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Thread: Psycology of Trading

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    In Profit richtrader's Avatar
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    Default Psycology of Trading

    hello,
    i am starting this thread because i think its the area that most traders lack ,its the area that distinguish between the newbie and the guru.the looser and winner.
    i hope it will be very helpful

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    Default Behavioral Patterns That Sabotage Traders

    Mastering the psycholgy of trading makes you to be successful because you will prepare your mind to take the trauma of trading ,the way to deal with a black day ,when you enter a trade and it turns out to be a losing trade ,what are u going to do..market revenge!!!!
    Consider the following psychological scenarios:

     A student needs to pass an anatomy course final exam in order to successfully complete his first year in medical school. Because his first several exams were on the borderline between passing and failing, the course grade entirely rides on the final. As the time approaches for the big test, the student finds himself increasingly worried about the test—particularly when he misses questions from his practice exams. The worry interferes with his sleep, which in turn makes him even more concerned that fatigue will prevent him from doing well. By the time he takes the exam, he is tired and nervous and misses many questions, often by second-guessing right answers.

     A young woman has never been particularly uncomfortable in public speaking situations, but now is asked to give the most important presentation of her career. The result of this presentation could spell the difference between landing a major client for her firm vs. losing the client to a competitor. During the talk, she notices that the audience members from the firm she is wooing don’t seem especially attentive. This suddenly raises her anxiety, and she desperately tries to spice up the presentation. When she loses her place in the talk, she becomes flustered, and finishes the presentation on a hesitant note.

     A basketball player has been the team’s leading scorer, but starts out a game missing his first five shots. The opposing team is double-teaming him, and he is having difficulty breaking free for open looks at the basket. Determined to take matters into his own hands, he decides to penetrate the opposing defense and draw fouls. Instead, he picks up two quick charging calls. Now fearful of being taken out of the game for his fouls, he searches for his shot by moving a little further out on the perimeter. When these shots don’t fall, he stops looking for his shot and throws two errant passes.

     A trader has several winning trades in a row and, feeling confident, increases his size to take advantage of his hot streak. The position initially goes in his favor, but quickly reverses when large orders push the market lower. Forced to puke his position, he realizes he has lost all of the profit from his previous, winning trades. He is driven to regain the money and reenters the market, only to get slammed by a second wave of selling. He now feels like he has entered a cold streak and begins trading hesitantly, with reduced size. By the time the market closes, he is down on the day and the week. He feels like a jerk for becoming overconfident after his gains.

    No doubt you can detect a pattern in each of these situations. The individual is in a performance situation where he/she experiences pressure to succeed. The situation has taken on a distinct importance in the person’s eyes, and now he/she is focused on the results of the performance—not just the performing itself. This dual focus—worrying or focusing on the outcome of performance while trying to stay immersed in the performance—is the common element behind all performance anxiety. Such anxiety is the single most common trading problem
    Last edited by richtrader; 02-06-2008 at 10:29 AM.

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    Lightbulb Good Work

    Hello Richtrader, I am very happy that you start a thread like this on this forum. I have read your posting and it is really educative. Please continue to post such interesting write up, so that up coming traders like me can always benefit from your wealth of experience.

    Thank You

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    Quote Originally Posted by richtrader View Post
    Mastering the psycholgy of trading makes you to be successful because you will prepare your mind to take the trauma of trading ,the way to deal with a black day ,when you enter a trade and it turns out to be a losing trade ,what are u going to do..market revenge!!!!
    Consider the following psychological scenarios:

     A student needs to pass an anatomy course final exam in order to successfully complete his first year in medical school. Because his first several exams were on the borderline between passing and failing, the course grade entirely rides on the final. As the time approaches for the big test, the student finds himself increasingly worried about the test—particularly when he misses questions from his practice exams. The worry interferes with his sleep, which in turn makes him even more concerned that fatigue will prevent him from doing well. By the time he takes the exam, he is tired and nervous and misses many questions, often by second-guessing right answers.

     A young woman has never been particularly uncomfortable in public speaking situations, but now is asked to give the most important presentation of her career. The result of this presentation could spell the difference between landing a major client for her firm vs. losing the client to a competitor. During the talk, she notices that the audience members from the firm she is wooing don’t seem especially attentive. This suddenly raises her anxiety, and she desperately tries to spice up the presentation. When she loses her place in the talk, she becomes flustered, and finishes the presentation on a hesitant note.

     A basketball player has been the team’s leading scorer, but starts out a game missing his first five shots. The opposing team is double-teaming him, and he is having difficulty breaking free for open looks at the basket. Determined to take matters into his own hands, he decides to penetrate the opposing defense and draw fouls. Instead, he picks up two quick charging calls. Now fearful of being taken out of the game for his fouls, he searches for his shot by moving a little further out on the perimeter. When these shots don’t fall, he stops looking for his shot and throws two errant passes.

     A trader has several winning trades in a row and, feeling confident, increases his size to take advantage of his hot streak. The position initially goes in his favor, but quickly reverses when large orders push the market lower. Forced to puke his position, he realizes he has lost all of the profit from his previous, winning trades. He is driven to regain the money and reenters the market, only to get slammed by a second wave of selling. He now feels like he has entered a cold streak and begins trading hesitantly, with reduced size. By the time the market closes, he is down on the day and the week. He feels like a jerk for becoming overconfident after his gains.

    No doubt you can detect a pattern in each of these situations. The individual is in a performance situation where he/she experiences pressure to succeed. The situation has taken on a distinct importance in the person’s eyes, and now he/she is focused on the results of the performance—not just the performing itself. This dual focus—worrying or focusing on the outcome of performance while trying to stay immersed in the performance—is the common element behind all performance anxiety. Such anxiety is the single most common trading problem
    Yea! These are Behavioral Patterns That Sabotage Traders in their effort to profit while trading.
    It is very educative.

    Imagine this " A trader has several winning trades in a row and, feeling confident, increases his size to take advantage of his hot streak. The position initially goes in his favor, but quickly reverses when large orders push the market lower. Forced to puke his position, he realizes he has lost all of the profit from his previous, winning trades. He is driven to regain the money and reenters the market, only to get slammed by a second wave of selling. He now feels like he has entered a cold streak and begins trading hesitantly, with reduced size. By the time the market closes, he is down on the day and the week. He feels like a jerk for becoming overconfident after his gains."

    It happens alot to traders.

    LORD HAVE MERCY ON US

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    Default How can traders reduce their level of performance anxiety?

    Here are a few strategies that I have found to be effective:

    1. Focus on process goals when thinking about trading, rather than profits/losses Traders like to set goals for themselves, yet often as not, monetary goals end up creating unnecessary pressures. More effective goals are ones that focus on the process of trading, such as limiting losses to two ticks if youre a scalper or holding trades until a trailing stop is hit. A nice mindset is, If I just trade the right way, the profits will come. This takes much of the pressure off the performance.

    2. Tackle risk incrementally. Risk places a psychological magnifying glass on situations and greatly increases the opportunities for performance pressure. A foul shot in the first minutes of a basketball game is the same foul shot in the final seconds of a tied contest, but there is a huge psychological difference. Traders who try to radically increase their size quickly find that the trade that worked out with 1 contract may not work with 10, because of pressures to (too) quickly limit losses or take profits. A gradual ramping up of size is far more effective than an impulsive leap for which one is emotionally unprepared.

    3. Step away from the screen. The self-talk during periods of performance anxiety actually interferes with the accurate processing of market data, because the part of the brain responsible for perceiving and acting upon market patterns is not being activated. It is far better to step away from the screen and refocus on what the market is giving you than to act blindly on ones fears and compound an already-difficult situation.

    4. Use mental rehearsals to make threatening situations familiar. This is perhaps the single most effective technique I have found for reducing and eliminating performance fears. By using guided imagery to repeatedly face threatening situations and mentally rehearse how one would like to respond, one can eliminate much of the stress when those situations actually occur. The goal is to so often face the performance fears in your mind that the coping response becomes automatic, like a habit pattern.
    5. Anchor mental rehearsals to distinctive mind states. This is one of the best strategies covered in my book. By learning to place oneself in a state of unusual calm and focus, and then by repeatedly rehearsing coping strategies for threatening situations, a trader can create a link between the mental state and the coping response. When there is a stressful performance situation, all the trader needs to do is invoke the rehearsed mental state and the coping behaviors that have been overlearned will come to the fore. For instance, if you continually mentally rehearse a strategy for holding onto winning trades while sustaining a calm focus, recreating the calm focus during the next winning trade will make it easier to summon the self-talk and behavior associated with holding the position.

    6. Perform a mental checklist before trading. Eliminating perfectionistic expectations at the start of the trading day can go a long way toward reducing performance pressures. Any time the word should enters ones thinking about trading, its time to step back. Shoulds include internal demands to make a certain amount of money, to trade with a particular frequency, to make back money that has been lost, to not leave money on the table, etc. Because performance anxiety is often fueled by excessive self-demands, setting and affirming reasonable trading goals through the trading day can go a long way toward reducing performance pressures.

    7. Get a life. When something becomes all-important, the pressures that accompany performance increase exponentially. Traders who trade for a living and who have little else going on in their lives are especially vulnerable to performance anxiety. If trading is your whole world and trading isnt working, its going to feel like your world is collapsing. By placing ones self-esteem eggs in many baskets, traders can ensure that the inevitable drawdowns and cold periods will not disrupt their self-confidence.


    I cannot emphasize strongly enough: Most traders who are convinced that they have deeply-rooted psychological problems or addictive trading patterns are actually caught in a vicious cycle of perfectionistic self-demands, increasing performance pressure, mounting anxiety, disrupted performance, and renewed self-demands to compensate for the failure. After a while, traders caught in such a cycle begin to doubt whether they will ever succeed. By addressing their problems at the sourcethe expectations that generate performance pressuretraders can often turn themselves around in a surprisingly short period of time.

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    Default How can traders reduce their level of performance anxiety?

    Here are a few strategies that I have found to be effective:

    1. Focus on process goals when thinking about trading, rather than profits/losses Traders like to set goals for themselves, yet often as not, monetary goals end up creating unnecessary pressures. More effective goals are ones that focus on the process of trading, such as limiting losses to two ticks if youre a scalper or holding trades until a trailing stop is hit. A nice mindset is, If I just trade the right way, the profits will come. This takes much of the pressure off the performance.

    2. Tackle risk incrementally. Risk places a psychological magnifying glass on situations and greatly increases the opportunities for performance pressure. A foul shot in the first minutes of a basketball game is the same foul shot in the final seconds of a tied contest, but there is a huge psychological difference. Traders who try to radically increase their size quickly find that the trade that worked out with 1 contract may not work with 10, because of pressures to (too) quickly limit losses or take profits. A gradual ramping up of size is far more effective than an impulsive leap for which one is emotionally unprepared.

    3. Step away from the screen. The self-talk during periods of performance anxiety actually interferes with the accurate processing of market data, because the part of the brain responsible for perceiving and acting upon market patterns is not being activated. It is far better to step away from the screen and refocus on what the market is giving you than to act blindly on ones fears and compound an already-difficult situation.

    4. Use mental rehearsals to make threatening situations familiar. This is perhaps the single most effective technique I have found for reducing and eliminating performance fears. By using guided imagery to repeatedly face threatening situations and mentally rehearse how one would like to respond, one can eliminate much of the stress when those situations actually occur. The goal is to so often face the performance fears in your mind that the coping response becomes automatic, like a habit pattern.
    5. Anchor mental rehearsals to distinctive mind states. This is one of the best strategies covered in my book. By learning to place oneself in a state of unusual calm and focus, and then by repeatedly rehearsing coping strategies for threatening situations, a trader can create a link between the mental state and the coping response. When there is a stressful performance situation, all the trader needs to do is invoke the rehearsed mental state and the coping behaviors that have been overlearned will come to the fore. For instance, if you continually mentally rehearse a strategy for holding onto winning trades while sustaining a calm focus, recreating the calm focus during the next winning trade will make it easier to summon the self-talk and behavior associated with holding the position.

    6. Perform a mental checklist before trading. Eliminating perfectionistic expectations at the start of the trading day can go a long way toward reducing performance pressures. Any time the word should enters ones thinking about trading, its time to step back. Shoulds include internal demands to make a certain amount of money, to trade with a particular frequency, to make back money that has been lost, to not leave money on the table, etc. Because performance anxiety is often fueled by excessive self-demands, setting and affirming reasonable trading goals through the trading day can go a long way toward reducing performance pressures.

    7. Get a life. When something becomes all-important, the pressures that accompany performance increase exponentially. Traders who trade for a living and who have little else going on in their lives are especially vulnerable to performance anxiety. If trading is your whole world and trading isnt working, its going to feel like your world is collapsing. By placing ones self-esteem eggs in many baskets, traders can ensure that the inevitable drawdowns and cold periods will not disrupt their self-confidence.

    I cannot emphasize strongly enough: Most traders who are convinced that they have deeply-rooted psychological problems or addictive trading patterns are actually caught in a vicious cycle of perfectionistic self-demands, increasing performance pressure, mounting anxiety, disrupted performance, and renewed self-demands to compensate for the failure. After a while, traders caught in such a cycle begin to doubt whether they will ever succeed. By addressing their problems at the sourcethe expectations that generate performance pressuretraders can often turn themselves around in a surprisingly short period of time.
    THE WORLD IS NOT FLAT!!!ALWAYS HAVE A PLAN B....

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    THE WORLD IS NOT FLAT!!! ALWAYS HAVE A PLAN B....

    What if ...... questions every trader should ask himself

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    Default Dead But Dreaming

    The most merciful thing in the world H.P. Lovecraft writes in his horror story The Call of Cthulhu, is the inability of the human mind to correlate all its contents. To be sure, if all our memories and perceptions registered in the mind equally, we should be like the unfortunate Funes of the Borges talecompletely overwhelmed by the sum of our experiences, unable to act. Yet, as Freud realized, we pay a price for this compartmentalization. The conflicts, urges, and passions that we sacrifice in the interest of present concern do not merely vanish. Like Cthulhu, they lie beneath the depths; in the apt phrase of The Fields of the Nephilim, dead but dreaming. They call to us when our emotional stars are aligned, waiting for the time of their release.

    Those stars are aligned when we experience triggers: situations sufficiently similar to initial traumas and travails that they reactivate memoriesand earlier modes of coping. This is a most important concept within depth psychology. Every current problem represents a mode of coping from the past that has long since lost its usefulness. Perhaps as a child I felt humiliated by my siblings and their emotional abuse. Whenever I tried to prove myself to them, they beat me down with taunts and physical threats. My only coping, as a younger, smaller child, was to withdraw in silence so that I would not incite them to a physical expression of their hostility.

    Now I am an adult, trading the financial markets, and I am eager to prove myself in this most challenging arena. Trade after trade I experience losses and, before long, I retreat to my psychological shell, passively watching as the market ultimately moves in the anticipated direction. Why didnt I take those trades? I wonder after the close, bemoaning my inability to pull the trigger. Later, I find myself even more frustrated, as the prescribed self-affirmations and visualizations of trading coaches fail to dent my dysfunctional pattern.

    Perhaps the most perplexing aspect of this scenario is that I can know what to do during times of sober reflection. In the heat of trading, however, when those emotional stars are right, my past coping is activatedand it is as if I become another person! If there is anything more horrifying than the prospect of encountering Dagon-like creatures in the seas, it is finding oneself dominated by an internal Cthulhu, with no prospect of escape. As long as I experience market losses as humiliations heaped upon my hopes for self-assertion, part of me will protect myself from emotional pain through withdrawaleven as I yearn to pull that trigger. The only way to trade better in such a situation is to find a way to reprocess market events.

    The key to such reprocessing is to make the trigger events familiar and non-threatening. Something that we encounter time and time again tends to lose its emotional valence, much as repeated jokes are drained of their humor. Some depth psychologists believe that repetitive dreamsand the Freudian compulsion to repeat past problem patterns in the presentare the minds attempt at self-healing, promoting self-mastery through a reworking of those patterns. We neednt wait for our stars to be right to attempt this reworking, however. Rather, we can align those stars ourselvesactivating the very triggers that thwart our planning and judgmentand learn to process them afresh.

    The practical steps in this reprocessing are straightforward:

    1. As Gurdjieff recognized, the work begins with self-observation. Before we can reprocess the triggers that activate past behavioral patterns, we need to know what those triggers are. Careful recounting of the thoughts, events, and feelings preceding problematic periods will generally yield patterns: recurring situations that are associated with the seeming shift in personality. Many times these trigger situations will be accompanied by a shift in our physical and emotional state: a sudden rush of frustration, anger, hopelessness, or excitement. Maintaining a personal journal can be very helpful in tracking the situations and state shifts associated with our triggers.

    2. Once we recognize our most difficult triggers, we want to face thembut only in a fresh manner. This means invoking a state of thought, physical arousal, and emotion that is contrary to the ones normally triggered. Teaching oneself to become highly relaxed and cognitively focused through deepened, rhythmical breathing and concentration on a single stimulus is highly useful in this regard. It provides a relatively non-emotional, controlled state that, with practice, you can enter at will.


    3. When you have gotten to the point of being able to enter a calm, focused state, you then use guided imagery to place yourself in situations that youve highlighted in your journal. The key is to make these mental rehearsals vividas if you are truly reliving them. While experiencing these events in imagery, you are focusing your mind and slowing and deepening your breathing as you have been practicing. The goal is to stay calm and focused, even as you are contemplating the most emotionally challenging circumstances.

    4. From there, it is a matter of repetition: creating endless variations of the scenarios from your journal and systematically reprocessing them. Once you are able to encounter these situations without emotional arousal through the use of imagery, you are then ready to bring your focusing and deep breathing into life events as they occurfacing your triggers in real time, while keeping yourself under control. This, too, requires repetition, but with repeated success comes confidence and a heightened sense of control.


    Freud realized that the basic problem with people is that, to the extent that they are dominated by past patterns, they lack a truly free will. Where id was, there ego shall be, was his formulation of the idea that self-awareness is the philosophers stone that unlocks our inner gold from its base surroundings. The alchemist Theobald von Hoghelande recognized this in 1594 when he declared, The art requires the total man. So it is with the art of trading. The exclusive focus on profit and loss triggers our fears over success, failure, inadequacy, gratification, and self worth, making alchemical puffers of us all. The philosophers stone is within: in the realm of a liberated will. A small footnote to Elizium, taken from the Chaldean Oracles, advises:

    Stay not on the precipice with the dross of matter, for there is a place for thy image in a realm ever splendid.

    What have I learned as a trading psychologist? Just this: In newly revisiting the nightmares of our depths, we become more total; more capable of Will. To find ones purpose and passion in life and yoke it to an unfettered will: what greater and nobler challenge could there be? Love is the law, love under will, was Crowleys formulation: the ideal of placing passion in the service of ones capacity for directed action.

    Gurdjieff emphasized that effort is the currency with which we purchase our wills development. Yet without adversity and challenge, there is no need for effort. Imagine a universe without gravity. Our muscles would never develop, as nothing could possibly testand developtheir strength. It was Colin Wilsons seminal insight that human beings need emotional gravity for self-development. This is the purpose of all suffering, great and small: to provide the counter-forces by which we can develop the muscles of will through directed effort. It is human nature to avoid suffering: to consign it, like Cthulhu, to the depths. Yet there it lies dead but dreaming, entering our thoughts and actions, refusing to accept banishment.

    How ironic it is that we overcome suffering by embracing and facing it, ferreting it out and repeating it so often that its voice is stilled! It is as if our worst fears and memories are crying out, Smother me or suffer: immerse yourself in me, rework me, or be dominated by me. The markets pose us with obstaclesand even sufferingon a regular basis. In their complexity and uncertainty, they offer unparalleled challenges to our ordered minds. Facing those challenges, we face ourselves, and become ever more the total individual, the true discoverer of the philosophers stone. Mercy grants us limits in correlating the contents of our minds; providence provides for the possibility of achieving ever-greater correlation.

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    Thumbs up nice thread

    this part is very important in aspect of trading good thread richtrader.keep it going ...

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    Lightbulb how to handle a losing strak

    How to Handle a Losing Streak

    A trader emailed me a while back, asking for some advice on a good money manager for him. He said he was a "lousy trader" and tired of losing money.

    I doubt there is one non-rookie trader reading this story who has not experienced at least a small run of poor performance in trading futures. I've said before that most successful veteran traders have more losing trades than winning trades in any given year. The key is maximizing profits on the winning trades and minimizing losses on the losers.

    I will also argue that at one point or another in most traders' experiences, they, too, have felt like "lousy traders." I certainly have. (Those who say they have never had a run of poor trading performance or felt "lousy" about a trade or trades are likely either lying or completely out of touch with futures trading reality.)

    So what's a trader to do when losses start to pile up and winners become scarce. Here are a few tips that I've picked up over the years from some of the very best traders in the business:

    Don't overtrade. If you are trading several markets and not having any success, cut back to trading one or two markets. You can follow fewer trades more closely and document your success or failures more easily. Plus, your trading account won't be drawn down so quickly.

    Keep a detailed trading diary. If you keep a good trading diary, you can go back and see if there is a common thread among your losers--and your winners, and possibly make the proper adjustments.

    If you are not trading that many markets and still racking up losers, take a break from trading for a while. Gather your thoughts. You may want to "paper trade" for a while to get your confidence back. Then, if you are still losing on paper, you will want to look for other trading methods.

    If you are losing money trading, DO NOT (I REPEAT) DO NOT try to make a big home-run-type trade that will get you back to even or the plus side in a hurry. In fact, do just the opposite. Make smaller trades that risk less capital, until your performance starts to turn around and you can resume your normal asset allowances for trades. Successful traders survive the rough waters by hunkering down and being conservative.

    Exhibit patience and discipline. I've preached about this before. Are you following a trading plan that you devised before you put on the trade? If not, you should be. You are not shooting from the hip (no exit strategy in place) once a trade gets initiated, are you? If so, that could be part of your problem. On the patience issue, are you impatient? I've talked to successful position traders who may only trade a few times a year, because they wait for what they feel is that "perfect set-up" to occur. If you are a position trader (as opposed to a day trader), you don't have to be "in the market" all the time. Wait for the good trades to develop and don't chase markets.

    Be confident. Have faith in your trading methods. And if you don't have faith in your methodology, why don't you? If your methods are really not successful, find something else. Read some of the many books out there by the successful traders, and how they have traded successfully. But be cautious of the person who wants to sell you some so-called successful trading method for big bucks. (See the next item on hard work.)

    Work harder. Don't expect to produce winning trades if you are not working very hard at trading. Do you know well the fundamentals of the markets you are trading? Even if you know technicals well, you should have at least a good understanding of a market's fundamentals. Here's an example: Let's say the charts and technical indicators look bullish for corn and it's the day before a major USDA report. Smart traders likely won't initiate a trading position in corn the day before a big government report is out.

    In case you're wondering what I told the reader who emailed me and told me was a "lousy" trader, here's what I said: Don't give up just yet. The fact that he admitted he needed some help (before he lost all of his trading assets) is a positive first step. I then told him I would write this feature because there were likely many traders who feel the same way, at times, that he feels, and that there are steps to take on the road to recovery and eventual successful trading

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    Cool Nice One

    Thank you so much for this beautiful piece. Like you rightly said no trader, no matter how good he is can boast of not having losing trades. You have said it all in this write up and your advice is a very wonderful one to follow. I once lost $2500 in one day, I was devastated, but I took it calmly, went back to paper trading, entered the market trading the smallest lot available and practicing good money management. Gradually I am regaining back my confidence and my account is growing back. I went back home after the loss and did a sound critique of why I lost, I downloaded a lost of ebooks on forex trading. I read them and had so many strategies, I picked the ones I felt suit my risk tolerance and I tried it with Demo account before going back to live trading.
    Now like I said before I am gradually finding my feet back.
    Please let us endeavour to always share our experience with other traders as a means of encouraging them. There are enough Dollars for everybody in the forex market. Let us be careful as we poised to take our own share from the market.

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    This is a very useful thread for me beside any technical threads that I've ever read. I'm an Asian Newbie Trader want to say thank you to everyone who has give any psychological trading education like you did.

    You'll get what you give.

    Salam
    Armygera

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    Thumbs up

    Well am a newbie too thats why am encouraging traders to be contributing to this thread because this is where most traders lack .You would see a guy with good technical skills but no confidence or no good money management.well richtrader once again continue helping us newbies....
    i really lack in this aspect.

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    i am a newbie in trading too ..just been trading since 4 years only..
    started from e/u and now trading the beast G/J
    [url=http:Rule 14

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    Default Explaining Market Success

    Numerous books have been written on the topic of trading success. Nevertheless, it is unclear how expert traders obtain their expertise. Several explanatory models are implicit in market writings:

    1) The psychological model What makes great traders, this model asserts, is self-mastery. Great traders dont necessarily possess better trading methods or secrets, but apply common wisdom more consistently, with less emotional interference, and therefore with better risk management. Developing trading expertise is a function of developing oneself in this model.

    2) The scientific model What makes great traders according to this model is superior research. Markets exhibit cause-effect relationships, and these relationships shift over time. The role of research is to uncover these patterns and capitalize upon them. Such a model is, in a sense, the opposite of the psychological model. It hypothesizes that, once you discover inefficiencies in the marketplace, these can be incorporated into mechanical systems that eliminate any troublesome human elements from trading.

    3) The hidden pattern model Success in the marketplace, this model emphasizes, is a function of understanding. Patterns exist in the marketplace that do not shift over time, but also that are not necessarily observable on the surface. The role of the great trader is to successfully decipher and apply these universal patterns. This is not so much a function of research as experience; such approaches to trading as charting, Elliott Wave, and Market Profile are not systematic approaches to trading, but instead rely on the traders interpretive skill.

    4) The performance model Trading is viewed as a performance activity, like athletics, in this model. Successful trading can be broken down into component skills and aptitudes that can be honed through intensive exposure and practice. Expertise is less a function of explicit research or pattern-based interpretation as rapid execution of perceptual and motor skills.

    No doubt each of these models possesses elements of the truth, and it is quite possible that all of these models represent a portion of what it means to be a great trader, not unlike the descriptions of the elephant offered by the proverbial blind men. Models one and four emphasize qualities of the trader; models two and three stress the underlying qualities of the marketplace.

    In a sense, these models are like lenses that traders wear, shaping how they view the world and prioritizing what they work on. They reflect deep belief structures about the nature of the world: whether reality is fixed (capable of being captured by universal patterns) or changing (capable of being captured through ongoing research); whether knowledge is explicit (obtained through psychological reflection) or implicit (reflected in performance).

    Because these models of market success are drawn from our fundamental views of the world, I suspect that they are far less amenable to modification than is commonly appreciated. A researcher will be turned off by Elliott Wave theory not because of objective evidence (which the researcher finds lacking and the Elliotician sees aplenty), but because the very notion of fixed, unchanging Platonian realities does not mesh with a perspective that emphasizes dynamic interrelationships. To a trader who views trading expertise in performance terms, the idea that success is a function of mindset simply does not register: Can one become a good surgeon through self-development? And yet can one perform without the right internal harmony (as the recent experience of the Los Angeles Lakers demonstrated)?

    Perhaps the successful trader differs from the unsuccessful one, not because of the superiority of one model over another, but because he or she has found a model for professional development that fits with his or her basic personality, outlook, and experience sets. The unsuccessful trader may lack a coherent model altogetherimpulsively shifting from working on self to working on market, working on research to working on discretionary interpretation. Or unsuccessful traders may pursue models that utterly conflict with their fundamental personalities traits and life experiences, as in the case of intuitive individuals who attempt to force their trading into mechanical schemes.

    In that sense, the models are like religions: There may be multiple paths toward spiritual growth, but it is necessary to find a path that speaks to you. One cannot be a devout Christian one day, a disciplined Zen practitioner the next, and still later an Orthodox Jew. By asking fundamental questionsWhere is opportunity in the marketplace? What competencies do I need to capitalize on this opportunity?you can begin to grind your own lenses and formulate a plan for furthering your success

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