“When dealing with people, let us remember that we are not dealing with creatures of logic. We are dealing with creatures of emotion, creatures bursting with prejudices and motivated by price and vanity.”
Dale Carnegie
Intelligence, knowledge and talent have to be applied. Any person who is successful knows that application requires discipline, self-control and condence in one’s abilities. Bjorn Borg was a great tennis player, he had talent. However, what always gave him the edge when playing was his mental control, which earned him the nickname “Iceman”. He combined talent and discipline to achieve his success and you must do the same.
We are all put in situations where, after they have occurred, we look back and feel that if only our emotional control had been better. You are going for a job interview and role-play Th a friend beforehand. You come over as assertive and condent. In the interview itself, however, the condence goes. You practise a best man’s speech, it ows well and sounds great; however, on the day, delivery suffers as you feel nervous and shy.
All the above we can associate with. The fact of the matter is, when the pressure is on, our actions are inuenced by our emotions. The more important the scenarios, the greater the inuence will be.
Trading is no different. As soon as money is committed, logic can go out of the window and basic emotions take over. Consider the difference between paper trading and trading real time. Whilst paper trading, you earn very good prots, you are condent and optimistic. You see a very lucrative business opportunity, so you now decide to open an account and trade for real.
On studying your charts you see an opportunity, a perfect double bottom and prices low in historical terms, now is the time to buy. You ring your broker to place the trade; however, the overwhelming condence of paper trading has now deserted you. Perhaps you had better double-check the formation. After much deliberation you decide to phone the broker and the trade enters the market. For the next two days prices rise dramatically, your prots grow; you feel great, what an easy way to make a living. The next day prices drop and your prots are cut in half. You feel uncertain; perhaps you should take the prot now before it gets away. You decide to wait. The next day prices fall further and close below your mental stop loss. Your system is telling you that you should be cut. However, you only have a small loss and it should turn around and you will soon be back in prot. The next day, to your horror, prices have collapsed and the majority of your equity is now lost. Your reaction is now one of anger, why didn’t you bank the prot when you had it! The market’s move is totally illogical, you feel anger, pain and frustration, you are now totally disillusioned and fed up, and all you want to do is exit the trade.
Welcome to the real world of trading!
“Seeing is believing, but feeling is the truth.”
Thomas Fuller
The above is a hypothetical yet common example of how traders who have made money on paper suddenly crumble under the strain of real trading. Many people deride paper trading and say it is of little use. However, providing you know the pitfalls in advance, it is a great way to mentally prepare yourself for the day you have to trade real money.
“The mainstay of training her is condence. That’s why we show them how to let a tank run over them - it gets their condence up.”
Ofcer in Charge US Special Operations Command
Of course nothing will take the place of the real trading arena; however, practicing the basics on paper is a very useful exercise. To ridicule paper trading is similar to saying soldiers should not go on manoeuvres because the bullets are not for real! In conclusion, paper trading is useful if we adopt the right attitude to it, (i.e. we make it as realistic as possible and we don’t cheat).
Going back to our hypothetical example,it is clear that the trader was making investment decisions based upon his emotions rather than logic. No matter how good the trading system was that he used, he would still fail due to his lack of discipline and self-control. This is not to imply that you can trade any system with discipline and be successful; however, a disciplined trader with a mediocre trading system has the edge on the best trading system in the world if its operator lacks discipline.
To develop discipline you need to acquire total condence in your abilities, i.e. acquire self-control. You can do this by acquiring knowledge, practicing on paper and real time trading experience. Nothing replaces real time trading, but preparation in terms of understanding the markets and how you should relate to them will give you a distinct edge in the quest for the big
prots.
Intelligence, knowledge and talent have to be applied. Any person who is successful knows that application requires discipline, self-control and condence in one’s abilities. Bjorn Borg was a great tennis player, he had talent. However, what always gave him the edge when playing was his mental control, which earned him the nickname “Iceman”. He combined talent and discipline to achieve his success and you must do the same.
We are all put in situations where, after they have occurred, we look back and feel that if only our emotional control had been better. You are going for a job interview and role-play Th a friend beforehand. You come over as assertive and condent. In the interview itself, however, the condence goes. You practise a best man’s speech, it ows well and sounds great; however, on the day, delivery suffers as you feel nervous and shy.
All the above we can associate with. The fact of the matter is, when the pressure is on, our actions are inuenced by our emotions. The more important the scenarios, the greater the inuence will be.
Trading is no different. As soon as money is committed, logic can go out of the window and basic emotions take over. Consider the difference between paper trading and trading real time. Whilst paper trading, you earn very good prots, you are condent and optimistic. You see a very lucrative business opportunity, so you now decide to open an account and trade for real.
On studying your charts you see an opportunity, a perfect double bottom and prices low in historical terms, now is the time to buy. You ring your broker to place the trade; however, the overwhelming condence of paper trading has now deserted you. Perhaps you had better double-check the formation. After much deliberation you decide to phone the broker and the trade enters the market. For the next two days prices rise dramatically, your prots grow; you feel great, what an easy way to make a living. The next day prices drop and your prots are cut in half. You feel uncertain; perhaps you should take the prot now before it gets away. You decide to wait. The next day prices fall further and close below your mental stop loss. Your system is telling you that you should be cut. However, you only have a small loss and it should turn around and you will soon be back in prot. The next day, to your horror, prices have collapsed and the majority of your equity is now lost. Your reaction is now one of anger, why didn’t you bank the prot when you had it! The market’s move is totally illogical, you feel anger, pain and frustration, you are now totally disillusioned and fed up, and all you want to do is exit the trade.
Welcome to the real world of trading!
“Seeing is believing, but feeling is the truth.”
Thomas Fuller
The above is a hypothetical yet common example of how traders who have made money on paper suddenly crumble under the strain of real trading. Many people deride paper trading and say it is of little use. However, providing you know the pitfalls in advance, it is a great way to mentally prepare yourself for the day you have to trade real money.
“The mainstay of training her is condence. That’s why we show them how to let a tank run over them - it gets their condence up.”
Ofcer in Charge US Special Operations Command
Of course nothing will take the place of the real trading arena; however, practicing the basics on paper is a very useful exercise. To ridicule paper trading is similar to saying soldiers should not go on manoeuvres because the bullets are not for real! In conclusion, paper trading is useful if we adopt the right attitude to it, (i.e. we make it as realistic as possible and we don’t cheat).
Going back to our hypothetical example,it is clear that the trader was making investment decisions based upon his emotions rather than logic. No matter how good the trading system was that he used, he would still fail due to his lack of discipline and self-control. This is not to imply that you can trade any system with discipline and be successful; however, a disciplined trader with a mediocre trading system has the edge on the best trading system in the world if its operator lacks discipline.
To develop discipline you need to acquire total condence in your abilities, i.e. acquire self-control. You can do this by acquiring knowledge, practicing on paper and real time trading experience. Nothing replaces real time trading, but preparation in terms of understanding the markets and how you should relate to them will give you a distinct edge in the quest for the big
prots.
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