Trading psychology

A reader has asked about importance of trading psychology in trading success. In my opinion some people are addicted to psychological stuff. They are the one constantly looking to find psychic problem in traders or themselves.

No amount of trading psychology is ever going to make you a successful trader if you do not have a trading system with edge. A profitable system and a thorough understanding of market structures is the first and foremost requirements to trading successfully. Once you have that in place, may be if you have specific issues with psychology, you need to look at trading psychologist.

Most of the methods propagated by trading psychologist are basic psychological techniques and there are no special trading related psychology techniques. All the biases and cognitive biases being talked about are true for many other profession.

Some of the most successful speculators have never seen a trading psychologist or for that matter spent too much time worrying about it. We live in a marketing world, where everything is hyped and trading psychology is being offered as miracle cure to trading ills. I don't think Buffet or Soros went to trading psychologist to improve their trading skills.


Jtrend said...

I wholeheartedly agree that much of today's trading psychology is mere hype and psychobabble marketing. It does however beg the question why one of today's most successful stock traders; Steven A. Cohen has a resident psychologist (Ari Kiev) on staff and has been using him for some time.

Pradeep Bonde said...

But barring him no one else is heavily in to psychology. I think it has lot to do with his trading style and time frames which requires daily focus. Short duration traders need to be in right frame of mind everyday.

The Market Speculator said...

Great post. Some traders and trading bloggers seem to spend more time focusing on psychology than they do on actual trading.

I do think psychology is an important aspect, though. You mentioned Buffet and Soros . . .while they might not be talking about psychology, it's obvious they are psychologically well balanced. Same goes for the systems trader who has the mental toughness to stick with his system during a drawdown or wait for the correct entry point.

But of course, as you pointed out, you have to know how to trade.