I came across a post on the FXStreet site with the following statement:
“The majority of trading success comes from the mental side of trading not the strategy…”
The article then goes on to say that psychology is 85% of the equation of trading success, with money management coming in at 10% and strategy at only 5%. I reject this completely.
To explain my own position (as I also did in a recent online panel discussion), which is one I share with Dr. Brett Steenbarger, who literally wrote the book on trading psychology (The Psychology of Trading), let me ask these questions.
If you don’t have a positive expectancy system, does your mental state matter?
If you don’t have the risk management side of things right, will it make any difference how strong your discipline is?
The answer to both questions is “No”.
Trading completely without emotion seems to be the ideal many folks are aiming for in their trading. You could turn yourself into a robot (or program a robot to trade your system), but that’s not going to turn a losing system into a winning one or overcome poor risk management.
It takes all three elements to be a successful trader. If you’re missing any of the three legs of that tripod, it won’t stand up. Psychology does become the thing you spend the most time on once you have a good system and risk management strategy, but that doesn’t make it more important.