8/1 – Crash Course in Applied Trading Psychology

I have completed reading the entire Trading Psychology book (319 pages plus the preface) and have made notes on each chapter, resulting in a 23-page word document.  It was a very interesting read – and like I said – it not only made me think about my trading operation, but also about ways that I behave and think about other areas in my life.

So what now….?

I think there’s a lot of value in this book – and I really need to implement and apply the material of the book.  So as well as completing the development of a single trading strategy, I will also progress with a concentrated study of this book.  This really is not too dissimilar from when I was working my way through textbooks in Management Studies, or Management Information Systems, or Commercial Law, during my university business degree in New Zealand.  However the key difference here is that I am looking for a rapid and concentrated application of what i am learning, rather than being questioned on the retention of my knowledge in a 3hr exam at the end of the semester.  I am not sure whether all humans, or me in particular, have a tendency to want to create models for everything – but I found it very helpful to create an overview diagram of what I am trying to achieve with the detailed study of this book.   So here’s a diagram of what I think I should be learning – this is based on pages 291-296 of the book:

Trading Psych Th Fr

And this next diagram

Trading Psych Action Categories

So as I go through each chapter in pain-staking detail, the above diagrams will help to remind me where I am trying to go with all the material, and where each chapter of the book seems to fit into the bigger picture.

There are 13 chapters in total.  Each chapter will likely take on average 1-2 weeks for me to digest and work through and apply.  Thus I am looking to complete this important exercise sometime between April and June 2015.  When I was trying to plan this out, it seemed a bit like I had just read a 13-chapter book on how to drive a car.  Each chapter contained some critical points, and things that you knew you had to learn or wanted to apply right away.  It’s difficult to step back and figure out which chapter you should do first.  It’s like I want to do everything at once.  So the most logical approach might just be to start at the beginning and work through to the end, rather than trying to judge which chapters are likely to have the most powerful immediate impact.  I think all of the chapters will be very helpful – and if I am patient, I will have made my way through all of them within 3-6 months anyways.

And here’s how I hope/plan/believe that this “crash-course in Applied Psychology” is going to impact on my trading:

Trading Psych 1

Changing to this……

Trading Psych 2

So in a nutshell the emotional states resulting in bad trading habits are dampened down (though not eliminated). This is seen by the blue color changing to green for some states, and to a very light beige color for others.  Additionally the states that already produce successful habits are amplified or magnified – changing from green to blue.  And finally new emotional states, to which new successful habits are matched, are created – these are also amplified – hence the blue color.  Thus now mostly, when working in the trading session, I am spending time in emotional states (or radio frequencies) that result in good trading patterns and habits.

Bearing in mind that the financial markets always present ambiguity and uncertainty thus traders are prone to be at their worst in emotional states – hence the odds are always against the trader from the outset – and of course, the transaction costs then tilt the favor further in the direction of the markets.  Thus I have to make a real conscious effort not be fall into the trap of the wrong emotional states.

Finally, there are a couple of points I wanted to make in relation to the last chapter:  (I will also re-read the summary at the end of the book (pages 291-319) on a regular basis)

  • Having supportive friends and family around you seems to be the most important trading psychology strategy of all – it requires a lot of concentrated effort and dedication to work on your self-development and to be immersed in the markets – it takes a lot of understanding from the close ones around you.
  • The large amount of hours (weeks, months, years) required to become truly successful in the financial markets mean that only a person who is truly compassionate about trading will hang out and persist through the very long learning curve (and must have the deep pockets for it too).
  • My own thoughts: In talking ‘years’ here, the reference is to working in the markets on a full-time basis, not somebody who trades the market part-time or spends 1 hour on the charts on the weeknights doing EOD-swing trading.  No, we are talking about someone who is completely immersed in it!  [I am not sure how this reconciles to someone who attends training courses, uses established trading strategies and/or works with a mentor.  What is the appropriate comparison? Should aspiring trades be compared to people aspiring to be musicians or writers? Should they be compared to people aspiring to be professional athletes? People aspiring to be qualified accountants? Individuals aspiring to be certified plumbers or carpenters or hairdressers?].

So what do you need in order to be a profitable trader?

I want to revisit what I think is required in order to become a successful trader – I have made two posts about this topic on previous occasions:

I am now going to abbreviate this to simply:

  1. At least one proven, tested and profitable trading strategy
  2. Understanding of one self’s personality and of trading psychology matters
  3. Understanding of money & risk management
  4. Operational Resources: Bankroll, Time and other practicalities

Applying this to my situation, I’d like to believe that I have points 3 and 4 fairly well covered.  I am working hard on points 1 and 2.

How difficult is it to make it as a retail trader?  What’s the probability of somebody eventually making a reasonable living from it?

The last couple of weeks have made me think about this question too.  I will share my thoughts on this another day.  Partly because I think that not many people would like what I would say, and also that nobody would give me much credit for my reasoning.  That aside – me personally? Well, of course I will make it (please read that last sentence with a sprinkling of sarcasm inserted at this point!!).

P.S. Why do I bother to write such a long and detailed blog post? I will let you in on a secret – it’s actually mainly for my benefit – I need to get these things clear in my head.  And if I am going to write it in a word document, then i may as well write it into a blog post and share my thoughts with other people.  Additionally, publishing it – so to speak – forces me to write more clearly and to have good structure in my writing.

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12 Responses to 8/1 – Crash Course in Applied Trading Psychology

  1. James says:

    i think the probability is somewhere between 1% and 0.001% ; would liken it to being able to climb everest on your own, no guide, no support (as the chances of finding a genuine trading sherpa are pretty tough)


  2. FXTraderPaul says:

    Great post George – everyone on the journey would benefit from reading it.

    Liked by 1 person

  3. Stephanie Sy says:

    i love reading your post and see you develop to a professional trader. i am in the same journey as you and have been inspired to blog as well. 🙂

    Liked by 1 person

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