Trading Tips

Trader Psychology is NOT the most important thing

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 ([easyazon-link asin=”0471267619″]The Psychology of Trading[/easyazon-link]), 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.

4 replies on “Trader Psychology is NOT the most important thing”

Human being is a spirit, possessing a soul and lives in the body.
The mind, emotion & will power are in the soul.

Could psychology heal the wounded spirit and awaken the slumbering spirit?

A person without a reasonable total health in his spirit, soul & body, without reasonable intelligence & wisdom, will not be able to develop a positive expectancy system, he will not have creative ideas to deal with the changes in the market, and will not able to adopt a consistent risk management system.

A wise person, though he may have his shortcoming, knows how to “borrow” people’s ability, talents, time, and assets etc. to bring him the money.

An emotional wise man could employ someone to trade his positive expectancy system with proper risk management.

A wise man knows when to use the right (non-proprietary) trading idea/system, to trade at the right market at the right time, with the help of the right persons.

For trading success, is wisdom the most important? 🙂

If one has a positive expectancy system. When there is real money at stake one needs to be Calm and detached to properly follow through the system. The first step is obviously a positive expectancy system. But one also need to develop the correct frame of mind.

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