Three myths about the psychology of trading

Brett N. Steenberger – Ph.D. and Professor of Psychiatry at the Medical University of Syracuse, PCS. New York. He is also an active trader and writes articles on market psychology.. author Books «Psychology of trading» 2003G., Dr. Steenberger has published over 50 articles on short-term approaches to changing trader behavior.

«My job as a market psychologist allowed me to see those factors, which separate successful traders from unsuccessful ones at various levels – from private firms to investment banks and hedge funds. I have personally met and worked with more than 100 professional traders in the past few years. The main conclusion that I made, is that, that most of the general ideas about achieving success in trading are simply not true. In this article, I want to explore the three most common myths about trading success and suggest my own, a different view on this topic».

MYTH 1: EMOTIONS ARE A KEY PROBLEM IN TRADE.

Yes, emotions can affect concentration and performance, но это не подразумевает, that they are the root cause. In reality, emotional distress is often the result of poor trading. When traders fail to properly manage risk, торгуя объемами, too large for their account, they provoke a stronger emotional reaction to the results of transactions.

Similar, when traders trade untested trading patterns, which do not provide them with any objective advantages in the market, they will naturally lose money over time and experience some degree of emotional distress. I know many successful traders, who are quite competitive and at the same time very emotional.

I also know many successful traders, who are very judicious and not at all emotional. Trade is a field of activity, performance-related, than athletics or performing arts. Success is the result of talent (innate abilities) and skills (acquired qualities).

No amount of emotional composure can turn a person into a successful musician., football player or trader. but, if a person has the necessary talents and skills for success, then psychological factors become important. Psychology is responsible for, how consistently do you apply existing skills and talents, but she cannot replace these skills and talents.

MYTH 2: ЛЮБОЙ, APPLYING CERTAIN EFFORTS, CAN SUCCESS IN TRADING.

This – ерунда. How many people support themselves with music? What is the proportion of people, involved in sports, can actually make a living from it? Many people play chess or poker, but how many of them can make a living on it?

It's that simple – to make a living by any performing activity, you must be consistently good at, what are you doing. Not everyone has talent, skill or courage, to be successful in any field. Among many traders, whom I have met – from independent traders to financial managers in large companies, the best indicator of trading success was resource size, available to the trader.

If a man could do 30% per year on your capital year after year, then he would be one of the most successful financial managers in the world. Most managers are mutual, hedge and pension funds cannot show such performance. but, if a trader начинает с капитала в 60.000$, then he will not be satisfied with the profit in 18.000$. This forces the trader to use excessive leverage and risk total collapse., when the inevitable string of losses occurs.

Really, such excessive leverage is the main cause of emotional distress in trading. Look at that, how did you make your money «Черепахи» – they learned the trading method, learned to be consistent in applying this method, and got enough money from Richard Dennis, which they could trade in multiple markets, with a sufficient volume of positions on each. Even with these resources, not all students «Черепах» were able to succeed.

Talent, skills and opportunity are components of success, and they are relatively well distributed among the trading community, as well as they are usually distributed among the general population.

MYTH 3: THE MAIN CAUSE OF TRADING FAILURE IS LOSS OF DISCIPLINE.

This myth is supported by various market consultants and «guru», to maintain interest in their services. The main reason for trading failure is the lack of an objective market advantage. – trading on random models, which have never been tested to prove their reliability.

We would never consider buying a car, just looking at her. We would like to explore her, look under the hood and take a test drive. but, how strange it is, many traders risk much more money, торгуя на моделях, which they never researched or tested. Many times they deviated from these methods for the simple reason, what they intuitively understand, that these methods don't work.

In any performing area, we find solid confirmation, that great performers spend more time practicing their actions, rather than actual performance. This is just as true for a ballerina., as for an Olympic athlete. but, many traders think, that training directly during real trading will be enough. Unfortunately, their accounts often do not live up to the end of their learning process.

A good friend of mine from a brokerage firm told me, that the average trader takes about seven months to completely destroy the account. That is why brokerage firms are always looking for new clients.. Not that, so that these traders all over the world do not observe discipline – they just didn't have enough practice, to find the right markets and trading styles for them, and hone your skills.

In every other performing area, you can find relatively easy levels to compete – take part in the competition of novice performers, compete in junior sports or set the appropriate level of difficulty in your chess computer program. but, there is no easy level of competition in trading. When you start trading the market, you confront the professionals from the very first day. So no wonder, it's so hard to do well here. Discipline is required to, to be successful in trading, but much more is needed for success, than discipline. Requires practice and practice in reading and trading market patterns.

In a good way, I shouldn't have to debunk these myths. Any trader should be able to get a very realistic view of trading success from brokerage firms., shopping gurus, from books and magazines. but, in fact, most of these subjects have a direct interest in replacing reality with illusion – any person without serious long-term efforts can become a successful trader.

I wrote in my last book, that there is a general process of developing first-class performance in any area. This process includes several components:

• Обнаружение ниши – identification of the execution area, which makes the most of your talents, skills and interests;

• Практика – practicing skills in more and more realistic conditions, to prepare for the actual execution;

• Постоянная обратная связь – intensive review of your performance, to identify strengths and weaknesses, thus, so you can make money on the first and limit the second.

Successful traders, которых я знаю, found a market (or a set of markets) and trading styles, which allow them to earn on their abilities. They were tireless in practicing their skills., using all kinds of simulators to train in different market conditions. To withstand such a load, it takes love for the markets themselves – which is not present for all traders. Some traders like the trading process, some cherish the dream of big money, some are impressed by the opportunity to work for themselves, but not many people love the work itself – an effort to build market models and analyze them.

Success in trading is possible, as in any area of ​​execution. but, if someone tells you, that the road to success in trade is somehow different from the road to success in music or sports, then know, what is this myth. If you choose the path of an outstanding performer, then trading can provide you with incredible opportunities. but, if trading is not your ideal path for self-development, then you are much better off looking for the application of your passion somewhere else and investing your money more wisely. The goal is, to develop your best qualities, whether in trade or anything else - the least you deserve.

A source: Forex Magazine

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