Trading Psychology – An Easy Scapegoat for Poor Thinking
There are countless traders who, after sustaining a series of losses, are too quick to claim “trading psychology” as an area in which they suffer significant weakness. They would often state their lack of discipline–due to fear, anxiety, doubt, uncertainty, etc.–as the root cause of their poor performance.
“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.” – Victor Sperandeo
There is not just one form of “intelligence.” There are many kinds of intelligence. There are also lots of traders who are “emotionally disciplined” yet trade unintelligently. The key to trading is not an either/or proposition. You have to have a “particular” type of intelligence (after all, isn’t that why skills and experience count?) in addition to the discipline to execute according to what you “know.”
But more importantly, you need to have adequate capital resources. If a trader with a $2,000 trading stake has the capacity to trade in an “emotionally disciplined” manner, but with no market “intelligence,” would you place your bet on the trader’s side, or the market’s side?
The trend is your friend (maxim)
On the surface, this maxim makes a lot of sense. Trends reflect an overwhelming tendency to move toward a given direction. The main problem with this notion is that trends are always seen in retrospect—an observation of something past. Even Ed Sekyota, a famous trend follower, emphasized this point repeatedly.
Stick to your system (maxim)
We hear this repeated over and over, from trading books to trading gurus. And most non-professional traders either follow it or they don’t—yet they end up with the same net result: most lose money trading.
The first question shouldn’t be whether to stick to your system or not, it should be whether you have the knowledge to evaluate its merits. How would you know whether a system is worth the risk? Are you following someone’s advice, or are you following a set of metrics that have been presented to you? If the latter, how do you know those metrics are accurate or current? Main point: before you “buy” anything, do your homework first. If you don’t know how to evaluate a system, call a professional who knows.