TradeWrecker, thanks for starting this thread. Interesting questions you raise.
Quote from TradeWrecker:
1. The discussion of the psychological aspect to trading is rarely written by someone with any experience in that medical field. They have all kinds of opinions on how this or that makes you feel but no clinical research (basis).
It's the same reason football coaches are all former football players and public speaking trainers come from acting and not research labs.
Like public speaking or football, controlling emotions is a skill, it's not science. To learn a skill one doesn't need to know scientific basis behind the training method. As long as the method works, it's good enough.
Also people find it easier to relate to someone who experienced the subject (like coping with fear of public speaking or fear of a trading loss) themselves rather than to a person who studied hundreds of traders and people with fear of public speaking but never traded or had fear of speaking to large groups of people themselves.
Quote from TradeWrecker:
2. Most of the research I've read on Behavioral Finance tends to address the different biases we inherently have and how they affect our decision making, research, testing, etc.. I almost never see conversations surrounding this. What I mostly see are threads that describe how to keep your emotions in check while trading...
I think the reason for this is every trader (at least occasionally) experiences empotions while trading. So, this is the subject everyone on these forums can relate to.
On the other hand, behaviorial finance ( broadly, how emotions of idividual marklet perticipants translate into price action) is a very specialised subject with very small proportion of traders basing their ttrading strategy on it.
Similarly, there is much fewer posts on pair trading than in ES Journal alone. Far fewer traders engage in pair trading.
Quote from TradeWrecker:
3. If you want to keep your emotions in check while trading, get your risk profile in check. This often means having realistic goals in place. Here's a pretty simple rule of thumb; If you're excited with your returns, you're going to be depressed with your eventual losses Dial the leverage down, reduce your trading frequency and come to terms with the honest potentials of trading and adjust your âhopes and dreamsâ around it in an appropriate way.
Kepping risk low helps but it doesn't resolve psychological difficulties completely.
Imagine paper trading where no real monetary gain or loss is involved. Imagine one sets a goal to have 5 consequitive profitable (on paper) weeks before he or she starts trading real money. Here you immediately get a fear of having a loosing week, which will mean one will have to start the 5-week cycle again from week one.
Similarly, peopel trading in smaller size may have fear of not making enough to pay the bills.
Quote from TradeWrecker:
With the exception of those black-swan events, trading doesn't have to be, and shouldn't be an emotional roller coaster. If it is, it's not likely something you're going to be able to endure for very long, and it's all about the long-term gains.
This is very true...
