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Subject0:
Trading Psychology - Top Ten Trading Psychology Myths
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Date: 27 May 2007
Time: 02:07:11 +1100
Remote Name: 208.116.51.66
Trading Psychology - Top Ten Trading Psychology Myths
1. People are born traders. While it is true that certain personal
characteristics make it easier to trade, no one is born a trader. One of the
main themes of the Market Wizards books written by Jack Schwager is that almost
none of the market wizards were successful from the start. They all worked hard
at it.
2. You have to have a high IQ to trade. Just not true. In some ways, an above
average IQ may be a hindrance. Trading is a human performance activity where
strong intellectual abilities are unnecessary.
3. Top traders are successful because they have the "right trading personality."
There is no such thing as the "right trading personality." Researches have been
unable to find a strong correlation between personality type and trading
success. It is important, however, to understand your personal characteristics
and how they may help and hinder your trading.
4. Trading is easy. It sure looks that way, doesn't it? Just draw a few lines on
the chart, watch your indicators, and follow the price bars. The truth is that
trading is a difficult business to master. It involves different skill sets and
abilities than what are needed in most other professions and careers. The trader
must understand his or her personal strengths and limitations and develop
specific skills to deal with the mental and emotional demands of trading. The
later skills are the most difficult to develop and the most overlooked.
5. You must be tough, hard charging, and fearless to be successful. That's more
media hype than anything else. It glorifies a strong ego, which is a detriment
in trading. The most successful traders I know quietly do their research, study
the charts, and patiently wait for the right moment. They strive to keep their
ego out of their trading.
6. You must trade without emotions. If you are human, that's impossible. More
importantly, when you understand your emotions you will realize they are assets,
not liabilities. The real keys are: 1) to be aware of how your emotions interact
with and influence your trading, and 2) to develop the skills needed to trade
with them.
7. Top traders are usually right about the market. Top traders have many, many
scratch and losing trades. Top traders are at the top because they exercise good
risk control, limit the amount of loss from any given trade, and have developed
a psychological edge that allows them to be unfazed by small loosing trades.
Most of their trading consists of modest profits and very small losses. When
conditions are right, they step up size and let the profitable trades run.
8. Paper trading is useless-it's not a real trade without money behind it. If
you aren't paper trading, you are doing yourself a disservice. You should always
be paper trading your trading ideas. Why limit your education and experience by
the amount of capital you have? Paper trading keeps you sharp; you learn the
conditions under which your trading ideas work best. Where else can you get such
vital education at so little cost?
9. Master the technical skills and you will be successful. This is where most
traders spend the vast majority of their time, but it's only part of the
picture. You also have to learn important performance skills. Traders should
spend as much-if not more-time learning to develop their psychological edge as
they do in developing their technical trading edge.
10. Trading is stressful. It certainly can be stressful, and it certainly is
stressful for many. It doesn't have to be. Successful traders have a certain
mind-set. They put little importance on any given trade. Their focus is on the
long haul. They know that if they attend to the aspects of trading that are
within their control (i.e., trade selection, entry, risk control, and trade
management) the profits will take care of themselves.
And speaking of stress and profits, you are invited to visit http://www.TradingPsychologyEdge.com for more about how to reduce trading stress and improve your trading performance without becoming derailed by common trading psychology myths. Here you will find a free, 7-part course on practical trading psychology tips.
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