Trading Psychology Management

Trading psychology management is not simply controlling your emotions, and the issues typically referred to as trading psychology; trading psychology management would be a process used to control the actions that you take while trading that cause these emotions to occur, which then cause you to make trading emotion decisions instead of trading method decisions.

What are you doing to include trading psychology management as part of your approach to learning to trade, as part of your approach to progressing as a trader?

If you are going to trade, you are going to be affected by psychology - this is the only guarantee from trading that anyone will ever get. 

Traders spend so much time searching for that perfect trading system, but they do so little to actually prepare to become a trader - preparation that includes their learning approach, preparation that includes their mental approach to the emotions and stress inherent in trading.

WHY Is That The Case? 

• Are you aware of the need for trading psychology management? 

• Are you avoiding the need for trading psychology management?

Are You Actually The Cause Of Your Trading Psychology Issues?

This would be the situation if your approach to trading isn't one of a learning progression that includes a continuum of:  study, performance, feedback, adjustment - with feedback being the most important component to this progression, as it's feedback that is necessary for the understanding of things that you are doing wrong, but cannot determine for yourself.  Unfortunately, many people will not put themselves in a position where they will allow feedback.  This is a primary example of trading psychology management avoidance.  Since feedback is also stressful it's avoided, but the avoidance interrupts the learning progression, which in turn keeps the person from being able to 'go forward' as they also aren't able to effectively learn on their own - leading to more stress and emotion - etc etc etc.

This would be the situation if you are doing anything while paper trading, that you wouldn't plan to do if real money trading.  Why would you spend your valuable time 'practicing' trades that are non-method, what do you think this accomplishes besides invariably creating bad habits?  Isn't the reason for paper trading the learning of base method setups that you can trade with real money, before you have real money at risk, don't you want to be a real money trader?

This would be the situation if you are making a large percentage of non-method trading decisions AND then 'excusing' those decisions through rationalizations and justifications.  What is your goal, being right or being profitable? 

This would be the situation if you are taking a large percentage of non-method trades like those 'missed' trade chases, those breakouts at resistance or support, those multiple congestion trade 'flips'.  Why are you trading non-method trades to this extent, have you not defined base method setups?

These situations are all actions interrupting learning and leading to losses that come from emotion and continue to escalate emotion to an extent where method does not exist.  The outcome makes profitability impossible, yet you can't 'blame' method because your aren't trading method - you are the cause.

 

Trading Psychology Management Objectives

Understanding The Concept Of Trading Psychology Management

I asked the question:  are any of the following examples of trading psychology management:  (1) controlling emotion and stress (2) only paper trading base setups (3) not making rationalizations and excuses for the 'things' that you do (4) knowing the strengths and weaknesses of your trading method (5) not trading with opinions and biases?

I would suggest that controlling emotion and stress isn't trading psychology management, this is too simplistic like 'cut your losses short and let your profits run'; it's also a given.  It's the remaining items that are trading psychology management, because it's these items that can be viewed as being method or non-method, and non-method actions-decisions lead to trading psychology problems.

If you are going to trade your method profitably, you must first be able to keep yourself from replacing trading method decisions with trading emotion decisions.

Trading psychology management is the conscious attempt to eliminate those 'things' that are done while trading that trigger psychology.  This is extremely necessary in order for trading to be based on trading method decisions, and not be based on emotional decisions - this is also to say that emotional decisions will not replace trading method decisions.

Trading psychology management is the basis for the study and evaluation of the trades which have been done. When trading decisions are emotionally directed, the decisions behind those trades are essentially irrelevant and meaningless, and with this, the ability to correct trade setup misreads and make trading method adjustments is lost.

Accepting The Necessity Of Trading Psychology Management

Everything begins with acceptance, and again this isn't  simply acknowledging that you have emotions and stress that you need to control in order to trade.  This is acceptance that method is the only basis for decision, and that anything else that is 'said', 'felt' or 'done' is irrelevant justification. 

Miss a trade because you don't see the setup real time and what do you say in response:  that the market was too fast, or that you weren't prepared to take the trade?  The method answer is one of preparation: were the setup components for 'your' base setup in place, and then you didn't execute when the setup triggered, or did the trade occur before it was setup, and it really was too fast?

Trading psychology management will not let you make the 'excuse'.  Instead, it will 'force' an accurate assessment, which will in turn eliminate the emotions involved, because regardless of what you may try to say, your subconscious knows the 'truth'.  Once you have accepted responsibility, you have then put yourself in a position where you can ask method questions like:  how can I prepare differently in order to see my setups 'quicker' real time, and how can I include a first continuation setup for the times that I miss my initial trade.

Trading psychology management attempts to 'cut-off' trading psychology by not allowing the 'trigger' points to be viewed or discussed.  Trading psychology management will only allow discussion in the context of trading method; is the setup method base and what are the components of that setup -vs- I didn't take the trade because I thought the market was too low, or I didn't take the trade because I was afraid that consolidation might be coming. 

Approach To Learning To Trade

Progressing As A Trader

Taking a viewpoint that ultimately the way to 'control' trading psychology is through trading method, trading psychology management begins with the trader's approach to learning 'their' trading method.  This is not dependant on the given trading method - this is a function of learning to trade a method.  

The basic trading psychology issue with trading method comes from the trader not understanding the strengths and weaknesses of their trading method.  Since the trader has no basis for selectivity or discretion, they attempt to trade every 'signal' that the method gives.  By doing this, the trader has not only diminished the profitability of their method, they also do not gain the understanding needed to evaluate 'why' a given trade may work, and then another seemingly identical trade does not work.  The trader's results will thus appear to them as being random, which of course will lead to emotion and stress, hesitation and fear; in this situation the necessary confidence in method cannot be attained.

Consider a method based on price momentum divergences.  This would be a method where the base setup was a trade counter to the current swing, with a concept that the swing will reverse as result of the divergence.  What are the strengths and weaknesses of this method?

• The strength to this method is when the current swing is actually a pullback in a bigger swing and the price momentum divergence occurs at support or resistance.  For instance, you have a strong down market and there is a buy swing that pulls back to resistance, which was also the last price where there was a break down in the sell swing, and there is a price momentum divergence high - a price momentum divergence sell would not only be a base setup to that method, it would be additionally selective-significant because it also was done in the context of the strength of the trading method.

• The weakness to this method is when the current swing is also with the market's directional strength, and a price momentum divergence is more typically a 'pause' in that move, instead of an indication of a reverse.  In this case, a price momentum divergence buy may be a base setup, however it is now done in the context of the weakness of the method.  The trader who understands this could make a discretionary decision not to trade the initial trigger of the setup and/or add another component to the setup before taking the trade.

Trading psychology management will include the trader's understanding of the interrelation between psychology and method, and thus incorporate this in their approach to learning to trade.  They will realize the need for a learning progression, and that this will begin with learning their method and the trade setups that are most selective to the strengths of that method.

Trading psychology management will provide for progression as a trader, as there is a plan for controlling trading psychology through trading method, along with an approach to learning trading method in a way that will allow understanding and adjustment to why-what is being done.

 

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