Trading Psychology – Find an edge with these tips

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Forex trading psychology is a big thing. Often, it is the psychology, and not a lack of academic knowledge or skill in application, that is considered to be the primary originator of trading mistakes. Mistakes are constantly repeated by financial traders of various national, cultural, and social backgrounds, which suggests that it is the common traits shared among us as humans that lie in the base of those mistakes.

That common trait is fear, which creates the ‘fight or flight’ response in humans. Unfortunately, it is this fight or flight response which can cause the downfall of many traders. We cannot change what we have evolved to feel over millions of years, but we can change how we approach these feelings, by studying the psychology of successful Forex traders and then applying the findings. Today, we will look at how we should behave and respond to trading situations from the correct Forex trading psychology point of view.

Fear can have a significantly limiting effect on trading behaviour. Naturally, your mind will want to find the safest option to ensure survival. In terms of trading, this means that if a trade looks like it is going to lose profit, your natural instinct would be to pull out of the trade, so that you don’t incur further losses.

However, this can steer you away from a carefully planned trading strategy. Even worse, it could cause you to make rash decisions, with the hope of turning that losing trade around, causing you to lose much more money than you would have if you had just left it to play out. Instead of focusing on the long term plan, your mind wants to focus on making the best out of this short term losing position.

Understanding the role of psychology within Forex trading will help you to alleviate fear from your decision making process. Becoming aware of fear on the spot will empower you, both as a trader and as an individual. It will also allow you to re-establish the control of logic and reason, which is your ultimate goal.

Different Types Of Trading Bias

It’s easy for traders to feel confident in their ability to remain calm and collected during their trading sessions before the market opens. However, once the clock starts it’s a different story. When faced with real financial decisions, it’s very easy for emotions to come into play. We can’t avoid our emotions, but we can learn to work around them.

Traders cannot afford to give in to feelings of excitement, fear, or greed when trading, as it can cause costly and irreversible mistakes. Evaluate yourself psychologically by identifying if you are exposed to one of the following psychological biases of Forex trading:

  • Overconfidence bias – ‘The market will go here’
  • Anchoring bias – ‘This probably means that’
  • Confirmation bias – ‘This also proves that I am right’
  • Loss bias – ‘I hope the price will come back’

Notice how they overlap, because no matter how you look at it each of these biases, they all boil down to fear. Nonetheless, we shall discuss them in detail, because the first key step is to become aware of our emotions.

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Overconfidence Bias

Lesson number one in Forex trading psychology is to watch out for trading euphoria. Humans are naturally self-focused. Our egos want to be validated by proving that we know what we are doing, and that we are better than the average person. Any hint that confirms these thoughts only reinforces our self-image by a distinct feeling of self-love.

The problem is that this is where traders are most likely to succumb to overconfidence bias. It’s not uncommon for traders to complete a winning streak and then believe that they can’t get anything wrong in the future. To believe this is of course unwise, and is only going to end in failure. Make sure you always analyse your trading sessions and look at your wins and losses in detail.

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This is the only way you can really stay on top of your trading. Allow yourself to make mistakes – and don’t make the mistake of being scared to prove yourself wrong – you’ll be in a much better position for it in the long run. You have to be comfortable with accepting that mistakes are inevitable, especially in the early stages. It’s all part of the learning curve.

Anchoring Bias

This one is about mental comfort zones created by traders when performing market analysis, by ultimately thinking that the future will be the same as the present, purely based on the reason that the present appears to be like the past. Just as with other biases in Forex trading psychology, this one is directly borrowed from social studies.

Anchoring is a tendency to rely on what is already known to a trader for decision making in the future, instead of considering new situations and the changes that they can bring. At times, anchoring tends to cause traders to rely on obsolete and irrelevant information, which of course won’t help them to trade successfully.

In practical terms, this manifests itself in traders holding losing positions open for too long, simply because they fail to consider the options that are outside of their comfort zone. You must not be afraid of trying new things when trading Forex – be willing to try new strategies, and go against what you know. By anchoring yourself to outdated strategies and knowledge, you’re only increasing the probability of bigger losses.

Confirmation Bias

Confirmation bias is the one factor that is most common amongst professional traders. Looking for information that will support a decision you have made, even if it wasn’t the best decision, is simply a way of justifying your actions and strategies. The problem is that by doing this, you’re not actually improving your methods, and you’re just going to keep making the same trading mistakes. Unfortunately, this can create an infinite loop in Forex trading psychology that can be difficult to break.

The best case scenario in confirmation bias is that a trader will simply waste precious time researching what they already knew to be true. However, the worst case scenario is that not only will they lose time, but also money and the motivation to trade. A trader must learn to trust themself, and be happy to use their intelligence to develop profitable strategies, and then be able to follow them without fear or doubt.

Loss Aversion Bias

Loss aversion bias derives from the prospect theory. Humans have a funny way of evaluating their gains and losses, along with comparing their perceived meanings against each other. For example, when considering our options before making a choice, we are more willing to give preference to a lower possible loss over a higher possible reward. Fear is a much more powerful motivator than greed. In practice, a trader with a loss bias is more akin to cutting profits when they are still low, while allowing bigger drawdowns.

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Conclusion

There is only one piece of advice to solve the problems of traders that can be drawn from studying Forex trading psychology – and that is to develop a trading plan and stick to it. As a trader in doubt, you should absolutely feel free to research every other possible remedy available, but the chances are that you will still come back to a simple trading plan. It’s understandable for traders to feel fear when they are trading.

However, being able to push this fear aside and work through it is absolutely vital for any trader who wants to be successful. Practice trading, make notes, research new strategies and make mistakes. Trial and error is a massive part of the Forex learning curve, and generations of traders have proved that this is the most effective way to eliminate trading fears.

You might want to consider the following example as a point of reference if you start to doubt yourself: Dr. Alexander Elder, in one of his lectures spoke about a story of an old friend of his, a private trader who was inconsistent and experienced periods of wins and losses alike. In a couple of years this trader’s name ended up on the US list of top money managers. When Elder asked ”How, what changed?”, the trader said, ”I am using the same trading strategy that I always have”. ”What changed is that I stopped trading against myself and my strategy”.

That money manager pulled a mental trick on himself. When he was still a private trader and was inconsistently profitable, he pretended that he was employed by an investment firm and had a real boss, who gave him a trading strategy and left for a year, leaving the man in charge with one condition.

Upon the boss’s return, the performance of the trader will be not judged by how much money he made, but by how meticulously he followed the strategy. In other words, he split his trading into two separate roles – the planner, who had no exposure to the market, and the executor, who had no say in planning. What’s more, it worked!

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

The Importance of Trading Psychology

Containing fear and greed are key to making money

Many skills are required for trading successfully in the financial markets. They include the abilities to evaluate a company’s fundamentals and to determine the direction of a stock’s trend. But neither of these technical skills is as important as the trader’s mindset.

Containing emotion, thinking quickly, and exercising discipline are components of what we might call trading psychology.

There are two main emotions to understand and keep under control: fear and greed.

Snap Decisions

Traders often have to think fast and make quick decisions, darting in and out of stocks on short notice. To accomplish this, they need a certain presence of mind. They also need the discipline to stick with their own trading plans and know when to book profits and losses. Emotions simply can’t get in the way.

Key Takeaways

  • Overall investor sentiment frequently drives market performance in directions that are at odds with the fundamentals.
  • The successful investor controls fear and greed, the two human emotions that drive that sentiment.
  • Understanding this can give you the discipline and objectivity needed to take advantage of others’ emotions.

Understanding Fear

When traders get bad news about a certain stock or about the economy in general, they naturally get scared. They may overreact and feel compelled to liquidate their holdings and sit on the cash, refraining from taking any more risks. If they do, they may avoid certain losses but may also miss out on some gains.

Traders need to understand what fear is: a natural reaction to a perceived threat. In this case, it’s a threat to their profit potential.

Quantifying the fear might help. Traders should consider just what they are afraid of, and why they are afraid of it. But that thinking should occur before the bad news, not in the middle of it.

Fear and greed are the two visceral emotions to keep in control.

By thinking it through ahead of time, traders will know how they perceive events instinctively and react to them, and can move past the emotional response. Of course, this is not easy, but it’s necessary to the health of an investor’s portfolio, not to mention the investor.

Overcoming Greed

There’s an old saying on Wall Street that “pigs get slaughtered.” This refers to the habit greedy investors have of hanging on to a winning position too long to get every last tick upward in price. Sooner or later, the trend reverses and the greedy get caught.

Greed is not easy to overcome. It’s often based on the instinct to do better, to get just a little more. A trader should learn to recognize this instinct and develop a trading plan based on rational thinking, not whims or instincts.

Setting Rules

A trader needs to create rules and follow them when the psychological crunch comes. Set out guidelines based on your risk-reward tolerance for when to enter a trade and when to exit it. Set a profit target and put a stop loss in place to take emotion out of the process.

In addition, you might decide which specific events, such as a positive or negative earnings release, should trigger a decision to buy or sell a stock.

It’s wise to set limits on the maximum amount you are willing to win or lose in a day. If you hit the profit target, take the money and run. If your losses hit a predetermined number, fold up your tent and go home.

Either way, you’ll live to trade another day.

Conducting Research and Review

Traders need to become experts in the stocks and industries that interest them. Keep on top of the news, educate yourself and, iif possible, go to trading seminars and attend conferences.

Devote as much time as possible to the research process. That means studying charts, speaking with management, reading trade journals, and doing other background work such as macroeconomic analysis or industry analysis.

Knowledge can also help overcome fear.

Stay Flexible

It’s important for traders to remain flexible and consider experimenting from time to time. For example, you might consider using options to mitigate risk. One of the best ways a trader can learn is by experimenting (within reason). The experience may also help reduce emotional influences.

Finally, traders should periodically assess their own performances. In addition to reviewing their returns and individual positions, traders should reflect on how they prepared for a trading session, how up to date they are on the markets, and how they’re progressing in terms of ongoing education. This periodic assessment can help a trader correct mistakes, change bad habits, and enhance overall returns.

Everyone talks about having a trading edge, but how do I build/think of a system with an edge?

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This is the biggest (and most important, congrats) questions in systematic trading.

An edge is the one absolute necessity for consistent successful trading. All the money management and position sizing and psychology in the world cannot help you one whit if you lack an edge.

Part of me wants to launch into a lengthy and involved novel about how one can systematically and objectively measure probable edge, by creating a strategy development framework oriented towards exactly that at every step in the process. . but I’ll spare you all. This time.

It’s a word that is tossed around a bit too flipp.

Spotlight 11, Workbook, 7a

На данной странице находятся упражнения с ответами по английскому языку из рабочей тетради (Workbook) 11 класса УМК Spotlight. Упражнения из 7a.

1) Goals are achieved with hard work and __ .
2) Napoleon was __ in the battle of Waterloo.
3) Fighting to end hunger in the third world often seems like an __ battle.
4) __ is the body’s way of regulating its temperature or responding to stress.
5) __ kept Helen from pursuing her dream.
6) City Hall __ the architect’s designs.
7) __ feelings of doubt with these 10 quick and easy steps!

1) Goals are achieved with hard work and perseverance. – Цели достигаются усердной работой и настойчивостью.
2) Napoleon was defeated in the battle of Waterloo. – Наполеон был разбит в битве при Ватерлоо.
3) Fighting to end hunger in the third world often seems like an insurmountable battle. – Борьба с голодом в третьем мире часто кажется непреодолимой битвой.
4) Perspiration is the body’s way of regulating its temperature or responding to stress. – Потоотделение – это способ тела регулировать температуру или реагировать на стресс.
5) Self-doubt kept Helen from pursuing her dream. – Сомнение в себе не давало Хэлен следовать за своей мечтой.
6) City Hall rejected the architect’s designs. – Сити-Холл отверг проекты этого инженера.
7) Banish feelings of doubt with these 10 quick and easy steps! – Прогоните чувство сомнения при помощи этих 10 быстрый и легких шагов!

1)
A: How is she, Doctor?
B: We have done everything medically possible. All we can do now is hope for the __ .

2)
A: Rick’s hopes of winning a medal were __ when he slipped and fell during the race.
B: What a shame! But there’s always next year.

3)
A: Don’t __ all your hopes on becoming an astronaut.
B: Just watch and see. I’ll make it happen!

4)
A: Have you heard from the company you applied to last month?
B: No, and I’ve __ hope of a reply now.

1)
A: How is she, Doctor? – Как он, доктор?
B: We have done everything medically possible. All we can do now is hope for the best. – Мы сделали все, чтобы было возможно. Теперь все, что мы можем сделать, – это надеяться на лучшее.

2)
A: Rick’s hopes of winning a medal were dashed when he slipped and fell during the race. – Надежды Ника не завоевание медали были перечеркнуты, когда он поскользнулся и упал во время состязания.
B: What a shame! But there’s always next year. – Какая жалость! Но всегда можно попробовать в следующем году.

3)
A: Don’t pin all your hopes on becoming an astronaut. – Не возлагай все свои надежды на то, чтобы стать космонавтом.
B: Just watch and see. I’ll make it happen! – Посмотрим, посмотрим! Я осуществлю это!

4)
A: Have you heard from the company you applied to last month? – Ты получил известия от компании, куда ты подавал заявление на работу в прошлом месяце?
B: No, and I’ve given up hope of a reply now. – Нет, и я оставил все надежды на ответ.

• achieve • come • make • move • long to • overcome

1) Buying a beautiful house last year was a dream __ true for Helen.
2) Frank __ travel around the world someday.
3) Speech-language therapists help children __ reading difficulties.
4) The newly elected party began to __ the country in a different direction.
5) People who fight for truth and justice __ a real difference in this world.
6) Katie spent many years in the corps de ballet before she __ her dream of becoming a principal ballerina.

1) Buying a beautiful house last year was a dream come true for Helen. – Покупка красивого дома в прошлом году стало для Хэлен мечтой, которая сбылась.
2) Frank longs to travel around the world someday. – Фрэнк жаждет когда-нибудь объехать весь мир.
3) Speech-language therapists help children overcome reading difficulties. – Логопеды помогают детям преодолевать трудности с чтением.
4) The newly elected party began to move the country in a different direction. – Недавно избранная партия начала двигать развитие страны в другом направлении.
5) People who fight for truth and justice make a real difference in this world. – Люди, которые борются за правду и справедливость по-настоящему меняют этот мир.
6) Katie spent many years in the corps de ballet before she achieved her dream of becoming a principal ballerina. – Кейт много лет провела в кордебалете, пока достигла своей мечты стать главной балериной.

The Secret of Success

Have you ever wondered why some people are successful and others not? Successful people are passionate. They believe 1)__ themselves when no one else will. They set goals and turn their dreams into realities. But what exactly is it about successful people that makes them so successful? First, successful people know exactly what it is they want. They have a(n) 2)__ goal and they stick to it. Second, successful people don’t just think; they act. They understand that goals 3)__ are meaningless without the action to back them up. Third, successful people think positively. They know setbacks and failures are simply a part of the 4)__ to success and view them in a positive light. Fourth, successful people are persistent. They keep trying no 5)__ how many times they fail until they have achieved their goal. Fifth, successful people are curious and are not afraid to experiment or make mistakes. Finally, successful people are passionate about what they do and are confident about their abilities. They have a positive attitude, 6)__ 100% effort into everything they do, and they won’t 7)__ for anything but the best. So, now you know the keys to success, what are you going to do with them?!

1) A. for B. to C. in D. by
2) A. detailed B. specific C. specialised D. exclusive
3) A. purely B. simply C. only D. alone
4) A. street B. road C. way D. avenue
5) A. worry B. count C. matter D. question
6) A. agree B. settle C. deal D. fix

The Secret of Success

Have you ever wondered why some people are successful and others not? Successful people are passionate. They believe in themselves when no one else will. They set goals and turn their dreams into realities. But what exactly is it about successful people that makes them so successful? First, successful people know exactly what it is they want. They have a specific goal and they stick to it. Second, successful people don’t just think; they act. They understand that goals alone are meaningless without the action to back them up. Third, successful people think positively. They know setbacks and failures are simply a part of the road to success and view them in a positive light Fourth, successful people are persistent They keep trying no matter how many times they fail until they have achieved their goal. Fifth, successful people are curious and are not afraid to experiment or make mistakes. Finally, successful people are passionate about what they do and are confident about their abilities. They have a positive attitude, put 100% effort into everything they do, and they won’t settle for anything but the best So, now you know the keys to success, what are you going to do with them?!

Секрет успеха

Вы когда-нибудь хотели знать, почему одни люди успешны, а другие – нет? Успешные люди страстны. Они верят в себя, когда никто больше им не верит. Они ставят цели и превращают свои мечты в реальность. Но что именно в успешных людях, что делает их успешными? Во-первых, успешные люди точно знают, чего они хотят. У них есть особая цель, и они ее придерживаются. Во-вторых, успешные люди не просто думают; они действуют. Они понимают, что цели сами по себе не имею значения без подкрепляющих их действий. В-третьих, успешные люди позитивно мыслят. Они знают, что неудачи и провалы – это просто части пути к успеху, и рассматривают их в позитивном свете. В-четвертых, успешные люди настойчивы. Они продолжают делать попытки, не взирая на количество неудач, пока не достигнут цели. В-пятых, успешные люди любознательны и не боятся экспериментировать и делать ошибки. Наконец, успешные люди испытывают страсть к тому, что делают, и они уверены в своих способностях. У них положительное отношение, они прикладывают 100% усилий к тому, что делают, и они не соглашаются ни на что, кроме как на самое лучшее. Итак, теперь вы знаете ключи к успеху. Что вы собираетесь с ними делать?

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    Good Broker For Experienced Traders!

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