Psychology, are you sure?

Quote from short&naked:

travis, indeed, the order of the factors up for discussion is paramount. As is the order of the general factors of trading that one should consider. Let me therefore propose a possible order that the three elements of trading might be grouped into (in order of consideration).

1. Money Management (risk profile and equity): I would submit that one's risk profile and approach to money management should come before all other considerations. The relation of equity to order size to stop size should be determined first. As we discussed, if order sizes are small relative to equity, psychology will play less of a role in trading. If, in addition, stops are placed further away from a position (while still keeping order size low), a trading edge could be quite dull and still be profitable in the long run. Traders with less capital can often compound nicely without the need for day-trading or taking large risks.
In short, the questions that should be answered here are: How much capital do you have to trade? And how much ROI do you wish to receive on that capital? Once these goals have been set, we can move on to the technical aspects of trading to fit the profile we have just specified,

2. Edge: This is where we determine whether to go with a discretionary or automated approach and whether short-term or long-term trading should be implemented. Again the sharpness of an edge depends on ROI goals and the risk profile specified above. The possibilities here are almost endless as there are many approaches that can be taken there. The goal should be to find an edge that lasts as long as possible given a particular risk profile. At this point paper trading and back testing might come into play and developing an edge.

3. Psychology: Once the risk has been set and we have determined to a profitable edge (either via automated or discretionary trading), we can determine how much time should be spent on psychological considerations. In many cases, this issue will be come almost mute. If the strategy chosen is rather aggressive and discretionary, some mental hardening might be necessary. However, in most cases, dealing with these issues in the beginning is a waist of time, since this issue usually ends of taking care of itself.

I therefore think that putting a percentage relevance on each factor is less useful than the order of their consideration. And in the end, it is only logical that psychology finds its place at the end of the list. Once the order of the above three has been fixed, then their relevance can be determined.
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A laboratory posting at best with no relevance to real trading despite all appearances.

sosueme
 
To say that psychology has 0 to a few % to do with certain types of trading, I would have to plainly disagree.

Setting up any kind of system requires complex psychology.

For example, psychology says the longer a player stays at a blackjack table, the more chances the dealer or system will win in the end. There is much psychology that goes into setting up the game of blackjack. Are phychologists being hired to constantly monitor blackjack tables? Probably not. The phsychology has already been built into the game so the dealer wins in the long-run (that is, unless the player can do something that could get him or her get kicked out of the game by putting the odds in their favor by card counting, etc). Of course there are stats, etc. but phsychology is the issue here since the system is built towards playing against human beings. And Yes, the dealer can be automated even. The only differences between blackjack tables and trading? I'd have to say there are a lot.
 
So far we've agreeed with a couple of other people that we should differentiate between automated trading and discretionary trading, and then based on what % you're investing with discretionary trading.

Whether you are doing one or the other makes a big difference in the psychology required. I am psychologically unhealthy, unruly, undisciplined, but I still make money with an automated trading system - yet certainly I cannot do it with discretionary trading, for, each time I do it, I end up blowing out my account.

Then, if you are doing discretionary trading, an important distinction to make is whether you're investing in each trade a small fraction of your capital or not. If it is small, like 1%, then the psychological factor is small, but in my opinion still bigger than with any automated trading.

In my opinion, discretionary vs automated trading is like getting yourself into a fight vs sending a the world heavyweight champion to fight it for you. But I am just speaking for myself.
 
As I'm well into my 3rd decade trading I don't mind chiming in with my experience. The 1st few years psychology was important because I didn't know how to trade. It was hell at times but Money Management kept me alive.

In time I learned what worked and how to continually improve everything I did, and the better I became the less important psychology and MM were.
Now everything is built into the trade entry and exit. There is zero psychology or MM. There is no scaling in or out.

Nothing was backtested ever. The only psychology was dreaming what-if's to improve my performance and jumping out of bed in the middle of the night to work on an idea. But most traders won't tighten things up to that degree so you better have MM in place or either you'll sit on your hands in a bad move or continually re-enter against the prevailing trend and rack up huge losses.

Psychology can be useless to address events like this if there is a fundamental problem with technique. It can help discipline but I found the better I knew the set up worked, the less emotion was present until I knew that I knew that I knew and could reap the rewards.

So imho the weaker your ability the more you will need psychology. Like the OP said, you'll not find shrinks in successful trading rooms.
 
Interesting that with so many years of experience the previous poster hasn't kept up with current events.

Dr. Brett Steenbarger does quite a bit of consulting with successful professional offices.

Dr. Ari Kiev has worked for my firm and I know of others including Mark Douglas (admittedly not a psychologist, but who offers a psychologically based approach) who have ongoing consulting businesses, and lists of impressive client references.

My own performance improved dramatically after I took the time to learn more about the importance of attitude and psychology in general. I have to say my family life improved as well.

Attitude and psychology are pieces of the puzzle. If one can improve, it seems rather foolish to write it off as "useless".
 
Quote from UgoCerletti:

Interesting that with so many years of experience the previous poster hasn't kept up with current events.
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It's worse than that. I don't listen to news. I take a position immediately before a news release. I don't think psychology will help me there.

I play with extremely close stops below the 1 min chart and let trades run, often for hours. Few stops get hit. I don't think psychology will help.

I have zero stress and I'm always flat at MoC. I don't think psychology will help that.

I don't need any outside inputs, views, training and although I trade a micro view my marco predictions are mostly spot on, but as the micro event take of the macro I don't see psychology helping there.

But in spite of feeling very settled I'm open to new ideas. It's just extremely hard to find anything that can fine tune what I do. However I'm all ears to what you think psychology can do for me as honestly, I'm at a loss.

I did read a little of Dr. Brett Steenbarger work, but if I want to learn how to kill someone I'll go to the baddest badass I can find. If I want to learn to trade l'll go to the meanest trader I can find.

Honestly, if a psychologist can't cut it trading I just don't see how he is going to make me a more efficient machine without feeling what it's like to be in my skin when the heat is on.

But like I say, if you can point out something to change my opinion then I get to benefit so I'd appreciate that. But I can see thru crap in an instant as I've been round a lot of blocks a lot of times.
 
You seem to have wandered away from the point.

You indicated that you didn't know of any psychologists who worked with successful trading offices. I do.....and I listed them for your consideration.

If you have it all figured out (and it seems you do) theres no reason to even consider it, is there?

Good luck in the markets

Ugo
 
Quote from UgoCerletti:

You seem to have wandered away from the point.

You indicated that you didn't know of any psychologists who worked with successful trading offices. I do.....and I listed them for your consideration.

If you have it all figured out (and it seems you do) theres no reason to even consider it, is there?

Good luck in the markets

Ugo
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Yip, I figured when I gave you an open goal you'd not even fire in the right direction. I was clear - I indicated nothing of the sort.

So here's a buddy trader saying I can't see psychology helps, can you specifically show how it might help me, and you own-goal a penalty!

Here's Steenbarger in full flow...

========================================

Solution Focused Trading
What is the one thing we see among successful traders, artists, athletes, executives, researchers, and companies?

They build upon their strengths and don't become bogged down trying to invent new ones or attempting to improve their weaknesses. In so doing, they become learning machines.

Consider a simple example. When I first began this blog not quite a year ago, I averaged about 7500 visits per month. This continued for the first few months.

I then began to study the daily statistics of how many people were accessing the site, which pages they went to, and where they were referred from. What I found was that certain topics interested readers and other bloggers quite a bit. Other topics fell flat and generated little interest.

Did I spend time trying to make the unpopular topics more palatable or trying to convince other bloggers to link to my less desired work? No, I took what brief therapists call a solution focus instead. The readership was telling me what their needs and interests were. I needed to do more of what was already working, not fiddle with topics that weren't relevant for readers.

With a shift in emphasis toward highly practical research findings and psychology themes, I found that readership had tripled by May. Feedback from reader comments and emails led me to build further on strengths, adding the morning market updates to help readers apply information from the blog in real time. With that, readership has undergone a doubling from May levels.

By gathering information every day on how the blog was performing and using the data to identify and build upon strengths, I've been able to make the site more useful for readers. Every post, popular and unpopular, became a learning experience. The trajectory of growth in readership, which had been flat prior to my studying the statistics, took a significant upward turn.

This is the process by which all elite levels of success are achieved: identify core competencies and build upon them, constantly assessing what is working and what is not. Figure out what you're doing right--and then become very intentional in doing it more often, more consistently. Don't invest your limited time and effort in areas that don't represent what you do best.

This is why it is vital to study your best trades, not just write in a journal about your worst ones. Find the trades where you had an excellent plan or read of the market and where you were able to execute the idea well. What patterns did you pick up on? How did you act upon the pattern? Were the patterns more apt to appear in certain stocks or at particular times of day? Such questions will lead you to what works best for you.

You may find that just one or two patterns in one or two markets at one or two time frames account for a large part of your success. Don't try to tweak what isn't working: figure out ways to capitalize on your core success in related markets, with steadily increased size. Build upon what you do well; don't try to remake yourself based on preconceived notions.

The solution focus is evolution in real time. We are selecting the strongest of our behavior patterns and allowing the weakest to become extinct. Over time, our own guided natural selection enables us to become learning machines, capable of superior adaptation.

Think about how a solution focus could guide your trading development, your career development, and your relationships. Think of yourself as an engine of continuous evolution. How far we could go if we provided every facet of life with an emotional P/L statement and just focused on doing more of what makes us happy, fulfilled, and successful!

==================================

This is such basic stuff it's a bit shocking. SO one again I am asking. specifically what can psychology do to improve a sharp trader. No catches here, I really want to know. What did the guys in your office learn?
 
Quote from jalee25:

imo... think psychology does help. read about tiger who's game is usually up when there's pressure. yes, think he does have coaches, shrinks.

Link from another thread:

http://www.nydailynews.com/sports/m...tiger_woods_entering_a_zone_where_few_at.html
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I had a friend who was a top sports psychologist and he told me about a world class golf pro going on to the green and seeing the grass turn purple because somehow he lost his focus and the stress got to him.

I've used psychology in sports, mainly visualisation, and I've used the Inner Game of Trading years back when I didn't know how to trade at a top level.

But when you have trading down to tight mechanical setups that work so they carry all the stress and MM, I can't see what it will do for me.

That's why I am asking that specific question. But for a newbie that has discipline problems or is slow to hit the mouse and late for the trade or misses it altogether, then sure their brain needs help.

Sports, music etc. is very different because it is all about physical co-ordination that changes with aging and below par performances mess up your head. But I am mystified how it can help a deft trader with long term proven setups.

I can understand how it can help family life, calm down aggressive behavior and do lots of good things. But what can it offer me for trading?

Open to anyone to answer.
 
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