That Something Else Is Our Trading Psychology

Category: Finance.

The fact is the majority of traders lose because they cannot control their emotions. A simple fact will illustrate the influence of trading psychology: Why the majority of traders lose.

Trading psychology is one of the keys to investment success. There is one statistic that has remained constant since the beginning of investment records- the ratio of winners to losers has remained constant over time. Despite the massive advance in communications and economic forecasting methods, the ratio remains the same. On reflection, this would seem a startling fact. The conclusion from the above is that the successful trading is dependant on something else. The influence Of Hope and Fear. That something else is our trading psychology.

In trading psychology, two emotions that are constantly to the fore are hope and fear. The average person buys commodities because they hope they will go up, or because someone advises them, they will go up. One of the traders who recognised this was the legendary trader W D Gann. "Hope and fear: I have written about this often in my books and I feel I cannot repeat it too often. This is the most dangerous thing to do, never trade on hope. Face the facts, and when you trade, trade on the facts, eliminating hope" "Fear causes many losses. Hope wrecks more people s lives than anything else.

People sell out because they fear commodities are going lower, but they often wait until the decline has run its course and sell near the bottom- never make a trade on fear" Control Emotions and Become a Disciplined Trader Gann, like all successful traders, realised that the only way to trade successfully was to remove emotions from trading, and trade on the facts and realised the significance of trading psychology on price movements. Human Nature Is Constant- Exploit It for Trading Success. To do this, he applied mathematical principles to investing that would give him the ability to trade without emotion, with discipline Gann was extremely successful, amassing a fortune of over$ 50 million in his trading career. It doesn t matter what market you trade: commodities, currencies, stocks, or what type of trader you are, a day or position trader, trading psychology influences, the fact is the majority of traders. A Disciplined Plan for Big Profits. If you can control your emotions and trade with a disciplined plan you can gain a trading edge.

Gann was able to control his emotions by having a specific plan, and the following, which he followed three principles was the basis of his success: He had a trading method, which relied on mathematical principles that he had proved over time would increase profit potential and reduce risk. He used strict money management principles to run profitable trades and cut losses quickly. He traded on the facts as presented to him by his trading system and he never traded on his emotions. He realised that having the correct trading psychology was just as important as having a good trading method. After Gann s death in 1955, there have been some excellent writers on trading psychology including Jake Bernstein, Dr Van Tharpe, Larry Williams and Jack Shwager. Essential Reading for Any Trader.

Gann s works however, have stood the test of time proving him one of the most influential traders of all time. We cannot avoid it. Emotion is part of human nature. All we can do is to: "Act in a way to overcome the weak points that have caused the ruin of others" This is what Gann set out to achieve.

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