Category: Trading Psychology

TradingTrading Psychology

How to effectively improve your trading

Change comes more easily if it is carried out daily over a long period. And it’s best if the new activity (such as analyzing or watching for a new type of exit) becomes part of your daily routine.

If you find something worth introducing or changing, the best way is to try it every day for a while to form a new habit.

Books & TrainingsTradingTrading Psychology

How the best traders improve their trading: self-development

The best of the best traders are constantly constructively satisfied and at the same time dissatisfied with their achievements.

Traders' StoriesTradingTrading Psychology

Lessons from 50 years of trading experience: key skills and achievements

Survival on the market

The best traders I’ve met pointed to survival on the market as their main achievement. By studying their biographies, you can benefit in one particular way: you will strengthen your ability to adapt. Markets are changing and will continue to change, sometimes dramatically. Alternative data, big data and AI are coming into widespread use.

The best traders are defined by three key words: adaptation, proactivity and resilience. I’ve talked to traders who have more than 50 years of market experience. They started when orders were still placed over the phone with a broker.

Each of them has survived huge changes, not only survived, but was able to use these changes for themselves.

This is no small thing, most traders and investors, are not able to survive even a year on the market! And they not only survived but also tried to use the new that came along to their own advantage. And they succeeded.

Proactivity

Such an attitude is called proactive. They actively looked for the new opportunities that the change brought. They repeatedly changed their systems, tested them, refined them, learned new things about the markets and used this in their decisions. They were constantly learning and continue to learn, as many of them are still actively trade! What is a threat to some may be an opportunity for you. Try not only to survive on the market, but actively (pro-actively) take advantage of the opportunities this new thing brings. The world belongs to people who learn. A system that “always works” is a huge rare thing, and at best brings only small profits. Set your mind on learning, developing your system and psychological advantage.

P.S. I have included my conversations with traders in the book Conversations with Forex Market Masters. You can get it here: ForexMarketMasters.com/conversations-with-forex-market-masters/

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The cardinal rules of trading according to the best traders in the world

The cardinal rules of trading according to the best raders in the world

One day I came up with the idea of finding the best traders in the world and then asking them about everything that is relevant for achieving success on the market. I wanted to know their full story — from the beginning, up until now. In the result, I interviewed almost 100 traders from all over the world. One of the questions was “What are the cardinal rules of trading according to you?” Check it out, what some of them told me…

I have seen many lists of cardinal rules. They are almost all the same. I will give you a different list of rules. One you probably have never seen before. There is no law against any of these things:

  • A passion for trading,
  • Self-control,
  • Humility,
  • Faith in yourself and your trading plan,
  • Being good at chart reading,
  • Being kind to others and not trying to get it all,
  • Being patient to wait for your trade,
  • Being at peace with yourself and with the markets,
  • Being joyful in the knowledge that you can win in the markets,

All of the above add up to truly loving to trade, and:

  • LOVE as “Perfect love drives away fear”.
- Joe Ross

I don’t really have cardinal rules other than limit your potential losses. If you suffer too much of a consistent drawdown, step away from trading for a while. That’s something typical, what most experienced people will tell you. Stop trading and find out what you are doing wrong.

Also realise that trading may not be for you. I always use the example that I’ve been trying to learn Spanish for the last two or three years but languages are not for me. I find it very difficult and Spanish is probably the easiest language to learn, for an English speaker anyway. I just have a terrible time. I would not even think of making my living where I had to speak Spanish.

So many people should realise that trading may just not be an appropriate business for them. As far as the cardinal rules go, I don’t have ones. That makes it sound like it’s too simple if we make some rules and be successful. And it’s not the case.

- Rober Miner

Build a plan. I can’t tell you: trend-following is better than counter-trending, swing trading is better than scalping. Everybody has to find what kind of approach is best for his personality. Whichever thing you choose, build a plan of what you are going to do.

I always say that it’s hard to make decisions and imagine how hard it is to make decisions when you are under stress. And when you are trading, you are definitely under stress, that’s normal.

Decisions should be made before clicking on the mouse. Once you have clicked, everything should already be decided and you should know what you are going to do next.

- Andrea Unger

Plan the trade, trade the plan. Define the market.

- Mostafa Belkhayate
  • Learn to allow yourself to lose or not be right.
  • Develop a procedure or trading plan.
  • Whether discretionary or automated plan the trade, trade the plan.
  • Never catch a falling knife.
  • Bulls make money, bears make money, pigs get slaughtered.
  • Determine your targets and stops based on expectation.
  • The market is always there. Trade to fight another day.
- Albert Bruno

I follow my 3 basic trading rules. When I hit something I’m not sure about step aside, fall back on the 3 basic rules and if you’re still unsure leave it. There will always be another trading opportunity.

It is better to be out the market wishing you were in, than in the market wishing you were out.
Always know what you are going to do, when you are going to do it and why.

Never chase a trade. If I miss a trade, so be it.

- Phil Newton

Rule 1: Trade what you see, not what you hope to see.
Rule 2: The bottom-line is that the market doesn’t care what type of analysis you use or how smart you are - it is always right.
Rule 3: Never hope, wish or pray as that is a sure sign that you are in a bad trade.
Rule 4: When you are wrong, you are wrong and just get out of the trade immediately.
Rule 5: Don’t be impatient and force trades to happen.
Rule 6: Never enter a trade without a money management plan.
Rule 7: Have an exact strategy for entering and exiting all trades and never deviate from it.

- Jeff Wilde

1. Plan your trades and trade your plan without wavering!
2. Do the dance you are taught until you learn a dance of your own. In other words, don’t change a system you have learned until you fully understand the system, the market and yourself!
3. Trading is a business, so know your performance numbers!

- Todd Judkins

There is more trading wisdome!

Yes, I wrote an e/book containing selected interviews with the best ones of them. You’ll find there opinions of the world-famous traders, millionaires, winners of international contests, and people who had control over market and have plenty of personal experience in this matter. Some of my interviewees had more than 50-year experience in all of the possible markets.

You can fint here: “Conversations with Forex Market Masters

I asked over 80 questions like the one above. I truly hoped to discover everything that decides about the success of the best ones, all the problems standing in the way of the profitability and possible solutions to them.

Check it out: “Conversations with Forex Market Masters

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How to deal with trading losses: 5 steps to overcome loss in trading

5 steps to survive a painful trading losses

“Everyone has a plan until they get hit hard in the face”
– Mike Tyson

The reasons you get punched in the face in trading can be many: an attack on a refinery, a bombing, a flash crash, … or more mundane: a strong move and sl. A quick rise in price followed by an even quicker fall. An upward impulse, a downward impulse and a breakout of previous lows. You are on the minus side.

First: ALWAYS think ahead trading losses

Always, but always, I repeat always (did I already say always?!), you should think through the possibility of such a situation beforehand.

The best of the best traders I have had the pleasure of talking to have a saying (I will say it in my own words): “I know that the biggest loss is still ahead of me. Will it be today?”

This attitude protects them from a couple of things – going in with too big trade position and making a senseless decision in the heat of a market battle.

If you take the possibility of such a situation into account then… you will protect your capital (this is the first and most important rule of a professional trader), secondly your mental toughness – reactions (anger, frustration, rage, panic…) will be less.

You will protect your psyche (this is the second basic principle of a professional trader invented, or rather, discovered by me).

The following descriptions are not a recommendation of specific actions, because these must be tailored to the situation and still preferably consulted with a lawyer or even several.

trading losses - new city trader magazine

Second: Evaluate the scale of the trading losses and damage.

Do not combine, they will check anyway.

Third: Prepare a plan.

A plan built under the pressure of trading losses is usually worth little but… it’s always something. At this point, I encourage you to think about what you would do in a very difficult situation, how you would recover from a huge trading loss. Again, I refer to the situation when if today you realize the magnitude of the problems and destruction you can cause with your decisions then… you will become wiser and more cautious.

There is a saying in London City that if you have doubts about your action then consider if it fits on the front page of the Financial Times? This is usually sobering and gives a very valuable perspective.

Fourth: don’t combine, don’t hide from your superiors (Nick Leason put Barrings Bank down this way) and yourself the size of your losses and the fact that you have a problem.

If you already have a plan then go with it or a suggestion from others on what to do to get out of the problem. Usually the size of the problem is paralyzing and people are grateful for any hint of a solution.

How to prepare yourself for a big trading losses in the future

Fifth, and most important – think today about what you should do, what you would advise someone who got hit like this and has a loss.

If you do this exercise today you will benefit in two ways:

  1. you will be better prepared at the moment when indeed shit hits the fan.
  2. You will be more cautious when trading, knowing that anything can happen in the market and there are things that will break even the toughest traders.

A trader to whom I suggested this exercise told me after a week that when he did it and saw that he could (because he could) have such a situation he broke into a cold sweat and thought he would do everything to make sure it didn’t happen.

Just thinking about the situation, he imagined what he would have to endure as a consequence, how his colleagues, superiors would approach him, how his family would treat him, and that such a negative situation could last for months and years.

A cold sweat covered him and after 5 minutes of just imagining the situation he was already a different person.

To summarize:

Realize that the “mother of all losses” is still ahead of you.

Think what your colleagues, family and half the world will think about what you will do.

Think whether your idea is suitable for the front page of the Financial Times. And if so, stay away from it.

Think that the unforeseen negative consequences of what you do could last for years.

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Trading Psychology

3 thing to master emotions in trading: where do they come from? 

The best traders have both channels functioning well even in the most difficult situations. This means that even under the influence of strong, or even very strong emotions in trading, the best traders are able to make good decisions.

TradingTrading Psychology

Mental Toughness: How to become a successful trader? Learn key secrets of best traders.

In the long run, the best and mentally strongest traders are characterized by Mental Toughness to losses and big losses, ability to cope with long periods of losses and then bounce back.

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Underestimated sources of stress in trading. Yet critically important.

How to deal with trading stress

A minor problem in trading that has occurred may be felt by you as very painful and serious at a time when you are particularly sensitive to stress, when your mental condition is weakened. The cumulations of negative events affect your trading results, especially losses and mistakes. It is best not to trade then. Stabilize yourself.

Stress in trading and its impact on your results

You become particularly sensitive to stress, and your psychological reaction as a trader is greater and more painful when non-trading stress occurs: you are ill, you or a relative have an accident, a family member or friend dies, you have personal problems (e.g. quarrels, divorce, tensions at home, especially permanent), you have serious problems at work (especially permanent), etc.

Non-trading stress affects trading in the same way as it affects many other situations. Because… why not?

Very important: Stress from different sources cumulate.

Reactions to stress in trading

At times when you are under severe or permanent stress in a field other than trading, you will be more attentive because market failures will be more difficult to deal with and you will be more likely to be knocked off balance.

This increases the number of errors and lowers your intellectual capacity as a trader, so you may find it more difficult to analyze beforehand as well as to trade.

It is possible, but it will be more difficult and you should be more careful in such situations.

How to reduce stress in trading?

You may want to consider what you can do to reduce your non-trading stress. Often, for example, we are the source of our own conflicts and stress for others, and they will return the same to us, creating a vicious circle of negative reinforcement.

If you are in danger of losing your job, for example, think about what you can do to reduce your costs, so that you have peace of mind about the future: peace of mind brings a sum set aside for a year or a year and a half to cover all costs for yourself and your family, plus some extra for unforeseen accidents.

I have seen a situation where a young trader made a down payment from his third or fourth salary for a Bentley (fixed costs every month, installment plus insurance) and moved into a luxury apartment (again, high fixed costs every month). On top of that, there were weekly parties that he funded. As a result, he was spending almost his entire paycheck. There was stress about keeping it all up. Every problem at work caused him further stress, he was not sure if he would lose his job. He got into a negative feedback loop – the accumulation of stress plus parties and lack of sleep caused him to make more mistakes and have worse results.

This is the worst possible situation – he caused himself a state of permanent stress, which had a negative impact on his trading performance, which in turn caused more worry and more stress. A vicious circle. In the long run, it’s a recipe for layoffs, financial disaster or loss of business, or all of the above.

Take a look at your situation and ask yourself if you yourself are causing negative feedback that is (or could be) affecting your trading performance?

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What are qualities of successful traders?

Common traits of top traders

This post is hugely important, especially for traders outside of funds.
The basis is to observe the best traders, a specific behavior when they are successful.
Interestingly, the same behavior is observed in the most outstanding athletes, businessmen, members of elite special units.

The best of the best, when they are successful – they want to be even better. Therefore – they continue to educate themselves. They still learn about their strengths and weaknesses and work on them. They continue to train, research, and develop technical skills – in our case, knowledge about markets, new analytical methods, new sources of advantage, new strategies, indicators, and tools to make their work easier.

Professional development has become a lifestyle for them, something they do regardless of success or failure.

The success they enjoy is certainly gratifying, but it is also contextual, it is an (inevitable) side product.

Interestingly, they often derive more satisfaction from this effort than from the success itself: in the market, in business, or in accomplishing a very difficult mission.

Learning, development, overcoming oneself is for them a lifestyle, a passion that consumes them, a blessing that success brings them and a curse that consumes practically all their time.

In short – their secret is passion.

Passion enlightened, I mean by that you know your strengths and weaknesses well and you work with specifics. And if we’re talking about specifics then we’re also talking about measuring results, states, progress.

But that’s a story for a completely different article, which I’m sure will be written at some point.

What are qualities of successful traders?

The best trader’s advantage consists of 2 parts and to systematically earn you should have both.

  • technical
  • psychological

What are the advantages of the best traders?

Technical advantage – I understand it as all the skills and knowledge that make up your trading system.

Do you know what exactly your advantage is?

To show the extreme advantage I will use the example of the best traders. Everyone else has some kind of advantage “between” the best and the weakest (who do not have these traits at all or at a very low level).

What creates an advantage of best traders?

  • Access to unique knowledge, preferably before everyone else.
  • Knowledge about companies’ plans, new products (which is unavailable to others), that’s especially in a case of the stock
  • Ability to reliably estimate companies’ results before they are published
  • Knowledge of political changes and their impact on the markets
  • Use of alternative data
  • Use of market formations that pay well and that others are not aware of.

This can be accompanied by:

  • knowledge and ability to use technical analysis
  • finding specific entry points and methods
  • using formations that others have overlooked or using what is known but in your own unique way

How to build an advantage in trading?

The advantage of the best traders is usually built from several things at once. It can be a hybrid of several things, e.g. it can use its knowledge of company movements, identify entry points through technical and volume analysis and execute the entry itself through an automated system which makes great use of liquidity.

The advantage of the best traders can come from better tools, e.g. for building positions, for maximizing positions (there are some of these in the biggest funds) they improve results and simplify life.

You will find your advantage if you answer the question:

On what basis do I make decisions about the choice of an instrument (company, commodity, currency…)?

Some systems are based on fundamental analysis, macro analysis, company analysis, supply and demand analysis (e.g. commodities), then we have technical analysis, price and candlestick formations and a multitude of indicators.

You will see your advantage (or lack thereof) when you ask yourself what is unique about your system?

You may answer me that you use, for example, well-known price patterns, triangles, flags or similar. But this may mean that you are doing the same thing as everyone else. There is nothing wrong with that if you trade on a small scale, privately or as a hobby.

However, if you are or want to be a professional trader it is not enough. Formations, elements of technical analysis work sometimes and sometimes they don’t. If something repeats over and over again big traders will enter the market and use the accumulated orders for their own entries (stop hunting is an example) and your advantage will be gone sooner than later. A pattern that worked very well will suddenly stop.

The best traders not only know exactly what their advantage is, but also go to great lengths to improve it.

This post is not meant to give you a ready answer on what to do and how to do it, but rather to draw your attention to a problem that may cost you a lot in the future.

You should, like the best traders, know exactly what your trading advantage is and build on it.

If you don’t know this, I hope I tugged on your arm and told you that you fell asleep at the wheel.

Nothing has happened yet, but you have fallen asleep.

PS. For more on the use of alternative data in trading for yourself, but also for large trading funds, check out the latest issue of New City Trader. Subscribe below, it’s free.

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How trader’s mind works?

Our mind works in several basic modes.
A plan prepared calmly is rational, well thought out and sensible.
However, just before the entry, strong emotions arise and suddenly the same plan seems weak and not adapted to the market.

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