Read today's Sunday Times about an article on the Ups and Downs of Forex Trading, how a Mr. Wong made $600,000 with a initial capital of $100,000, fantastic, then up his trading size and lost all together with an additional $700,000 that he put up, amazing. Total loss of S$800,000 in just 4 months. I admire his guts. Would you call this trader a gambler?
He shared that 60% of your time, energy and attention should be focused on managing your emotions, 30% on money management and 10% on your strategy. (His opinion)
What are the emotions that affect our trading?
Fear
Greed
Hope
Anger
Worry
Ego
Stubbornness
Overconfidence
Being human, we are definitely emotional creatures and traders have to really make an effort to control his emotions in order to stay calm. The most effective way is to have a plan, knowing what action to take just in case the unexpected happens.
It's very simple to draw up a trading plan but extremely difficult for most traders to follow up, thus they become shorter and shorter term traders, weaving in and out of the market. It's perfectly fine if they are scalpers knowing what is their edge and able to consistently make money.
For Day Traders, make an effort to trade your plan.
14 comments:
wow what a roller coaster ride! before we becomes consistent traders, we are deem to be gamblers.
i too admire his guts, how many can make 600k with 100k capital?? he is definately a potential successful trader if he is not already one.
i share his view that emotional is the most important aspect for trading, i rank it 90% or more (my opinion)
we learn our emotional make up and adjust our trading plan and money management accordingly, not the other way round.
one way i learn to control my emotion is to listen to music that i love when trading like this one,
http://www.youtube.com/watch?v=jXyUUpaxtcc&feature=list_related&playnext=1&list=AVGxdCwVVULXc9PGnEryZ2GFRQtW4BeAsl
main purpose is not to get too stress out or becomes to boring when trading. no emotion we can't trade, too much of it we'll lost control.
and like the trader mentioned, over trading cos of greed and confident is the culprit for the down fall.
a mistake that even the pro is likely to make. i too often increase my size when i'm trading well. i guess that trader just went a little too far. but still better than increase size when you are losing, right?
Oh, I'm surprised that you ranked emotional aspect of trading to be more than 90% importance to a trader.
How about the rest?
Such as
Knowledge
Strategies
Money Management
Discipline
Though some are inter-related, I think they are just as important to the success of a trader.
Yes, I totally agree with you regarding not to get too stress out when trading.
A very successful trader from home told me that trading should be stressless, it's his winning edge over others and that can be developed over time.
He was a medium size floor scalper, but lost heavily after we went electronic, he took 6 months off from trading, not a single trade just to switch off his mind.
I met him and advised him not to scalp from home but instead focus on Day Trading. That was his turning point, something that strike him very hard for him to wake up from his depression.
Just one simple question, "What's your edge scalping from home?"
We argued over the subject and he realised that he can't beat us at the arcade in term of speed which is so crucial to a scalper.
The world turns around, and now I would like to learn from him how he developed the patience to wait for that "One Good Trade".
ya, not to overrule you, but you are emotional very stable that you may not aware of, much better than the average trader.
i guess its a born thing, some ppl just easily get very emotional over things.
Knowledge, Strategies, Money Management, Discipline are important but that acquire over time through lots of testing and trading. if you are emotional stable, every thing will eventually fall into place. if you are emotional unstable, no strategy will help in the long run. so 90% is an understatement.
to tell you the truth, for long term trading it is just a few trades that really make the big money, most of the time you are very lucky just to get even.
i don't really think of the "one good trade", but when it comes i will probably know, it usually comes unexpectedly. so i don't wait for them.
for inexperience trader, one good way to increase your edge is to be able to define the cost/winning ratio. not win/losing ration (they are relative). so for retail trader with high comm and slippage, day trading will not have an edge. that is also why i ends up trading long term. except for stocks, now the comm is down to 0.1%, my goodness.
few weeks ago, my broker calls me to congratulate me that they have reduce the comms to 0.1 across the board and the will do a rebate.
i ends up told them that i wasn't very please with the news! accross the board? how about me? do i also get 0.1%? with such high volume?
i feel like i had lost some edge!
FAT88,
I agree with you on what's our edge advice to your friend?
Through trial an error, I've discovered my own edge - since I am working full-time and trading part-time.
Now I've settled into my zone as a swing/position trader. This overcomes my lack of "speed".
In my opinion, emotions and discipline goes hand-in-hand.
If you are disciplined enough to follow your rules, then there is no quetion of emotions.
If you are emotionless, you will JUST follow your rules without
giving any thoughts for deviation.
So, let's choose which is easier to achieve and the other will follow on its own.
Of Course, it is easy to say than to follow. :)
haha ya it becomes lack of sleep instead.
Well done! Man of Leisure,
You have mature as a trader when you understand what is your winning edge.
bala, you are correct to say that, ppl who are not discipline will have emotional problem.
but ask yourself, is it lack of discipline that cause emotional unstable or the other way round? my guess is the later.
discipline itself is a force against oneself, if you emotional stable and understood well, you actually don't need to be discipline to be discipline. ya? meaning you are much willing to do it than to force it on yourself which will not last.
Coconut, yes discipline is by force. But, stats says if you follow any routine for 21-days by force, it comes at ease subsequently.
I had tried few things like that and once I realise that it can be done, I gave up, haha...of course, not related to trading.
true true, but the topic is about emotional balance, both positive and negative side.
in fact i'm a guy lack of discipline and hate routine work, (surprise?) i always feel the lack of freedom if i follow routine.
so routine is bad and freedom is good, at least for me, i got to balance these 2 or else i will fall apart trading wise.
is this the last lesson? no more follow through?
what is really our edge in trading?
- Knowledge? there are more professor than successful trader in this world, so no edge.
- Strategies? all strategy can make money one way or another, so no edge.
- Money Management? depends on the strategy, different trader use different money management. some use tiny of their capital and others use all of their capital. some deploy all their capital in positions while others put most of their money in money market or other investment. so no edge.
- Discipline? what discipline? sticking to rules? how to be flexible if discipline where discipline becomes an excuse of stuboness. how to change our rules when market condition change? so no edge.
our edge comes from our sharp minds back up with a strong emotional and psychology make up.
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