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Exploring Trading Psychology

Posted on the 28 March 2012 by Thecentralfranc @TheCentralFranc
Hello everyone,
I'll start with a quote from respected trading education consultant Dr Van K. Tharp, who in his book Trade Your Way to Financial Freedom asserts that the "'The 'Holy Grail' is not a magical trading system: it is an inner struggle. Once you’ve discovered that, and resolved the struggle, you can find a trading system that will work for you."
Quite correctly, Tharp is at pains to stress the importance of psychology in trading. Tharp breaks down the trading process into three categories: trading system, money management and psychology. The latter, he states, makes up 60 per cent of the trading process.
Exploring Trading Psychology   Dr Tharp - the glasses and broadsheet newspaper provide a veneer of intellect
As accurate as Tharp's breakdown may be, the term "psychology" is shrouded in ambiguity.
What constitutes a "good" psychology or mindset?
Whereas I can't promise an explanation of Freudian complexity, I can do a darn sight better than Tharp with this revisionist perspective.
As I've already mentioned in previous posts, I encourage a holistic approach to trading - one that incorporates mind, body and soul. As sentient beings, we must strike an emotional chord with our every entry. This means unbridled joy at every pip gain, and crippling guilt at every loss. This emotional, spiritual connection envelops you in the world of trading, and motivates you to learn more about the markets.
The next question, is how do you optimize mind, body and soul for trading? How do you resolve those inner struggles?
Allow me to provide you with some tangible solutions, courtesy of this Tharp-esque breakdown.
1] Stimulation - 60%
The first task is to stimulate the mind and the senses to increase receptiveness. This elevates chart awareness and trading conviction. TheCentralFranc stimulates himself regularly.
Exploring Trading Psychology  Beginner Friendly
For beginners, regular caffeine injections will suffice, but seasoned traders need to experience trading euphoria. This requires the use of heavier stimulants such as cocaine (perfect for scalpers), or ecstasy. For those trading exotic currency pairs, you need to enter a state of trading delirium - made possible by psychedelics such as acid tabs and magic mushrooms.
Conversely, avoid all narcotics such as cannabis and sleeping pills, which reduce mental alertness.
2] Expulsion - 25%
Optimal focus requires the expulsion of negative thoughts and feelings. Whether it's trading gluttony or a carnal urge to use your screen for something other than watching a chart, it needs to be expelled.
For first time sinners, I advocate an exorcism. However, for habitual offenders, I suggest something more draconian, such as a lobotomy.
Exploring Trading Psychology
      Consult a priest, not Dr Tharp
3] Self-Punishment - 15%
Discipline is a key faculty of a successful trader.
This means more than sellotaping the lid of the cookie jar or plonking yourself on the naughty step. TheCentralFranc draws inspiration from the Buddhist practice of self-immolation. It's a perfect tonic for rogue trading, as it extinguishes those primal, bodily urges to use counter-intuitive tools such as stop losses.
Exploring Trading Psychology
    Psychology in trading is a hot topic
TheCentralFranc

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