Trading Psychology
Trading Psychology is of as much importance as having a solid trading strategy. The Journey to becoming consistantly profitable is not an easy one. Refer to Figure 1 below. I feel this is a pretty accurate graph of how the process went for me.
At the lows I read a few psychology books to try and stop the revenge trading or overtrading and I feel it was vital at that part of the journey to help my progress.
The mental aspect of trading can be a big, if not a bigger, hurdle than actual technical trading abilities.
Traders often go on tilt after having several losers, chasing the market, doing things they immediately regret such as blowing a funded evaluation account with the excuse of “I’ll just pay the reset fee and try again”.
I will list a few books below that helped me and I feel are great for every trader to read or listen to.
Figure 1: Real Trading Journey
This is a quote that resonates with me.
I entered the trading space thinking it will be a piece of cake… "I earned a Mechanical Engineering degree, so I must have enough intelligence to manage to trade!" Should be a walk in the park in comparison. Arrogance maybe to some, but I think it is something that many can relate to.
I was wrong, for sure. Some basic intelligence is required, for sure… But emotional discipline and learning to reprogram the mind to accept losses/mistakes is the hardest and most important part.
In my day job if I make a mistake in my calculations, design or sign off on something that is not fit for purpose it can cost the company millions or even worse cause a death due to something failing in operation!
This is pressure that programs my mind that mistakes are non-negotiable.
The same doesn't apply to trading and mistakes/losses are part of the everyday and learning to differentiate between this is what takes time.
Trading in the Zone - Mark Douglas
One of the most well known trading books! Check it out if you get a chance as it can really help with making trading decisions. I would say its a must read for all traders.
The field of Trading Psychology was initially thought of, and co-created by Mark Douglas and Paula T. Webb collaboratively and introduced to the trading community by them in the mid-1980s. Mark Douglas and Paula T. Webb's first book "The Disciplined Trader™" published in 1990 is an industry classic, and along with "Trading in the Zone™" published in 2000, their books are the FIRST books to introduce the investment industry to the concept of trading psychology years before anyone heard of that concept, much less providing coaching in this now popular way of approaching trading. They are Wall Street moguls and considered the "Gurus" of trading psychology.
Douglas uncovers the underlying reasons for lack of consistency and helps traders overcome the ingrained mental habits that cost them money. He takes on the myths of the market and exposes them one by one teaching traders to look beyond random outcomes, to understand the true realities of risk, and to be comfortable with the "probabilities" of market movement that governs all market speculation.
The Mental Game of Trading - Jared Tendler
Another great read which I recommend to all.
Jared Tendler, MS, LMHC, is a leading expert in how your mental game impacts performance. His clients include institutional and independent financial traders, world champion poker players, PGA Tour players, and entrepreneurs.
A step-by-step system for mastering trading psychology. Think about your most costly and recurring trading mistakes. Chances are that they’re related to common errors, such as chasing price, cutting winners short, forcing mediocre trades, and overtrading. You’ve likely tried to fix these errors by improving your technical skills, and yet they persist. That’s because the real source of these mistakes is not technical—they actually stem from greed, fear, anger, or problems with confidence and discipline. If you are like most traders, you probably overlook or misunderstand mental and emotional obstacles. Or worse, you might think you know how to manage them, but you don’t, and end up losing control at the worst possible time. You’re leaving too much money on the table, which will either prevent you from being profitable or realizing your potential. While many trading psychology books offer sound advice, they don’t show you how to do the necessary work. That’s why you haven’t solved the problems hurting your performance. With straight talk and practical solutions, Jared Tendler brings a new voice to trading psychology. In The Mental Game of Trading, he busts myths about emotions, greed, and discipline, and shows you how to look past the obvious to identify the real reasons you’re struggling.This book is different from anything else on the market. You’ll get a step-by-step system for discovering the cause of your problems and eliminating them once and for all. And through real stories of traders from around the world who have successfully used Tendler’s system, you’ll learn how to tackle your problems, improve your day-to-day performance, and increase your profits. Whether you’re an independent or institutional trader, and regardless of whether you trade equities, forex, or cryptocurrencies, you can use this system to improve your decision-making and execution. Finally, you have a way to reach your potential as a trader. Now’s the time to make it happen.
Atomic Habits - James Clear
THE PHENOMENAL INTERNATIONAL BESTSELLER: 1 MILLION COPIES SOLD
This book isn't related or targeting traders but I have heard many people in the markets benifiting from it. Great book and you only need to look at the reviews to realise this.
People think that when you want to change your life, you need to think big. But world-renowned habits expert James Clear has discovered another way. He knows that real change comes from the compound effect of hundreds of small decisions: doing two push-ups a day, waking up five minutes early, or holding a single short phone call.
