1. Welcome to the #1 Gambling Community with the best minds across the entire gambling spectrum. REGISTER NOW!
  2. Have a gambling question?

    Post it here and our gambling experts will answer it!
    Dismiss Notice

Forex Trader Mentality & Psychology

Discussion in 'Forex Forum' started by Minter, Oct 18, 2018.

  1. Minter

    Minter Guest

    The craziest thing I've seen on this forum - is that there are such little threads about trading mentality & psychology. I would say it easily accounts for 60-70% of becoming a successful trader. I'm going to share some of the important mentality and psychology lessons we teach at our firm in this thread and provide you guys some insights into professional trading.

    I'll address some common questions you may have first:
    2. Why are you sharing this with us? - I like helping people and I've thoroughly enjoyed teaching current junior traders at my firm, and I'm also now stuck in a position which is likely to take up the next hour or two so, why not?
    3. How often will you update? - I cannot promise anything, a trader's life is hectic to say the least.
    4. Why don't you teach us your trading strategies? - first of all, they are proprietary and thus we like to keep them in-house. Secondly, I don't trade the FX markets and our strategies are very market specific thus it would actually be quite useless for you.

    Trading Psychology - a blackjack analogy

    Amateur traders try to make money, professional traders try to make good trades

    The most important aspect of trading psychology is to understand and accept that trading is a probability based activity. Which means the outcome of the trade is outside of your control and anything can happen. Your job as a professional trader is to make good trades. A good trade is a trade with good edge (edge being defined as something that brings your probability of success better than 50%) and solid risk management. Edge is different in every trading style and market but outside of specific strategies, your flow / marketing reading skills, pattern recognition, execution speed and accuracy all contribute to edge.

    Thus, let's assume you have defined and tested your edge, then your job is essentially the same as a blackjack dealer for a casino.

    The blackjack dealer knows he has absolute edge - 51% (give or take depending on rules). The owner of the casino doesn't hire him and say to him 'make me money'. the blackjack dealer's job description is to deal the cards in the correct way and play out the game as the dealer in a correct way as the edge is absolute and as long as he does what he is supposed to do, he will make money in the long run. If he deals out 5 hands and then busts as the dealer, he doesn't go and complain about it, he doesn't stop dealing for the day, he doesn't blame the game or the table or his own hand. He simply keeps on dealing.

    Trading is very similar - except you have to define your edge first. Once that is done, you simply take all trades with edge irrespective of the outcome. Your job as a trader is to do good trades, you make money as a result but that isn't your direct job. The reason this distinction is important is when you view your job is to make money, losses start to affect your decision making, you start getting into bad habits of 'revenge trading', 'fear', 'stubborness' and all the vices of trading psychology. You start taking losses personally and let it affect your decision making - losses are part of the probability.

    Why is this analogy easy to understand? Because people accept the outcome of Blackjack (without card counting) is random but often have trouble accepting that markets are random.

    The point of this analogy is that once you have spent time to define your edge, the outcome of individual trades will become irrelevant and you should only evaluate yourself based on whether you executed according to your plan and if there were edge in the trade.

    I won't go into details regarding edge in this post but know that edge is not just some winning system/indicator, your skill and ability to read the market flow and execute a strategy is equally if not more important than the strategy itself, which takes time and deliberate practice to improve - too many people get a platform and just start trading and wonder why they don't make money. Remember this, you are all trading the same market as some of the smartest people in the world who have done this for 10-16 hrs daily for decades.

    Source.
     

Share This Page