Are you being fobbed off with a load of psychobabble?

I hope you caught my email on Wednesday about carbon trading. If you haven’t yet read the free report on the subject, you can still download it here.

I’ve been getting a few questions about this, so have been talking to the guys at VER Trading. They’re going to run a special Trader’s Bulletin members-only webinar next week. I just need to finalise the details on this, but look out for my email on Monday with your invitation – and I’ll see you there.

Trading psychology – or passing the buck?

I had a long conversation with a colleague this week, who’s a bit of a zealot about “trading psychology”. To be honest – it was more like a lecture than a conversation, as he pointed out all the mistakes I was making, with little helpful guidance on how I was going to remedy those mistakes.

I don’t know about you, but sometimes I get a sick of all the psychology thrown at us traders.

Something goes wrong with my trading system – and it must be the result of my own psychological flaws.

I’m not resilient enough … I’m not disciplined enough … I’m clearly an emotional wreck …

… No wonder I’ve just lost a trade – I probably deserved it!

I simply don’t buy it.

I think it’s an excuse used too often by “trading gurus” for why their trading systems simply don’t work.

So, should we be ignoring all this psychobabble?

When to tune out

Now, just because my family force me to sit through X-Factor on a Saturday night, doesn’t mean that all TV programmes are rubbish.

In the same way, just because there’s a load of rubbish spoken on the subject of trading psychology – it doesn’t mean that all trading psychology is rubbish.

If you’ve heard of the Turtle traders experiment (I wrote a post about it back in May this year), it demonstrated that some people are naturally better than others at trading. All the “turtles” (apprentice traders) where following exactly the same set of rules – yet they had widely differing trading results.

Why?

Because some were better at sticking to their rules … some were better at dealing with draw-downs … some were better at money management …

It’s hard to argue with the hard facts of the turtle experiment. And any trader knows how easy it is to let your emotions come into play – sabotaging our own trades with badly timed exits and “greedy” staking plans.

It’s also easy to get discouraged by a few losers.

But …

That’s not the same as some of the pundits out there who’d have you believe that the secret to trading success is 99% psychological.

They’ll tell you that all you need is good money management and the discipline not to sabotage your own trades. And provided you’ve got your psyche right – you might as well pick your trades according to the waxing and waning of the moon for all they care!

If money management and discipline were all that successful trading required – every forex robot out there would be like an automatic cash machine. Unfortunately (while most of them will claim to be just that) – many of these robots will in fact empty your trading account before you can say “Fibonacci”.

Being a well-rounded trader

So, successful traders are disciplined … they are resilient … and they do aim to keep their emotions out of their trading account …

But they also have clear, profitable trading strategies that they follow. These strategies give them that all-important “edge” – the key to keeping ahead of the market. And they are constantly working to adapt and improve those trading plans – honing entry and exit points to maximize profits.

For me, trading is about building a complete picture, rather than constantly berating myself for my psychological flaws – or my technical shortcomings.

I’ve learned over the years where my trading-psyche lets me down, and I’ve learned some strategies that help. Here are some of the tricks I’ve picked up …

• Always wanting to eek a little more profit out of your trade? Why not make trailing stops part of your trading strategy – that way you can catch some extra profits without increasing your risk.

• Snatching at profits too soon? Why not use partial profit taking as part of your strategy, so you can get some of those profits in your pocket, without jeopardizing the entire trade. (Check out this post of mine for more info on partial profit taking.)

• Can’t help yourself from entering “experimental” trades – just to see what happens? Why not set yourself a small amount of “play” money in a trading account that allows very low stakes. You’ll get the thrill of live trading – without blowing your trading account.

• Can’t cope with the draw-downs on a losing run? If your losses are really hurting, chances are you’re staking too high. Think about reducing your stakes until your confidence builds. (I recently came across a great way to calculate how often you can expect losing runs – it’s really helped me to accept that they are a valid part of my strategy – I’ll cover this subject in detail in the next few weeks.)

On a personal note, I’ve found that working my trading strategy around my trading weaknesses has been a lot more successful than giving myself a hard time about all my shortcomings.

There’s enough doom and gloom out there – I really don’t think we traders should be beating ourselves up so much!

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