Canadian Finance Blog

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Trading Psychology Posted: 20 Nov 2010 02:00 AM PST The following excerpt on trading psychology is from Mastering The Currency Market, written by Jay Norris, Al Gaskill and Teresa Bell, and published by McGraw-Hill. There are many misconceptions about the type of people successful traders are. For example, are they creative mavericks with aggressive personalities? This is not altogether untrue but is the opposite of the case in our estimation. It was said of one very successful trader we know that he seemed to worry more about what he wanted on his pizza than about his position in the market. His approach to life and his approach to trading could be described as very laid back. Successful traders tend to be good listeners who are thoughtful, very patient, humble, and even sensitive. Although we might not describe our head trader at Trading-U.com, Al Gaskill, as laid back, we can say he is very thoughtful and one of the most patient individuals we know. Bill Williams, who is a successful trader and also has a doctorate in psychology looks for the quality he calls "reality-oriented" to see whether people can become successful traders. Being reality-oriented means having the ability to listen. In our estimation, it also means being someone who understands that life is about sharing the stage and being aware of not just one's own surroundings but the needs of others in those surroundings. Individuals like that, who know and admit they have weaknesses and understand the emotions brought on by attachment, are able to learn from their mistakes and take direction much more easily than are people who want the spotlight and see themselves as being smarter and more deserving than others on that stage. Being competitive helps, but in a way that says that the individual wants to help herself for the right reasons. Reality-oriented refers to someone accustomed to going with the flow, not trying to orchestrate the flow. It also entails understanding that there are at least two sides to every story and knowing the value and freedom of not being judgmental. Being laid back is much better than being aggressive or emotional. It is far easier to absorb something while relaxed than it is while tense. Equally, it is far easier to grasp the reality of a situation when you have no attachment to the outcome. It is that axiom which makes demo trading so important. It is far easier to learn in a simulated, less fearful environment where mistakes are learning experiences rather than financial losses. Save the overthinking for important subjects such as what you want on your pizza. One of the biggest personality warning signs for traders comes from people who are accustomed to getting other people to change their minds or willing people to do things that aren't in their best interests. Salespeople come to mind. If you are used to being able to manipulate people, you will be in for a surprise when you trade, because you cannot cajole or bluff the market. It is said that the worst products have the best marketers, and nowhere is this truer than in the brokerage industry. Because of this, brokers tend to have very limited success as traders. Brokers are not alone on that list, however. Lawyers also often struggle as traders. Many advanced education professionals, coming from a field in which linear logic, not intuition, is practiced, have an uphill struggle too. The same personality traits that give people problems in life will give them problems in trading; only in trading those traits will be magnified. Your personality will play an important part in whether you are successful in trading. We do not, however, want to ignore the importance of your trading method. The thing that is going to make you or break you as a trader is the method you follow. There probably has been more written on trader psychology than on actual trading methods over the last five years. This is most likely the case because successful trading methodologies are relatively simple when taught in the right order. The subject of how people have a penchant for complicating nearly everything they touch is not. Related Posts: Lower Your Credit Card Interest Today With A Few Simple Psychology Tricks Questrade Straight A Trading Contest plus Promo Code for $50 In Free Trades New Car or Used Car: 6 People Make the Choice Trading Psychology originally appeared on Canadian Finance Blog on November 20, 2010.

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