Everything is Psychological

The following comment was just added to my previous post, and although the author doesn't realize it, the comment proves my point as well. So here is the comment.

OK so if I have the world's most rock solid psychology how does that aid me in knowing where to buy and sell? Obviously you need a good method too right?

Or what if I have terrible money management practices i.e. I take a dollar profit, but use 3 dollar stops? That won't work either. So all 3 are important. I disagree that psychology is 100%.

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The only reason someone could post this comment is because they believe that all three areas are important. Whatever you believe, you are right.

And that proves my point that everything is 100% psychological. One of the keys to everything, and it forms the basis for my consulting about systems, is that you can only trade your beliefs about the market.

Those beliefs (whether you made them up or were indoctrinated in them or actually adopted them because they seem useful) are the basis for everything.

Here's an interesting quote from Harry Palmer, the founder of Avatar. "If you believe you create your life out of your beliefs, you are right, unless you don't believe that, in which case you won't, which means that you did."

NOVEMBER 29, 2006

Everything is Mental

Some people say that trading is 10% system, 30% position sizing, and 60% psychology. While I agreed with that assessment at first, I now believe that trading is 100% psychology -- 100% mental. Here's why?

First, I'm an NLP modeler. To duplicate success you have to find a number of successful people and determine what they do in common -- what are the common tasks?

And then, in order to teach others to perform the tasks the same way, you need the three ingredients of each task.

Those ingredients are the beliefs (isn't that mental), the mental states (isn't that mental), and the mental strategies (also mental).

Let's take the simple task of picking up the phone and acting once you see a trading signal. We're not robots, because we have to process that signal.

And this is what happens. First you must see the signal and then you must recognize that it is a familiar signal that you should take. Then, because we act from feelings, we must feel good about it.

And then you act. Recognizing that it is familiar and feeling good proves that even the simple task of acting on a signal is psychological/mental in nature.

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Bottom line -- trading psychology is very, very important to your success.