Emerson
50’s thought for today is perfection. Had to reblog it.
Tag Results: psychology
“The great man is he who in the midst of the crowds keeps with perfect sweetness the independence of solitude.”
“The ego is not your friend… The ego wants to be right, it wants to predict, and it wants to know secrets. The ego makes it much more difficult to trade well by avoiding the cognitive biases that hinder profits.”
(via The Kirk Report : Justification Mode)
This article was retweeted all over StockTwits today before I finally read it. A great read that gave way to thoughts about my own trading. So to be blunt:
Summer chop is hard to trade
2010 has been nicer than 2009 but I’m not pleased when I look through my journal. After a great 1H 2010 - in which I stuck to my trading plans more, traded well, and seized opportunities, I can see how coming into July my ego got stoked enough to be loose with the rules. Respect the market by studying and taking the lowest risk opportunities.
Keep the probabilities in your favor
Losses have to be quick and small. “Keep it tight.” But what messes with my emotions is that those tight losses are taken more often. The focus on losses as numbers and not probabilities allows emotion to cause, over-trading at best and gambling at worst.
Patience is required. Entries have to be close enough to perfect. Smaller lot sizes on riskier entries. Take more off the table. Leave less to run. Break even stops. The idea is to be strict with both risk and profit. So I may be wrong more often but the losses are much smaller, allowing the winners to remain real winners.
Very timely article for me today.
My thoughts here are specific to my trading style and performance so let me know what works for you! Many fellow traders are doing well this year too both professionally and personally. We have all grown and prospered so much and I am always humbled to be trading and talking and tweeting with them. I’ve known traders on my stream for almost/over a year now. Our trading has certainly improved after last July. But oh what an interesting year :)
Confessions of A Forex Trader
Greed
I got greedy last week. I admit it. But I didn’t start the week like that. Quite contrary, I approached the markets very humbly having wrongly made a bear call on the GBP/USD last week. But even in analyzing a bear case, I rightly saw the clear signals of the beginning of bull run that took price above 1.5250.
Moral of the story: Plan your trade.
Once the price break above 1.5250 happened, I traded the new trend that took price from 1.4946 to 1.5070 with very shallow retracements. I set targets very tentatively at all the resistance levels (1.5320, 1.5460, 1.55). A trade that developed the course of the week was increasingly profitable. Sounds good so far.
Moral of the story: Trade your plan.
But my ego allowed pips to blind me to the fact that I didn’t have a solid action plan for 1.55. I expected 1.55 would be met with resistance but failed to establish what I should actually do if I was still in a trade because my target was not achieved in addition to what I would do if my target was achieved. I needed to not only pay attention to that level but I needed to exit my trades after the first attempt at that level took prices below 1.5400.
Instead, greed told me that this was only a first failed attempt that would surely end with another successful assault at 1.55. This had been a strong rally all week, after all. Do you hear the insane sanity? Rational thought should have led to the conclusion that it had been a solid run all week and that 1.55 is a major half point level that would be met with resistance. And with resistance would come a correction so rather than looking for more longs, I should have exited my longs and looked where I could reset longs or go short for the correction. In addition, I set my limit too aggressively at 1.55 so my limit was missed by 30 pips.
My greed caused me to add to the trade rather than exit it. Now instead of sitting on a mountain of pips, I am having to manage now a loosing position.
Moral of the story: Don’t add to a position. Rather, build a position for a trade and manage that position until the trade is completed.
Please note that these rules and morals are specifically geared toward me and my performance last week. Please do trade what you see.
This is so so SO true. Probably why I love currency trading over stock trading.
“Investors overemphasise recent experience when making decisions; people hate to lose more than they love to win; investors become more predictable as markets become more volatile; and when they are emotional, investors tend to be herd-like in behavior.”
