Overcoming psychological Barriers

[ketanss]

Dear Fellow Traders,

There are many psychological barriers which often confuse the mind or make us do things which eventually go against the trades taken.
I am sharing from my experience and have done something that has helped me in the past few days.
I was trading reasonably well for some time and then I found that for quite some time now I have just been able to break even most of the time.
I asked myself this question " Why am I losing money?", I am able to interpret charts, set targets, tight Stop losses, then why??
Deep Analysis led me to 3 things
1) Overtrading
2) Revenge trading
3) Impulsive trading

Overtrading: There are times when targets are met within 2 hrs of trading. Instead of stopping there, I would end up taking more trades which would either wipe out or cut profits earlier made. Other problem was paying out huge brokerage. Have made a rule for myself to be strictly followed. No more than 3 FNO positions at a time. Only exiting one can one take a fresh one.

Revenge Trading: SL is hit and you tend to take a trade in the reverse direction. More often than not you are hit both ways. However a fine line exists when you do get a signal that the trade will work in the other direction. The worst thing I have done is doing revenge trades by doubling the qty while taking "Revenge Trades"

Impulsive Trading: Seeing a sudden upward/downward spike on a chart one is tempted to take a position in that stock. Then without analysis of risk reward or any other parameter, rush into the trade. Giving a few minutes, calculating risk/reward and checking the charts( intraday/daily) and analysing them is more likely to give you a good trade as rushing blindly to make a quick buck only ends up mostly with a loss.

When I did identify these problems, I have done only ONE thing.
Printed the following on a piece of A4 paper in big font and stuck it on my desk

NO OVERTRADING
NO REVENGE TRADING
NO IMPULSIVE TRADING

This has helped me greatly and though it did not seem like a great idea at first , it has been helping me greatly as I started trading better and amount of losses has been hugely reduced. As far as gains, they have been much better than before as as controlling the losses automatically scales up the gains.

 

[Reggie]

Thanks for sharing your experience.

I would suggest two book which are a must read for serious traders, both written by Mark Douglas. These books explore, analyse and explain the psyche of a typical trader and what is required of him to transform himself into a successful trader.

1. The Disciplined Trader
2. Trading in the Zone

Both these are expensive books costing around 2,200 rupees each. But in my view, the value of the same can be recovered in just one trade...

 

[trump]

I have read the books by Douglas, both books are a nice read.
First make sure to have a trading strategy/method/setup in place before jumping in , and follow the setup rules religiously, that would save from falling into psychological traps.
Happy Trading.

 

[mahesh_rawal]

interesting thread!

i have been trading all this while with one ideology in mind: "make larger profits and smaller losses"

and this phrase has helped me make some fine decisions which in turn led to decent amount of success in the trading arena!

emotions are way over important than fundamental and technical analysis both! and play a major role. because even if your TA/FA are showing some vast profits ahead, your emotions will play a huge barricade and not let you take sensible decisions.

thus, of all the ones you mentioned:
NO OVERTRADING
NO REVENGE TRADING
NO IMPULSIVE TRADING
it has a cummulative solution : "make larger profits and smaller losses" and will avoid you from any of the three mentioned decisions

let me know your views karanveer.

 

[pay2gain]

The traders or investors can be successful, only if they control their emotions. In short, kill emotions to be successful in trading.

 

[trump]

The most important barrier is doing exactly opposite or uncomfortable to what one's impulse is saying.try it, its really difficult.