are emotions/psychology the most important factor in success?

[wxytrader]

I hear a lot about how psychology or our emotional state are the top reason(s) for trading success and that you must master these before you can become successful long term in trading. I am grouping these two together and positioning them as the third most important factor. If I rank what I think are the most important factors in long term trading success, this is what I came up with:

1. Having a good trading system
2. Managing risk
3. Controlling emotions/psychology
4. Everything else...

I posit that traders should be concentrating their time and efforts on developing a good trading system. Not just using a handful of indicators and a few charts, but a complete overall trading system, having a good set of rules, and whatever that might mean to you. For long term trading success, it needs to be adaptable to changing market dynamics and whatnot, and needs to encompass many aspects of reviewing and analyzing charts while also predicting price action.

Second most important is managing risk. Most of you know what this means so I won't go into that much, Primarily position sizing, determining when to exit, waiting for the best entries, and so forth.

Third is psychology and emotions. Having Discipline and patience while controlling our anger, excitement, frustration, revenge, and whatever else gets in our way. All the human elements in trading.

I'll summarize it like this: If you have a good trading system, then emotions become less of a problem. Yes I believe that emotions will knock you out of the game once in a while, but a good trading system will keep you in the game.

Yes. Without emotion you will not have success. Paul Tudor Jones seems pretty emotional. Good video, suggest watching in its entirety. Shout out to Elliott wave @ 10:55

Timestamp 49:38 for his feelings about feelings in trading.

 

[Good1]

Self-sabotage is a thing and effects everyone even corporations and countries. However you make money in the world it will potentially manifest in subtle ways. Having a system could help solve this or it could help expose this phenomenon.

 

[newwurldmn]

I doubt emotions have much to do with trading results unless you're gambling. If you have a strong emotional reaction to a series of wins or losses you're probably trading with too much risk. Boredom is the dominant emotion traders have while waiting for the probabilities to be realized in a series of trades.

your pnl good or bad never had an effect on you? Especially as you were vying for bonus dollars?

 

[TradeBlazer]

I respectfully disagree with that order.

I believe that a trader must have a sound psychological profile especially on faster time-frames. Maybe end-of-day traders can get away with some emotional / psychological issues, but traders on fast intraday timeframes who are trading with high leverage need to have their shit together.

You are describing a trading strategy that is not common. Intraday and highly leveraged? Doing that for a while will turn anyone into a basketcase.

Here is why:

The biggest risk in trading is always the trader himself.

You can have the best trading system in the world, you can have the most detailed risk management plan, but one stupid highly leveraged trade triggered by euphoria or revenge can do your account and (your psychology) lots of damage. (been there done that myself)

Some traders are emotionally mature and naturally risk averse, and would not be susceptible to the above scenario as would be those traders with underlaying emotional issues who end up transferring their issues onto the market.

For example, Tom Hougaard likes to focus on profits and seems to like drama (and attention), while other traders like Paul Tudor Jones are the exact opposite, here is what Paul Tudor Jones said:

Ask yourself? “Mr. stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?” Change Trading style to, spend your day trying to make yourself as happy and relaxed as you can be. ~ Paul Tudor Jones~

I guess you really need to know your own weaknesses and fully trust yourself. If you don't, then the market will eventually find your every weakness and push your every button.

You cannot just ask questions and read about this, you need to trade (with live money) and find out for yourself. You have to step into the "boxing ring" and take a few painful hits to understand

Most traders are not basketcases or as unstable emotionally as I think you are implying. If most traders start from the same position, just average intelligence and common emotional control, then emotions are only going to negatively impact their trading when they are making poor decisions in trading. Could be their timing, their guidance, bad assumptions, ignoring fundamentals, trusting the wrong people, inability to read charts, etc. This is why the longer I trade, the more I see the importance of developing a good trading system and my own emotional difficulties are becoming less of a problem.... because I am developing a system of trading that prevents a lot of mistakes and helps to identify the setups I am looking for. Building a strategy that is successful and learning how to use it will provide the positive experience that keeps traders in the game. Even a Spock couldn't make money in trading without a good trading system or strategies.

I think your description of the quick intraday trading is an example where emotions can momentarily kick you out of the game for a day, but a good trading system will get you right back on track.

Edited to add: maybe I should describe the emotions that I am referring to. I am thinking anger, excitement, frustration, impulse trading, revenge trading, etc. The impulsive reactions that cause many errors that kick us out of the game. A trading system, meanwhile, includes some risk management and position sizing but I wanted to list that separately in my op.

 

[acrary]

your pnl good or bad never had an effect on you? Especially as you were vying for bonus dollars?

Bonuses were allocated from my boss.
Company had to make money or no bonus.
Department had to make money or no bonus and the department would likely be dissolved.
Each trader had to meet target returns or no bonus and likely firing. The amount of bonus had allot to do with amount of funds allocated. If a trader made x or x+10% it didn't make much difference in bonus. My pnl was never down much so I didn't think much about it. I concentrated on the process not the outcome. My largest losing trade came on the first day of the ground war in Iraq. I had a short position going into it. I left work and by the time I got home my position was stopped out with a larger than expected loss. I beat myself up for a day and made it up in a couple of days. My boss was much more emotional.
I had a short position on during the mini crash in October 1989. I had called to close the position but I didn't get a confirmation for a couple of hours because everything was backed up. My boss called me every 10 min. to find out where I got out of the position. He went crazy we he found out his department was net positive for the day. To me it was just another trade.

 

[PPC]

You are describing a trading strategy that is not common. Intraday and highly leveraged? Doing that for a while will turn anyone into a basketcase.

Most traders are not basketcases or as unstable emotionally as I think you are implying. If most traders start from the same position, just average intelligence and common emotional control, then emotions are only going to negatively impact their trading when they are making poor decisions in trading. Could be their timing, their guidance, bad assumptions, ignoring fundamentals, trusting the wrong people, inability to read charts, etc. This is why the longer I trade, the more I see the importance of developing a good trading system and my own emotional difficulties are becoming less of a problem.... because I am developing a system of trading that prevents a lot of mistakes and helps to identify the setups I am looking for. Building a strategy that is successful and learning how to use it will provide the positive experience that keeps traders in the game. Even a Spock couldn't make money in trading without a good trading system or strategies.

I think your description of the quick intraday trading is an example where emotions can momentarily kick you out of the game for a day, but a good trading system will get you right back on track.

Edited to add: maybe I should describe the emotions that I am referring to. I am thinking anger, excitement, frustration, impulse trading, revenge trading, etc. The impulsive reactions that cause many errors that kick us out of the game. A trading system, meanwhile, includes some risk management and position sizing but I wanted to list that separately in my op.

It’s not that I think / imply that most traders are emotionally unstable basket cases. Everyone has emotions; however, the key point is to understand that the best traders don’t let their emotions interfere with their clarity of mind.

We’re all (including you and me) biologically wired to lose money in the markets. It is called ‘Prospect Theory’. https://en.wikipedia.org/wiki/Prospect_theory

Unfortunately, sometimes trading attracts people who are not suited to trading, for example those who are attracted to make lots of money, or willing to take high risks, or seek excitement, or simply react to trading’s wins/losses with emotional intensity which causes them to lose their clarity of mind.

The statistics seem to confirm that most traders fail.

The best traders (learn to) think differently. It’s not so much that they’d have superior technical edge, but rather psychological/mental edge.

"Everyone gets what they want from the market". ~Ed Seykota~

 

[Businessman]

Yes. Without emotion you will not have success. Paul Tudor Jones seems pretty emotional. Good video, suggest watching in its entirety. Shout out to Elliott wave @ 10:55
Timestamp 49:38 for his feelings about feelings in trading.

The best timestamp in that video is at 16:54, PTJ demonstrates how to control your emotions while trading..

 

[SimpleMeLike]

I hear a lot about how psychology or our emotional state are the top reason(s) for trading success and that you must master these before you can become successful long term in trading. I am grouping these two together and positioning them as the third most important factor. If I rank what I think are the most important factors in long term trading success, this is what I came up with:

1. Having a good trading system
2. Managing risk
3. Controlling emotions/psychology
4. Everything else...

I posit that traders should be concentrating their time and efforts on developing a good trading system. Not just using a handful of indicators and a few charts, but a complete overall trading system, having a good set of rules, and whatever that might mean to you. For long term trading success, it needs to be adaptable to changing market dynamics and whatnot, and needs to encompass many aspects of reviewing and analyzing charts while also predicting price action.

Second most important is managing risk. Most of you know what this means so I won't go into that much, Primarily position sizing, determining when to exit, waiting for the best entries, and so forth.

Third is psychology and emotions. Having Discipline and patience while controlling our anger, excitement, frustration, revenge, and whatever else gets in our way. All the human elements in trading.

I'll summarize it like this: If you have a good trading system, then emotions become less of a problem. Yes I believe that emotions will knock you out of the game once in a while, but a good trading system will keep you in the game.

Hello TradeBlazer,

Emotions, mental thinking, has NOTHING to do with sucessful trading.

To be sucessful at trading, you have to Make alot of money.

 

[wxytrader]

The best timestamp in that video is at 16:54, PTJ demonstrates how to control your emotions while trading..

The ONLY way to control emotion is if you don't over size. If you only have a 10k account and are risking 1k you are going to hate trading. If you have 100k and are only risking $300 you won't give an f.

 

[TradeBlazer]

Hello TradeBlazer,

Emotions, mental thinking, has NOTHING to do with sucessful trading.

To be sucessful at trading, you have to Make alot of money.

Are you an active trader who frequently scans the markets for new opportunities and enters and exits trades?