Trading Psychology (English version)


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In this presentation I will tell you why 95% of traders lose money in the market and how to become a successful trader

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Trading Psychology (English version)

  1. 1. Trading Psychology Dmitry Grebenyuk, Private trader, consultant Russia, Chelyabinsk, November 2009
  2. 2. 95% lose money 1 <ul><li>High IQ </li></ul><ul><li>Higher Education </li></ul><ul><li>G ood start-up capital </li></ul><ul><li>Experience </li></ul><ul><li>Ambitions </li></ul><ul><li>All this does not guarantee </li></ul><ul><li>a hit cherished in the 5% </li></ul><ul><li>successful Traders! </li></ul>1. From the book &quot;Intraday Trading&quot;, Van K. Tharp
  3. 3. The reason for failure - high expectations <ul><li>People think that: </li></ul><ul><li>Trading - it's easy! </li></ul><ul><li>T rading - this is freedom! </li></ul><ul><li>Trading - is incalculable riches! </li></ul><ul><li>Trading - this is a game! </li></ul><ul><li>All this self-deception, in fact: </li></ul><ul><li>Trading - this is difficult. </li></ul><ul><li>Trading - does not guarantee freedom, but can cause psychological dependence. </li></ul><ul><li>Trading - is a high risk of losing everything. </li></ul><ul><li>Trading - a business. </li></ul>
  4. 4. Cause of failure - in the man <ul><li>However, most of the blame: </li></ul><ul><li>Bernanke, Trichet, Kudrin </li></ul><ul><li>&quot;Puppeteer“ </li></ul><ul><li>Brokers, dealing centers </li></ul><ul><li>Trading terminal </li></ul><ul><li>Quality Internet </li></ul><ul><li>Margin shoulder </li></ul><ul><li>Bad weather </li></ul><ul><li>Astrology, lunar cycles </li></ul><ul><li>Etc. </li></ul>
  5. 5. Fear Fear - negatively stained emotion or feeling associated with a sense of danger, real or imagined. … And suddenly I now open a position, but it goes against me? … It should be possible to record profits, and then suddenly now thearket will unfold!
  6. 6. Greed Greed - excessive desire of possession or consumption . … Now I come to all margins and earn 100%! …I'm in no hurry to fix 20% of the profits, because the price could rise even higher!
  7. 7. Complacency Complacency - the property of the individual, the core of which stands a positive assessment of the individual's own skills and abilities as sufficient to achieve meaningful goals for him and meet his needs. … Last month I earned 100% profit in the next month I make 1000% profit …Stop-loss put only fools and cowards, I did the bravest and the smartest
  8. 8. Hope Hope - painted a positive emotion associated with the expectation of meeting the needs; expectation benefits / grace, from the higher forces / entities / elements. … Well, now the price have to go in my direction. Trading indicators tell me about it! … Lord God, I'm so good, let the price go my way! Please!
  9. 9. Cause of failure: human weakness FEAR G REED Complacency HOPE TRADER And where there is weakness, there appear emotions. Negative emotions.
  10. 10. 95% choose the emotional Trading <ul><li>Strong emotions are detrimental effect not only on deposit with the trader, but also greatly undermine the health of the trader (Stress and Psychosomatics), lead rupture of relations with close friends. As a result, instead of trading, a person receives a &quot;dependence&quot; instead of profit, gets a loss. Control over emotions - the basis of stable earnings. </li></ul>95% of traders fed the exchange industry (the stock exchange, brokers) and the remaining 5% of successful traders
  11. 11. Emotional Trading - a way to stress Stress hormone Corticosteroids (cortisol, glucocorticoids) Catecholamins (epinephrine and norepinephrine) Muscle tissue breaks down and turns the tissue proteins into energy. Cortisol during intoxication are possible: peptic ulcer disease, loss of muscle weight, aging skin, brittle bones, insomnia, reduced immunity, increased blood sugar, decrease testosterone, cellulite, etc. Becomes more frequent palpitations, Increases blood pressure, Reduces digestive Activity ... ... Leads to hypertension Problem situation (causes of stress) Current state: acute stress Cumulative effect stress: chronic stress Stress Disorders Physiological discomfort Acute emotions Of memory and attention Violation processes decision Disorganization of behavior Violation of communication Anxiety Aggression Depression Asthenia Sleep disorders and dob Psychosomatics The syndrome of emotional &quot;Burnout&quot; Type A behavior (or coronary behavior) And dob
  12. 12. Salvation - rational trading <ul><li>Rational Trading - Trading is the rules, a discipline of mind and body. Every successful trader - a trader, able to understand themselves and their weaknesses. Universal rules of trading is not rational. Every measure of their own understanding of them for myself. </li></ul><ul><li>However, there are three important signs indicating that the rules work: </li></ul><ul><li>- Emotional stability, excellent health trader - Good relationships with people close - Sustained capital growth </li></ul>
  13. 13. Rational trading: two ways <ul><li>Trading System (the person makes a decision that has control over the management of capital) </li></ul><ul><li>Automated Trading (the algorithm makes a decision, a person monitors the operation of the algorithm) </li></ul>
  14. 14. Holy Grail is not <ul><li>I t is useless to look for the very wonderful superindikator, which will provide millions here and now </li></ul><ul><li>Know yourself - the key to success </li></ul><ul><li>Simple idea - worked in the past will work now </li></ul><ul><li>Technology is changing the world, but the man himself remains a man </li></ul><ul><li>The market is irrational and it is good </li></ul><ul><li>Two types of trade: the trend and kontrtrend </li></ul>
  15. 15. Terms of rational trading: <ul><li>Enter a small part of the bargain capital (20 -30 %); </li></ul><ul><li>Use protective install STOP-LOSS; </li></ul><ul><li>Do not mix styles of trading - selected trend, trade with the trend; </li></ul><ul><li>Averaged a winning position (do not use the averaging of losses); </li></ul><ul><li>The maximum daily risk of 3-4% of the deposit; </li></ul><ul><li>Less redundant information and noise (do not listen to analysts, do not watch TV, do not read the chat rooms and forums traders); </li></ul><ul><li>Work timeframe: 30 minutes - 1 hour, attendant - 1 day, week; </li></ul><ul><li>No observations of the screen during the trading session - check the market at certain intervals; </li></ul>
  16. 16. Terms of rational trading (continued): <ul><li>One need not have any views on the future behavior of the market; </li></ul><ul><li>Always once a month, removal of part of earned money; </li></ul><ul><li>Having a trading plan, keep a journal of transactions, analyze the transaction; </li></ul><ul><li>Do not overload the controversial trading system trading signals - the simpler the better; </li></ul><ul><li>&quot;Money loves silence&quot; - Your success needs to know you and your broker; </li></ul><ul><li>Having an additional source of income, do sports, have a hobby - does not generally seen in the market, the main purpose of his life; </li></ul><ul><li>Holy Grail - it's not 1000% per month, the Holy Grail - a steady 10-20% per month for 10 years. </li></ul>
  17. 17. Even rational trading does not save you from stress <ul><li>Rational trading significantly </li></ul><ul><li>reduce the risks of stress, relieve of </li></ul><ul><li>state of &quot;tilt&quot;, to maintain health. </li></ul><ul><li>However, the risk of stress will </li></ul><ul><li>always be present. </li></ul><ul><li>Using &quot;anti-stress&quot; techniques, </li></ul><ul><li>we can reduce the risk of stress. </li></ul><ul><li>S timulating hormone production of &quot;happiness&quot; we </li></ul><ul><li>would reduce the negative effects of stress on the </li></ul><ul><li>body. </li></ul>
  18. 18. Antistress methods: <ul><li>Psychological (autogenic training, meditation); </li></ul><ul><li>Physiological (massage, acupuncture, physical and breathing exercises); </li></ul><ul><li>Biochemical (neuroleptics, vitamins, macro, antioxidants, herbal medicine); </li></ul><ul><li>Physical (bath, sauna, hardening, water treatment). </li></ul>
  19. 19. Hormones &quot;happiness&quot; <ul><li>Serotonin </li></ul><ul><li>Ultraviolet (tanning, travel to warm countries) </li></ul><ul><li>Foods that promote serotonin (dark chocolate, honey, bananas, dates, figs, mushrooms, peanuts, sesame seeds, pine nuts, cheese, oily fish) </li></ul><ul><li>Endorphins </li></ul><ul><li>Laughter </li></ul><ul><li>Sex </li></ul><ul><li>Sports </li></ul><ul><li>Good food </li></ul>
  20. 20. Conclusions <ul><li>Inflated expectations and human weakness - the reason for the defeat of 95% of traders. </li></ul><ul><li>Emotional trading leads to loss of money, reduce health and destroy relationships. </li></ul><ul><li>Knowing yourself and your weaknesses - the path to rational trading, and through him to the stable earnings and good emotional condition. </li></ul><ul><li>Rational trading - a business. This is the most rigorous self-discipline as a life habit. If you do not have enough discipline - find an occupation which it develops (or even a martial art of origami). </li></ul><ul><li>If applicable to trading as a gambling game - sooner or later people will lose everything. From that as a trader applies to his work formed its expectation. In gambling, the expectation of profit is negative. </li></ul>
  21. 21. Conclusions (continued) <ul><li>Human nature is immutable. Emotions drive most people . </li></ul><ul><li>The vast majority of traders and will believe that they are able to ride the market, unable to understand that first and foremost, they must conquer himself, his weakness. </li></ul><ul><li>The path to victory over a runs through self-awareness. Self-awareness comes through practice, through the pain and sweat. </li></ul><ul><li>I t is impossible as in the movie &quot;Matrix&quot; take the blue pill and instantly see. Every successful trader has to pay a price for its success. </li></ul><ul><li>Market - is a possibility, but not a guarantee. </li></ul><ul><li>Market - a reflection of the trader. </li></ul>
  22. 22. List of recommended literature <ul><li>Risks: </li></ul><ul><li>&quot;Against the Gods&quot;, Peter L. Bernstein </li></ul><ul><li>&quot;Fooled by chance&quot;, Nassim Taleb </li></ul><ul><li>&quot;Black Swan&quot;, Nassim Taleb </li></ul><ul><li>&quot;Exchange strategy without risk&quot;, Van Tharp </li></ul><ul><li>2. Psychology: </li></ul><ul><li>&quot; Disciplined Trader &quot;, Mark Douglas </li></ul><ul><li>&quot;The Psychology of Finance, Tweed </li></ul><ul><li>Probability theory and game theory: </li></ul><ul><li>&quot;Probability theory&quot;, Wentzel </li></ul><ul><li>&quot;Game Theory&quot;, G. Owen </li></ul><ul><li>&quot;Theory of Poker, David Sklansky </li></ul><ul><li>&quot;Everything about roulette, John Golleon </li></ul><ul><li>&quot;Trading. An additional dimension of decision-making &quot;Safonov </li></ul><ul><li>Strategy: </li></ul><ul><li>&quot;Exchange trade on trends,&quot; Michael Kovel </li></ul><ul><li>&quot; Way of turtles &quot;, Curtis Faith </li></ul><ul><li>&quot; Trade stocks &quot;, Livermore </li></ul><ul><li>&quot; FOREX. Gambling &quot;, Igor Toschakov (LA Igrok) </li></ul><ul><li>&quot;Indicator Ichimoku as the basis for the trading system&quot;, Terekhov, AY </li></ul>
  23. 23. Thank you for your attention! <ul><li>Contact: </li></ul><ul><li>Dmitry Grebenyuk, </li></ul><ul><li>private trader, consultant </li></ul><ul><li>[email_address] </li></ul><ul><li>ICQ 280-685-420 </li></ul>Thales was asked: -What on earth is difficult? -Know yourself -What is easy? -Advise other (Diogenes)
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