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.

Halifax America - On the Use and Abuse of Trading Psychology - blog post image of guy slumped down

“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.


The information presented in this blog is strictly for educational purposes only. Halifax America LLC doesn’t necessarily endorse the information provided. We present this information to our readers with the expectation that they will critically read and evaluate the information themselves. Halifax America LLC is NOT recommending trades or investments in relation to the information presented. The risk of loss in the trading of stocks, options, futures, forex, foreign equities, and bonds can be substantial and is not suitable for all investors. Trading on margin or the use of leverage is not suitable for all investors and losses exceeding your initial deposit is possible. Supporting documentation is available upon request. Trading futures, options on futures, and forex involves substantial risk of loss and is not suitable for all investors. Carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources and only risk capital should be used. Opinions, market data, and recommendations are subject to change at any time. The lower the margin used the higher the leverage and therefore increases your risk. Past performance is not necessarily indicative of future results.