Trading Psychology

Psychology is one of the most important factor in trading .The success that a trader achieves in the markets is directly correlated to one’s trading discipline. Trading discipline is 90 percent of the game. The formula is very simple: Trade with discipline and you will succeed; trade without discipline and you will fail.
All kinds of businesses are dependent on two important factors. The first factor is the knowledge, experience, and also the tools and equipments that are necessary to launch and maintain a business. The second factor is in your mind. It is the proper psychological and mental situation to deal with opportunities, gains, losses, obstacles, failures, achievements and victories. Trading is not an exception. Trading psychology is one of the most important topics in trading and investing.
Trading with discipline will put more money in your pocket and take less money out. Trading is not a simple business. It is one of the most difficult businesses to master. It involves different skill sets and abilities than what are needed in most other professions. The trader must develop specific skills to deal with the mental and emotional demands of trading. These skills are the most difficult to develop and the most overlooked. Trading is all about “YOU”

The successful trader has no room for self doubt. He has a trading plan which he follows. A successful trader does not fear success, he plans for it.
Ignore how much money you are making or losing on a trade and just focus on execution, the money will take care of itself. It’s that simple.
Every trader face some psychological/emotional barrier in their carrier, are YOU one of them? If you are then don’t worry. Call or Email me and share your problems and I will try our best to help you overcome the psychological problem in your trading and investing.

Don’t wait until it’s too late.

Tips and Good Quotes

We have tried to select some good and positive quotes from successful trades and investors. some are also from the Market Wizards.

Michael Marcus

If trading is your life; it is a torturous kind of excitement. But if you are keeping your life in balance, then it is fun. All the successful traders I’ve seen that lasted in the business sooner or later got to that point. They have a balanced life; they have fun outside of trading. You can’t sustain it if you don’t have some other focus. Eventually, you wind up over-trading or getting excessively disturbed about temporary failures.

George Soros (Net Worth $22 Billion)

I’m only rich because I know when I’m wrong…I basically have survived by recognizing my mistakes.

Bruce Kovner

First, I would say that risk management is the most important thing to be well understood. Under trade, under trade, under trade is my second piece of advice.
This idea is not new, but most of traders love to over-trade.

Eddie Lampert

This idea of anticipation is key to investing and to business generally. You can’t wait for an opportunity to become obvious. You have to think, “Here’s what other people and companies have done under certain circumstances. Now, under these new circumstances, how is this management likely to behave?

Warren Buffett

Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.

Paul Tudor Jones

That was when I first decided I had to learn discipline and money management. It was a cathartic experience for me, in the sense that I went to the edge, questioned my very ability as a trader, and decided that I was not going to quit. I was determined to come back and fight. I decided that I was going to become very disciplined and businesslike about my trading.

Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead. My biggest hits have always come after I have had a great period and I started to think that I knew something.

David Rubenstein

Persist – don’t take no for an answer. If you’re happy to sit at your desk and not take any risk, you’ll be sitting at your desk for the next 20 years.

Ed Seykota

The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system. There are old traders and there are bold traders, but there are very few old, bold traders.

Alisher Usmanov

First of all I trust my own instinct, experience that I gained over years and feeling when the moment is right for buying shares. That is what one calls intuition.

Larry Hite

While the speculator doesn’t have the product knowledge or speed; he does have the advantage of not having to play. The speculator can choose to only bet when the odds are in his favor. That is an important positional advantage.

Eddie Lampert (Net Worth $3 Billion)

This idea of anticipation is key to investing and to business generally. You can’t wait for an opportunity to become obvious. You have to think, “Here’s what other people and companies have done under certain circumstances. Now, under these new circumstances, how is this management likely to behave?

Marty Schwartz

I always laugh at people who say, “I’ve never met a rich technician.” I love that! It’s such an arrogant, nonsensical response. I used fundamentals for nine years and got rich as a technician.

Charlie Munger

If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor.

James B. Rogers, Jr. (Jim Rogers)

One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people – not that I’m better than most people – always have to be playing; they always have to be doing something. They make a big play and say, “Boy am I smart, I just tripled my money.” Then they rush out and have to do something else with that money. They can’t just sit there and wait for something new to develop.

I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, “I just lost my money, now I have to do something to make it back.” No, you don’t. You should sit there until you find something.

David Tepper

This Company looks cheap, that company looks cheap, but the overall economy could completely screw it up. The key is to wait. Sometimes the hardest thing to do is to do nothing.

Randy McKay

I never try to buy a bottom or sell a top. Even if you manage to pick the bottom, the market can end up sitting there for years and tying up your capital. You don’t want to have a position before a move has started. You want to wait until the move is already under way before you get into the market.

Benjamin Graham

The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.

Mark Weinstein

It is experience and guts feel. I use all forms of technical analysis, but interpret them through gut feel. I do not believe in mathematical systems that always approach the markets in the same way. Using myself as the “system,” I constantly change the input to achieve the same output – profit

Paul Tudor Jones

Were you want to be is always in control, never wishing, always trading, and always, first and foremost protecting your butt. After a while size means nothing. It gets back to whether you’re making 100% rate of return on $10,000 or $100 million dollars. It doesn’t make any difference.

Al Weiss

The essential element is that the markets are ultimately based on human psychology, and by charting the markets you’re merely converting human psychology into graphic representations. I believe that the human mind is more powerful than any computer in analyzing the implications of these price graphs.

Bruce Kovner

My experience with novice traders is that they trade three to five times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2 percent risks. The emotional burden of trading is substantial; on any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade.

Dr. Van K. Tharp

The top traders that I’ve worked with began their careers with an extensive study of the markets. They developed and refined models of how to trade. They mentally rehearsed what they wanted to do extensively until they had the belief that they would win. At this point, they had both the confidence and the commitment necessary to produce success.

Bill Lipschutz

I don’t think you can consistently be a winning trader if you’re banking on being right more than 50 percent of the time. You have to figure out how to make money being right only 20 to 30 percent of the time.

John (Jack) Bogle (Net Worth $4 Billion)

If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.

Stanley Druckenmiller

I’ve learned many things from George Soros but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.

Tom Basso

My reinforcement came when my losses gradually became smaller and smaller. I was getting very close to the breakeven point. I also kept my losses at a manageable level. I always traded a very small account – an amount that I could afford to lose without affecting my life-style.
I would tell that trader to think of each trade as one of the next one thousand he’s going to make. If you start thinking in terms of the next one thousand trades, all of a sudden you’ve made any single trade seem very inconsequential. Who cares if a particular trade is a winner or a loser? It’s just another trade.

Linda Bradford Raschke

It never bothered me to lose, because I always knew that I would make it right back. I always knew that no matter what happened, I could go into any marketplace, with any amount of money,

Victor Sperandeo

When he finally got out, he felt a sense of relief – which is somewhat ironic since he had just lost 70 percent of his money. There’s nothing logical about this process. It’s all an emotional pitfall. Planning where to get out before putting on the trade is a means of enforcing emotional discipline.

In End

I hope you’ve enjoyed this overview of some of my favorite quotes from Jack Schwager’s Market Wizards books and some from other resources. I actually had to leave out a few of the traders because this article was just getting way too long. But, I highly recommend everyone read the Market Wizards Series of books and other good trading books at some point in the future, because there’s a lot more to learn from them. Never stop Learning in this business.

Trading Routine

• Start your day with a healthy breakfast.
• Get at least 7 hours of quality sleep a night.
• If possible try to do some meditation, it will help you lot to control your emotions. Close your eyes and indulge in a 7-15 minute meditation to help you calm your thoughts.
• Have some hobbies / social life Don’t be a trading addict)
• Make exercise a habit; it will help you to stay more focus.
• Check Daily the economic calendar.
• Trust yourself… If you can imagine it, you have within you the capacity to make it happen!
• Start your trading day the night or week before, always have proper trading plan
• Always think positive. Positive attitude will help you lot in this business.
• Master your trading strategy. Always stick with your plan.
• Get help from other traders, never feel shy to ask other traders experience, you will always learn something.

Traders and their different Trading Styles

Before start trading always knows what kind of trader you are.

Trading style	Timeframe (holding period)	Method
Position trading	Months to years	Discretionary or system
Swing trading	Days to weeks	Discretionary or system
Day trading	Day only – no overnight positions	Discretionary or system
Scalp trading	Seconds to minutes – no overnight positions	Discretionary or system
High frequency trading	Seconds to minutes	Mostly System only

Last not least never Stop Learning, Successful trading requires continuous education.

Don’t wait, Call us for more information

Important Factors Effecting Markets

Fundamental Analysis

Fundamental analysis is very important and based on the performance and growth of economies around the world. Major economic and financial news is released daily to the markets, outlining the monthly/weekly performances of various aspects of the country’s economy.
Fundamental analysis can be seen as one of the vital reasons of market movement; a simple assumption in the Forex market can be seen as ‘if a country’s economy is doing well, therefore, the currency of the country will also do well and vice versa.

Important Economies

The world’s largest economy which contributes to a large proportion of global growth is the U.S. The markets look to economic and financial data released from the U.S. for speculation on the stability of the largest economy and its contribution to current global growth expectations. Other economies that are regarded as key players of economic data releases are Japan, UK, Australia, New Zealand, Switzerland and Europe. Investors can see that in Forex, these economies make up the major currencies that have high liquidity – USD, EUR, GBP, CHF, JPY, AUD and NZD. The recent rapid growth and strengthening of the Chinese economy has now labeled China as the second largest economy in the world. However, the Chinese currency, Yuan cannot be found to be traded by retail brokers, yet this rapidly expanding economy data releases are subject to market speculation on other economies in the world such as Australia, New Zealand etc.

Central Banks and Interest Rates Effecting Markets.

Every country has a central reserve bank that controls the inflow and outflow of money within their economy. The control of the financial system is the basis of each Central Bank’s monetary policies that support consumers, corporations, governments and international environment’s income and spending. Each Central Bank has policy makers and a president/governor that are all influential to policy decisions. One important monetary policy tightening is each country’s interest rate; each month the interest rate decision is made by the Central Bank based on a voting system from members/policy makers. The markets provide different speculation on falling and rising interest rates. A rate rise, also known as hike, can be seen as a positive or hawkish move for the economy by the government, as interest rate rises can be a move further to economic growth; and vice versa for interest rate cuts can cause a negative or dovish move in the eyes of the market.

The markets are always influenced whenever a president of a Central Bank makes a statement or speech on current affairs in the economy. The market can be at its most volatile during such hawkish or dovish speeches and statements.

Here is a list of the major Central Reserve Banks and their governors

U.S. Federal Reserve Bank – Chair Janet Yellen
European Central Bank – President Mario Draghi
Bank of England – Governor Mark Carney
Reserve Bank of Australia – Governor Glenn Stevens
Bank of Canada – Governor Stephen S. Poloz
Reserve Bank of New Zealand – Governor Graeme Wheeler
Bank of Japan – Governor Haruhiko Kuroda

Some Important Economic Indicators

In order to understand whether an economy is performing well, the financial markets look to key indicators and announcements that come out every day. As there are lots of economic news data releases daily, we have put here some of key economic indicators you should look out for when trading and investing.

Protect your capital

Traders should take steps, prior to embarking on every trade, to limit the impact that an unprofitable trade could have on their capital. For any trader their capital is their life blood and therefore should be protected as a priority. Without it they are not only unable to make money but are unable to trade. Therefore limiting risk, even if this means elongating the time taken to achieve ones targets, is a must.
The key tools that can be used to do this are Stop Losses and Limiting Exposure.

Stop losses should always be used and never moved away from the market
A stop loss should always be used and just as importantly should be used correctly.
The golden rule of Stop Losses is that they should never be moved away from the market once the trade is opened. If a trader feels that their stop loss is incorrectly placed, they are recognising that the foundations of their trade are incorrect and therefore they should close out. The best way to place a stop loss is to take the mindset of ‘If this stop loss is touched, I have judged the market wrongly and I should close out’. Once closed out, the trader can always re-evaluate the situation and go back into the market if the market conditions are favourable.

Limit exposure

Limiting exposure simply means limit the percentage of your capital that is exposed both to one sector and to the market as a whole at any one time. This will usually mean limiting your exposure to approximately 5% of capital. The theory behind this is that, should the market go against you in all your positions on the same day, you will still be able to trade in the same manner as before.

Never average down

Every trade should have a well thought out structure in regards to entry and exit. A trader should never average down. Averaging down is a method used to try and double up on a losing position in an effort to lower the average entry price obtained during a losing move.

This is not the same as averaging in, which involves entering the market slightly early with half of the position size in order to take ensure that ,should the market bounce prematurely, the trading opportunity is not lost.

Let profits run and cut losses short

Stop losses should never be moved away from the market. Be disciplined with yourself, when your stop loss level is touched, get out.
If a trade is proving profitable, don’t be afraid to track the market. Theoretically a trade should never be simply closed out manually; it should always be closed out by a stop loss. This allows the trader to lock in profit but never prevent further profit from being made.

Employ a risk reward ratio

The use of a minimum risk: reward ratio when planning a trade is imperative. The actual ratio that traders use will vary depending on their experience. A typical Risk: Reward ratio that a trader might look for when assessing a trade is 1:3 or £/$ 1 of potential loss in the trade for every £/$ 3 of potential profit.
Even if you are trading on a moving average crossover or another imprecise method, you should still be aware of what your potential losses are and what your potential reward could be.

Never stop learning

A trader should never stop learning. As the markets are dynamic and are constantly evolving, any trader that becomes stagnant will eventually start to lose money.

Never trade scared

Trading scared or undercapitalised is one of the leading causes of unnecessary losses. Emotions such as greed and fear often cause errors in judgement and are always present however they are heightened when trading under pressure.

Don’t be afraid to go home

No trader should ever be hesitant to stop trading and if necessary walk away for the day. A morning losing streak is more often than not compounded by the trader that continues to trade. By walking away, you are not being lazy, but being mindful of the fact that something is wrong that day and that you are not in tune with the markets. Walking away is nothing to be ashamed of. Come back fresh the next day.

Plan your trade and trade your plan

All trades should be planned with risk, reward and capital allowances taken into account. Any trade that is taken on the fly is nothing more than a gamble.

Don’t look too hard for your trades, wait for the good ones to come to you

There are so many markets to trade that there are endless supplies of really good quality high probability trades. If you are looking too hard for trades, you will end up moving into positions which you have falsely convinced yourself are high probability trades. The better a trade, the more it will jump out of the charts at you.

Every loss is a learning opportunity, take time out to take advantage of it

Every loss making trade is a learning opportunity. By definition, if you have made a loss, you have misjudged the market. Therefore to move on to the next trade without fully reviewing the last will only increase the likely hood that you will repeat the mistake.

Don’t trade blindly from others trade ideas

Traders new to the markets frequently place trades based on others recommendations. Any trading activity should always be researched in depth. Not doing so will prevent the trader from being able to react to any changes in the market during the life of a trade. Remember positive information being released about the market can still have a detrimental effect on price and anything that you read in the papers is old news, as professional traders will have heard about it and reacted accordingly the previous day.