaxed and calm. Never stop learning. Financial market education forms the foundation of any successful trader. Always have your losses under control. Develop effective risk management rules. Keep a trading journal. Spot common mistakes and fine-tune your trading strategy. Observe others. Replicate successful strategies and learn from the mistakes of other traders. Control your emotions. Don’t get overly emotionally attached to a trade and practice your trading discipline.
I tend to watch the companies that caused me a loss and perhaps learn what went wrong. Sometimes if I had just waited longer it would not have been a loss. I do the same thing when I sell at a profit. Did I sell too soon? Regardless, I don't worry about it. Don't need the stress. As I have almost no financial training, I use company news articles and other news sources to try to determine if the company has a sound plan and that they are following it. This is hard to do because most companies try to put a positive spin on everything. Then you have the traders that are trying to drive the stock down with negative comments so that they make money on their shorting. What is the truth? Sometimes the truth will never be known. Again, it's a gamble regardless. My current favorite gambles are Jervois Mining and First Cobalt. They both have hard assets and should be able to start producing profits soon. They are both penny stocks, which many trades avoid, but for me the risk/reward is worth it. If I had more money at my disposal I might do things differently. Pennies are all I can afford. (If I lose, no big deal. If I profit, hurray!)
Anything you become obsessed with can control your emotions, if you let it. Consider how many people have gotten divorced because of finances and then consider the high probability that emotions were involved.
Thanks for the worthy advice, don't you think that controlling emotions is the most difficult thing to do while trading ?
No, emotions aren't involved much with my trading. However, I don't do trading for a living as I have a full time job in industry. I have a harder time trying to understand why some stocks go down with good news and others go up with bad news. There is obviously some information acting I am unaware of.
Training yourself to relax your muscles and manage your breathing can go a long way towards managing the intensity of an emotion.
Your comment is highly appreciated, personally, I also have a full-time job and I believe that it's really challenging to trade daily and have a full-time job at the same time. I got your point, give me the chance to tell you that negative news will cause people to sell stocks and positive news will cause individuals to buy stocks so stock prices move all the time according to supply and demand. Best Regards.
