Psychology... the poll

This is a discussion on Psychology... the poll within the Psychology, Risk & Money Management forums, part of the Methods category; Originally Posted by theroguetrader " Psychology is overhyped " - Yea..?? Then what caused the NR queue recently to get ...

View Poll Results: Does psychology matter in trading?
Yes, without it, you are doomed to failure. 113 87.60%
No, it is overhyped. 16 12.40%
Voters: 129. You may not vote on this poll

Reply
 
LinkBack Thread Tools Search this Thread
Old Mar 22, 2008, 7:20pm   #33
Joined Feb 2007
Quote:
Originally Posted by theroguetrader View Post
" Psychology is overhyped " - Yea..??

Then what caused the NR queue recently to get BIGGER - AND - BIGGER...??

was that not an example of " MASS PSYCHOLOGY " at its finest..????


Great example, and really in context. This 'psychology' lesson provided by NR should boost a newbies eye for a trade no-end.
Paul71 is offline   Reply With Quote
Thanks! The following members like this post: Lightning McQueen
Old Mar 22, 2008, 7:59pm   #34
Joined Feb 2007
The whole subject of trading psychology is aimed at the beginner trader, the novice, the uninitiated. There is an air of mistique woven into the fabric of trading psychology that appeals to the newbie. Having had little or no success with TA, indicators and all that, they start to ponder wether or not the secret to success lies within all those trading psychology books.....Back to the screen 30 psychology books later.....And still non the wiser, and non the richer.
Paul71 is offline   Reply With Quote
Thanks! The following members like this post: dbphoenix , wasp
Old Mar 22, 2008, 8:11pm   #35
 
dbphoenix's Avatar
Joined Aug 2003
Once one has a consistently profitable trading strategy, the "psychological issues" evaporate.
dbphoenix is offline Training literature vendor (e.g courses / spreadbetting guides / eBooks)   Reply With Quote
Thanks! The following members like this post: Paul71 , wasp
Old Mar 22, 2008, 9:28pm   #36
 
Lucrum's Avatar
 
6 Posts
Joined Feb 2008
From Brett Steenbarger's Blog:
"One particularly uncomfortable truth for traders is that their lack of profits is simply due to trading randomness. It's not a lack of discipline, a lack of trade planning, or a lack of tweaking the right indicators that create losses--all of those are relatively easy to address. No, losses are caused by trading strategies that simply do not work, and that's not so easily remedied.

It's pretty threatening to think that what you're devoting time and money to has no grounding in reality. It's much easier to simply not think about it. Like the spouse who manufactures one excuse after another in the face of a partner's erratic behavior, we construct all sorts of explanations for our shortcomings.

Or we just put the blinders on. When I started working with traders some years back, I asked them to indicate their profitability over the past year. I was shocked that most could not give me (or would not give me) a response other than a hesitant, "I'm coming close to break even." Many had simply stopped looking at their account statements. The idea of actually drilling down into their trade data and extracting information about what they were doing right and wrong was quite threatening for them.

Sadly, there are plenty of willing accomplices in this denial. Coaches eagerly assure you that "psychology" is the difference between winning and losing in markets; gurus promise you hidden market secrets that will enable you to unlock your potential; publishers crank out books on how you can succeed at trading. But no one solicits trading magazine articles, workshop presentations, or books on the topic of *lack* of edge. No one wants to hear all the first-hand stories I can tell about lives and relationships harmed and even destroyed by false hopes and promises.

That's too uncomfortable. No one can make money from it. So we don't look at it; we choose to not know. But I'm telling you truthfully: I've seen just as many lives hurt or ruined by trading as enhanced.

A while back, I was asked to submit a proposal for a workshop hosted by one of the major financial exchanges. I thought a real public service would be to present research and first-hand observations pertaining to addictive patterns among day traders: how to recognize trading addiction, and what to do about it.

The idea was shot down immediately. As it turns out, it wasn't the conference coordinator that pulled the plug, but the corporate sponsor of the event. Sponsors don't make money when people don't trade or when they trade in a more controlled fashion. People, after all, come to hear about trading as a dream, not as a nightmare.

A little while back a trader begged me to talk with him over the phone and help him with his "self-defeating" emotional patterns. In an unguarded moment, I agreed. He told me about his anger and frustration during trading and how those had led him to violate his risk management rules.

I asked the trader to give me examples of what was going on during these periods of frustration. Many of the occasions boiled down to times when he was profitable on trades, but then saw those profits reverse. I drilled down further to get examples of those trades and discovered that, even though he called himself a daytrader, many of his reversals occurred on positions held overnight. Indeed, he proudly told me his rule that limited his overnight exposure to only his most profitable daytrades.

A bit skeptical, I asked him what he based the rule on. How did he know that profitable positions intraday would become further profitable if held into the next day?

He seemed stunned that I asked. I guess we're all supposed to know that "the trend is your friend" and that you should always trade with the trend.

I quickly got on the computer, downloaded daily open-high-low-close data for the S&P 500 Index (SPY) going back a little over a year (to the start of 2007) and threw together a spreadsheet that looked at returns following up days and down days. There was no programming or advanced Excel techniques to what I did; it took all of a few minutes.

To recreate what I found: When SPY was up on the day (N = 159 trading days), the next day's open averaged a loss of -.02% (79 up, 80 down). Similarly, when SPY was up on the day, the next full trading day averaged a loss of -.13% (75 up, 84 down).

When SPY was down on the day (N = 146), the next day's open averaged a gain of .03% (86 up, 60 down). When SPY was down for the day, the next trading session as a whole averaged a gain of .11% (85 up, 61 down).

So, in other words, the trader's rule had absolutely no grounding in reality. If anything, he would have been better off fading the prior day's direction. He was becoming frustrated and angry because he was losing his profits. He was losing his profits because he was trading a setup that had no validity. Frustration wasn't causing his trading problems; his bad trading was generating (understandable) frustration.

But, for me, the eye-opener was that he had never thought to check out his rule. Even if he didn't want to crack an Excel primer and learn how to find answers for himself, he could have simply kept records of his overnight trades vs. his intraday trades and seen what was working and what wasn't.

But he didn't do that.

That's when it hit me: He didn't *want* to know.

My caller was not happy with my analysis and did not seek me out further. I didn't deliver what he wanted. He wanted a self-help psychological technique to keep him disciplined, so that his rules would make him money. He didn't want someone pointing out that his rules were invalid and that following invalid rules with discipline will simply lead to ruthless consistency in drawdowns.

As our conversation wound down, he defensively explained that he had plenty of other patterns that he traded that were valid. One of his favorites were opening gaps. Long story short, I examined the spreadsheet and told him that this, too, was coming up blank. To recapitulate, upside opening gaps led to 83 wins and 82 losses for the coming trading day; downside gaps led to 71 wins and 69 losses. There were no significant differences in the sizes of winners and losers. There was no edge there at all.

"But that's for the S&P," he said. "The gaps work for the stocks."

"Which stock would you like me to run the data on?", I asked. He said no thanks; he didn't need the data.

But the analysis wasn't the point. The point was that he was trading a belief in an edge, not an edge that he had independently validated. His entire trading strategy rested on (blind) trust in these patterns. He didn't *want* to know if the patterns were good, because that--like the spouse's actual discovery of an affair--would necessitate facing unpleasant realities and making difficult changes.

I recently started work with a trader who wrote to me in elaborate detail of recent trading losses. He immediately offered to share his account statements with me so that I could help him change what he was doing. No denial. No defensiveness. No willing blindness. Just an open kimono. I confidently predict that this trader will be successful. He's doing the hard work right now: he's facing shortcomings with eyes wide open. By owning what's worst with his trading, he'll discover the best within him.
Lucrum is offline   Reply With Quote
Thanks! The following members like this post: black bear , peto , rags2riches
Old Mar 22, 2008, 9:32pm   #37
 
Lucrum's Avatar
 
6 Posts
Joined Feb 2008
I'm not saying psychology doesn't matter, IMO it probably matters more to some traders than others.
It seems to matter a fair amount to my success. But sometimes I think it may be a little over hyped.
Lucrum is offline   Reply With Quote
Old Mar 22, 2008, 10:03pm   #38
 
1 Posts
Joined Mar 2008
[QUOTE=theroguetrader;406114]
" I must take this profit before the market takes it back " (FEAR)..? - (if you get on a bus and the destination is 20 miles away - (a trend) - why do people get off at the 1st stop)..? The reason your making money is because you got on the CORRECT BUS... !!

ADMITTING YOUR WRONG - can be VERY hard to do ... !! When you get out of a trade - NEVER LOOK BACK...... !! - when you do - THAT is how a bad habit always forms !! - you look at the trade you just got out of for a small loss (the first loss is usually the smallest), and see had you actually stuck with it for another couple of days you would have made money .. !!

---------------


You're saying run profits, cut losses, once you're on the "correct bus*, sure; your method is one approach necessary for dealing with regret. There is no "correct bus", though; it's often how we choose the bus, correct or not, that counts. Even when you cut your profits too early in the trend you worked on, you still made a profit; and, waiting to reduce losses can be a good idea in some cases. Both depend on how much you let yourself get in the way of profit. One can subdivide regret of choice into doubt of plan and frustration of luck. Seeing "the CORRECT BUS" as the prize of a short walking distance to the store, like below, reveals how many people choose which bus and thus which personal blocks to profit:

At the local superstore, the parking lot is always almost all full, except at the edges. It's a strip mall, so there are also side lots to park at. I find there are (at least) two types of people -- Those who automatically drive down the busiest aisles hoping to luck into a close spot to the store (which almost never happens), and those who let go of this possibility and realize it's almost as fast to walk (the primary cost, or prize) from the
side lots or far spots. All of the people go the the far spots most of the time. The former people remind me of lottery-ticket players, who depend on luck; they're confident and willing to go thru alot of the costs of frustration and time to be with the
'in' crowd. The latter people are the clock-punchers, who depend more on average costs,
or preparation; they're not easily frustrated and are willing to miss the occasional big runs (a close spot to the store) and may go thru some doubt about the path to be stable. Most trading seems to be a careful balance of the two approaches, few people knowing when a close parking spot frees up often enough to risk a change in path for some extra luck from a more-correct bus, thus able to deal with doubt and frustration in their trades.

Last edited by iw-go; Mar 23, 2008 at 11:39am.
iw-go is offline   Reply With Quote
Old Mar 22, 2008, 10:08pm   #39
 
Crap Buddist's Avatar
Joined Jan 2007
The phantom of the Pit & the Operatics of Trading

Quote:
A while back, I was asked to submit a proposal for a workshop hosted by one of the major financial exchanges. I thought a real public service would be to present research and first-hand observations pertaining to addictive patterns among day traders: how to recognize trading addiction, and what to do about it.

The idea was shot down immediately. As it turns out, it wasn't the conference coordinator that pulled the plug, but the corporate sponsor of the event. Sponsors don't make money when people don't trade or when they trade in a more controlled fashion
Now that is interesting psychology . The intent of it all. Isn't it in a traders interest to know that the industry sets them up this way?

Some traders seem not interested in this psychology of price governance? the control of it. And fair enough if one isn't or doesn't care for it and is happy to swing away then well and good.

hmmm what popped into my head was that singer Paul Potts, the operatic ,car phone wharehouse salesman to world stage star singing nessum dorma and the like. Sounds great . He's a millionaire now etc..... now heres the thing the operatic critiques think he's a pile of ****, technically dog **** for a tenor operatics, some could'nt even give his recordings more than a few minutes etc.....

So I recognise that some will be happy to be Paul Potts of trading but some desire to stretch to Pavarotti standards, technically superior a greater artist perhaps.? Both goals are personal to each individual I guess.

Anyway. I'll leave Pottsy below in case people don't know of him. Good tune? But you can liken him to swingin away on a bolly strat ,oblivious (for whatever reason) to greater depth of desire for understanding of his craft. Then again maybe he see's it as just a J-O-B. ?

Did right to give up his day job though Maybe in a few years with some classical training he will surpass Pav? Good luck.

Take it away Paulie.....

__________________


"You smell that? Do you smell that? Coin, son. Nothing else in the world smells like that. I love the smell of Coin in the morning."~ Colonel Coin
Crap Buddist is offline   Reply With Quote
Old Mar 23, 2008, 9:26am   #40
Joined Jul 2006
Quote:
Once one has a consistently profitable trading strategy, the "psychological issues" evaporate.
Exactly right.

If one has a nailed on strategy which provides something like 70% hit rate at 2/1 or 3/1 RR, there is absolutely no point in getting emotional, weepy, touchy-feely or panicky about the whole thing.

So, better to work on your strategy than your psyche.

IMHO of course.
yacarob1 is offline   Reply With Quote
Thanks! The following members like this post: wasp
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Similar Threads
Thread Thread Starter Forum Replies Last Post
Poll Suggestions Sharky T2W Feedback & Announcements 16 Apr 18, 2004 8:34pm

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)