Face palm. I know traders who failed because they wouldn't back off the gas after a modest drawdown. There edge was fine. Some are tempted to bet more in drawdown. Edge trumps psychology yes but decent psychology is necessary and runs hand in hand with solid MM.
The mental aspect is quite very important in trading, but giving it more than the required attention can end up making you nervous. Trading is not just a do or die thing for me
It's like that in every area of life. Your car can be fine, but you better drive well too in order to arrive where you want to.
Well back tested Trading Plan Wins, small drawdown, you develop one hell of a great system, you get excited and can't wait to trade it, who needs "Mindset and psychology"? If you still can't pull the trigger, you hire someone to trade for you then automate it.
Exactly. Mindset and psychology can't be automated. It's merely the icing on the cake, but most would be traders seem to start in the wrong end and their emotional issues and overtrading comes from not having a clue in the first place.
This forum contains tons of trade journals or threads by traders saying they backtested their trade strategy and that the results has a positive expectancy or that it produced profits on the simulator for many months. Yet, as soon as they traded with real money...it all fell apart and they became confused about what happen. Its simple, backtesting and simulator do not contain that psychological element that shows up when your money (real money) is on the line. That's why I've consistently stated here at ET that successful trading involves more than just trade signals. Its one of a few things that can not be backtested and is one of the reasons why different traders using the same method on the same trading instrument will have different results. Strangely, many traders can not admit that their failure or under performance was due to not having the right mindset or they dismiss the merits of how their brain (e.g. personality, beliefs, opinions, fears, greed, relationships, financial situation, peer pressure and many other things) interacts with the market. Instead, they tweak, change their trade method as if its going to change their behavior when trading with real money. This tweaking or changing process of the trade method is so much easier that dealing with the psych especially when under pressure to succeed. Others that figure out the importance of the psychological element will then either try to automate their method to remove that pest call psych or they try to change their behavior while trading so that the psych becomes an advantage instead of a disadvantage. Reality, most traders never complete the above and just end up become another losing trader...joining the group that most traders lose money regardless if you're position trader, swing trader, day trader or scalper and regardless to their trade method. As ET member emg would say...most traders just lose.
i would agree with the physiological factors. The decisions you make on Demo account can be difficult to make on a live account and this affects how quickly you open or close a trade.
Indeed. For those who didn't move in live account yet, it's better to make a small deposit first to train your trading psychology.
You gotta be careful. You do not want to start trading with real money when you do not have the proper mindset, when you do not have good risk management, when you do not know how to manage your stress and so on. Simply, traders start small to get their feet wet with the false belief they can do such and figure out everything else while trading with real money. The failure that comes after doing such is what kick starts the "wrong mindset". Simply, you gotta have a complete trading plan before any kind of real money trading to "limit" the psychological impact of trading when not properly prepared. Thus, the reality is that most traders that deposit a small account...there's a reason for such...they are trying to get their feet wet when they know they are not properly prepared to trade. Yeah, I'm sure there's a small percentage of traders that don't fit the above description but most do that jump into real money trading with a small account...they are doing such because they think they can figure it out while they are trading. Would you jump out of an airplane with a parachute...with very little practice or training...with the belief you'll figure it out while you're falling towards the ground at around 124 mph ? Of course not. With that said, I do not have any statistics that most traders jump into real money trading when they are not properly prepared but I do see a commonality here at this forum and other forums... I see a lot of traders asking beginner questions about trade strategies, software, order execution, risk management, psychology and many other trading topics. They are doing this after they have already started trading. Yet, if trading is just a hobby...yeah...jump in just to get your feet wet and hopefully you'll figure out how to make some money even though you're not properly prepared. In contrast, if trading is for the purpose to trade for a living...you'll cause long term damage if you start trading with real money (even a small account) when you don't have the proper mindset...implying most likely other parts of the trading plan are missing too. Tough to recover from such a poor start.
I have read Mark Douglas' books 5 times and still have issues with psychology when in fast markets when poor decisions are made. I think the biggest points you haven't mentioned are 1. traders should start with psychological discipline and a sound money management plan before blowing any accounts while avoiding most teachings from gurus like Al Brooks. 2. A trader needs $100,000 to burn to trade even 1 contract on the ES futures with minimal psychological stress.