The psychology of successful forex trading part 2

Publié par Unknown mardi 3 mai 2011

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The psychology of successful forex trading

To these traders, losing money trading was the price of admission to
a fun and exciting game.
This was my first clue that making money is secondary to other considerations
with many people.
I believe that there are many other reasons why people trade. In the example
just given, the clients were more interested in the excitement of trading
than in the making of money. They wanted to feel that jolt of adrenaline
that comes from trading. They liked the high of having the account value
go up and perhaps even liked the adrenaline hit when the account value
went down.
In the lecture, I ask attendees how they feel when they have bought a
market and it is moving strongly higher. People in the audience said that
they felt great; they felt high! And they said that they felt terrible when they
were losing money.
It is common for people to equate the forex market to Las Vegas. People
know that they will lose money when they go to Las Vegas and yet they
still go because of the excitement and entertainment they receive. Except
for card-counters in blackjack, nobody goes to Las Vegas to make money.
Nobody plays roulette with the idea that they will make a lot of money or
will be able to make a living doing it. They do it for the action.
Many people trade forex to provide a diversion from their regular life,
perhaps because they feel that it is boring or not stimulating enough. They
could call their bookie or they could call their broker. It beats sitting at
home and watching TV.
Another reason that many people like to invest in forex is because they
like to solve the puzzle of what makes the market go up and down. They
want to be able to predict the market.
It’s interesting to note that nearly all the articles and books written
about forex trading are about entry and exit techniques. Yet trading techniques
developed by Richard Donchian in the 1960s have been shown to
make money for every year since then. We already know techniques that
make money, yet 90 percent of traders lose money. Odd? Yes! It is clear
to me that it is more important for many people to continue to figure out
what makes the market tick or to figure out new entry and exit techniques
than to make money. Rather than use the old tried-and-true techniques and
make money, they prefer to try to figure out new techniques.
There is a common desire in many to want to figure out puzzles. The
market is a very challenging puzzle to be solved and attracts many people
to do just exactly this. They are fascinated by the puzzle. They want to find
a new way to beat the market.
Many traders believe that there is an underlying truth to the market
or perhaps a powerful underlying pattern or force. They, therefore, believe
that they should spend a tremendous amount of time trying to understand

that underlying force. For example, many people spend countless hours
and days trying to understand Gann or Elliott on the assumption that if
they can just crack the code they will become rich beyond their wildest
dreams. Or that if they just study harder they will understand the teachings
of the guru that they are subscribing to.
These traders focus on trying to unlock the secrets of the universe as
the way of making money rather than go directly to the subject of making
money. They end up spending a tremendous amount of time on the study
of esoteric theory and not on trading the markets. When they do trade the
markets, they often stop trading after just a few losing trades because they
assume that they do not understand the secrets of the universe well enough
and should go back to studying.
Take a look at the popularity of the literature and lectures about trading
systems. The basic concept behind trading systems is that there is a
mathematical model that will create profits. I agree that this is true. The
continuing success of Donchian’s basic systems, mentioned earlier, shows
that trading systems can make money. However, many people like to invent
their own systems or modify other systems that they have bought or read
about. One problem with this is that they spend all their time trying to perfect
the system rather than make money. They often become obsessed with
fine-tuning their system rather than simply using an imperfect system. Of
course, no system is perfect so they end up spending all their free time on
the system instead of making money. The chase of the system is more important
than making money. The perfection of the system becomes much
more important than the point of the system, which is supposedly to make
money.
A number of years ago, I had the opportunity to train traders from
Korea. I had six months to turn them into profit-making traders. They each
had $100,000 to trade. I had three groups of six traders for each six-month
period.
I decided to give the initial six trader-trainees a liberal arts education
about trading. I taught them everything about trading under the sun. I even
had guest lecturers teach them about subjects that I was not an expert in,
like Elliott Wave.
One of the guest lecturers was a good friend of mine who was an Elliott
Wave fanatic and had been trading using Elliott Wave for about eight years.
I left him with the students while he gave the lecture. At the end of the
lecture, I came back in and started to ask him some questions about his
trading that I thought would be informative to my students.
I asked him point-blank, “Why do you use Elliott Wave?”
He said, “There is no greater feeling in the world than to have analyzed
the wave structure of a move and to buy right at the absolute bottom of
Wave Two!”

the first part of lesson :