In trading financial markets, you MUST learn to take a loss - that is fundamental to the profession. Failure to limit both the number and size of losses will immediately give rise to anxiety.
No strategy wins every time, so what causes losses, and why do traders react so badly when a trade fails? Here are my top 20 reasons in random order:
gambling
over-trading
impulse trading
lack of screen time
poor trading strategy
over-leveraging trades
having low trading capital
needing to make money quickly
failure to have a written trading plan
unsuitable method for the market traded
false expectations that they must always win
risking money that the trader cannot afford to lose
lack of experience in how price and markets move
risking a higher percentage of the account than prudent
trading in a time-frame that is unsuited to the trader’s ability
trading with capital that the trader really can not afford to lose
failing to commit to a strategy that has been proven over time to work
failing to focus on executing the strategy exactly as specified in the plan
getting into live trading before thorough and full preparation has been completed
trading in line with personal expectations instead of reacting to what the market is doing
For the new trader, the anxiety is both natural and more intense and unless he learns to overcome every one of these trading issues (the list is not exhaustive) he is doomed to repeat the losing process throughout his trading career. Intervention is clearly needed to fast-track the process.
There are things the trader can do for himself before taking the rather drastic step of outsourcing his initiative to an independent professional.
I recently read a quote
attributed to Ed Seykota as mentioned in
Jack Schwager’s book: “Market Wizards.” Seykota said:
“A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That's the kind of thing winning traders do.”
One of the easiest things traders can do, to avoid the anxiety that comes from risking and losing money is to take steps to address the problems head-on. But what if the trader is not aware of the problem causing the losses and the resulting anxiety?
My answer to that is to copy down the list above, and do some Internet research and add to the list. Do not think these things do not apply to you. If you are a trader these issues certainly will have been an issue for you at some time, and may currently still be causing havoc in your trading. I have had to deal with these issues myself, and I have no shame in saying I continue to deal with some of them.
But: “What role does psychology play in trading the financial markets?” A very, very big role indeed. When the comparison is made between new and experienced traders, the difference is obvious – the experienced trader displays much less anxiety and emotional reaction to losses than his newbie counterpart. It is the knowledge and experience that makes that difference.
But is it a natural thing to simply address the listed issues and move forward in a relaxed and successful manner? Certainly not, because statistically (we are told) that somewhere in the 90-to-95% range of traders lose money in trading, and some traders have been doing this for years. In fact you will need to dig quite deeply to actually find a trader who is making a living from trading.
If this is the case, what hope does a trader have of ever reaching the winning circle? Can it be done?
The reason I write this blog is that I utterly believe any and all traders have the potential to reach professional status in trading foreign exchange. If I didn’t believe it, I would long ago be doing something else. This gives rise to more questions … how does a trader bridge that gap between failure and success … what is required to make that difference … who or what can truly help him?
Firstly I say that the trader must exhaust all possible avenues himself so that he is NOT wasting his time and money in consulting a professional, when these things could already be dealt with through a little research and diligence. The next thing is to discuss problems with peers on a good quality forum. Frequently it is possible to build rapport with one or two experienced traders who can help overcome the difficult issues.
But occasionally the makeup of the trader does not fit in with this pathway, and seeking help from a good market-coach becomes a logical next step. An experienced coach can usually spot the problem in one session, with a few simple questions.
But occasionally (and I might add rarely) it might be necessary to consult a psychologist. For example: If a trade is set up and triggered, but the trader cannot take that trade, then yes, he may need to obtain psychological assistance to deal with that blockage.
Traders who experience this kind of "freezing-up" at the moment of committal to a trade, usually find the genesis of the problem goes back to a record of painful losses earlier. Such things can usually be fixed through taking baby steps and tiny trades, under strict strategy guidelines, until the problem is gone.
This step (to employ a psychologist) should be in the “last resort” basket, with the proviso that the choice of psychologist be restricted to a specialist in assisting traders, and in particular, one who is/has been a trader.
There is a big difference between using market psychology and using a psychologist. Under normal circumstances in a trader’s progression to profitable trading, only one of these two are usually necessary.
Be certain first that the issue is not a coaching issue. The greater battle is won through having a strategy that you trust, and confining risk to small numbers, and having the confidence to take EVERY setup that your method finds for you.
_________________________ _____
Posted in my Blog:
www.forexapplepie.com 
07-10-2011, 01:54 AM
Linear Mode
