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Trader Psychology

October 11th, 2007 @ 12:04 pm by Hendra Wijaya

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Many scoff at the idea of “Forex for a Living”.

The disbelief in this idea is further encouraged by tales of trauma received by many an unfortunate trader. We have all heard the horror stories, the tragic accounts of so-called “newbies”, and are tempted to dismiss the idea of trading for a living right off.

On the other hand, we have success stories.

Traders come forward to say – “Yes, it’s very possible! Look at me, I live off my trading.” Some people who read or hear such talk say, “I think he’s a dirty liar!”. They think, “If he has money, its because he was rich before – it wasn’t trading that made him so!”, or “I don’t know how much he lost before he made a profit.”

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June 25th, 2007 @ 12:20 pm by Paul Wallace

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There was an article in yesterdays London Sunday Times Sports section on the Formula 1 phenomena that is Lewis Hamilton.

For those who are not aware Lewis is the leader of this years Formula 1 racing championship. Perhaps nothing too amazing there until you realise that he is a complete rookie. He has only competed in 7 Formula 1 races however his results have been fantastic; a third place, four seconds and two victories – a trophy (and podium finish) for every race and a respectable 10 point lead.

The author (himself an ex F1 driver) makes a serious point about the mind management help he has received in his training and pays attention to the Mental Conditioning Coach that Lewis uses to help provide him the edge in his driving. Read the rest of this entry »

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March 24th, 2007 @ 12:26 pm by Paul Wallace

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In this my last installment on Fear I will cover the final action block to success as a Trader. You should remember I said the first block was over-analysis which led to self-doubt which in turn leads onto:

Hesitation at the very moment when you need to pounce!

How many times has this happened to you? How many times have you sat there over-analysing a perfectly good set-up whilst listening to your inner voice creating self-doubt in your mind only for you to hesitate on pulling the trigger at the very crucial moment when all of your energy should be focused on following your plan?

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March 19th, 2007 @ 5:02 am by Mihai Marinescu

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We have seen in our previous posts that there are many dangers awaiting those traders who use high leverage when trading this volatile and unpredictable market.

Let’s now have a look at the other side of the coin…

If leverage is dangerous, then using a very small one – or none – should protect a trader against any danger resulting from trading large positions, right? WRONG!

This confusion is caused by a misunderstanding of the word ‘leverage’, which can have at least two different meanings.

First, leverage has a purely technical meaning and refers to the instrument offered by a broker in order to boost a trader’s power to make profit (or suffer losses). Broker X can offer a 50:1 maximum leverage for trading on its platform, while broker Y may offer a 400:1 maximum leverage.

When we are talking about leverage in its technical aspect, there is nothing wrong with using the highest leverage allowed by the broker. It is not the use of this instrument per se that places us in a risky situation, and in what follows we will explain why. Read the rest of this entry »

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March 14th, 2007 @ 10:16 am by Paul Wallace

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If you remember from my last entry I stated that there were 3 blocks to success. The first was Over – Analysis which leads onto the 2nd block:

Self-Doubt which is often experienced as Fear. Having become paralysed by over-analysis you then find yourself doubting your own analysis and your own ability. That internal voice keeps telling you:

  • Your last trade was a loser, so will this one be...”
  • You don’t know what you’re doing do you?”
  • You want to go long but the talking head on Bloomberg is saying traders should be short, surely he knows more than you?”

And a hundred other such self-defeating comments. Read the rest of this entry »

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March 13th, 2007 @ 8:36 am by Mihai Marinescu

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The first aspect of our leverage myth refers to the belief that a high leverage can work in favor of the trader, and even compensate for losses in periods when trading does not give the expected results.

A trader that is aware of what leverage can do for him may tend to increase the size of his trades as losses accumulate, hoping for a recovery in the very last moment. This approach can only work against the trader, and usually leads to margin calls and huge losses in trading accounts.

Whenever a trader tries to apply a casino player mentality to trading (on purpose or not), the probability of his success is in fact much lower than if he were gambling in a casino with a 50%/50% chance. Read the rest of this entry »

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March 12th, 2007 @ 3:24 am by Paul Wallace

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Carrying on from my last entry – as Traders, there are, I believe, 3 blocks to a Traders success.

The first one is: Over-Analysis. The old analysis paralysis syndrome.

  • Do you find yourself looking at more and more charts trying to gain a better understanding?
  • Do you find each of your charts is littered with dozens of indicators, moving averages and trendlines as you search for the perfect trade?
  • Do you find yourself unable to pull the trigger until you have a 100% possibility of success?

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March 9th, 2007 @ 6:49 am by Mihai Marinescu

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The first thing a rookie learns about leverage is: a trader cannot do without it.

It is a sort of necessary evil, a big bad wolf that keeps showing up…. The higher you set your leverage, the higher your risk – but still, unless you use it, you cannot make good profit. Tricky…

Even if everyone is talking about leverage and almost everyone believes to have understood how it works, there are still so many misconceptions about this concept that cause traders to lose money.

We will start by analyzing together two of the most common misconceptions about leverage, and point out how a half-truth can turn into a big fat lie, when our emotions and greed decide to take over. Read the rest of this entry »

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