Van K. Tharp, Ph.D., author of the recommended book, Trade Your Way to Financial Freedom, has 10 Psychological Rules for the Trader he discusses at SmartTraderBlog. They’re well worth a read. Trading psychology is probably the single, toughest aspect of trading to master. Here’s Tharp’s Psychological Trading Rules:
‘If you assume that you are totally responsibile for your trading results, then you’ll be continually eliminating mistakes. If you blame your results on someone or something else…’
Creating a trading journal, and logging your trades will help find those mistakes.
‘If you are 100% committed to success then the universe will help you create miracles to get it. But if you are not committed, then you will find lots of distractions that will seem like major roadblocks.’
‘Psychological research over the last 20 years has proven that human beings are very inefficient decision makers.’
‘The key to your success is clearly moving from 4% efficiency to 100% efficiency. Most people spend a lot of time trying to improve their system. But quite often it’s not the system at all — it you.’
‘Let me repeat the title. Repeating the same mistake over and over again is self-sabotage and still holds, even when you don’t know you are making a mistake.’
‘My experience always is that something like not executing trades properly is the result of some emotional trauma that usually happened in the first five years of life. And most of the time the client has totally forgotten about it.’
‘…you need to commit to a lifetime of working on yourself. I’ve been doing it for over 25 years and I’m just now discovering elements of self-sabotage and that includes elements that I have not been willing to look at before.’
‘…beliefs that are supported by strong emotion are usually difficult to change if they have a strong charge on them due to some psychological trauma. Even if you decide they are not useful, they’ll be difficult to release.’
‘However, once you understand that trading is a game, you can (within limits) make up your own rules for how to play the game and especially your own rules for how to win the game.’
‘psychological issues you have with money will also influence your trading.’
Some interesting twists on a subject many traders should really think about. It’s true. When you get down to the nuts and bolts of trading, we’re basically trading beliefs. Have you ever caught yourself buying a stock on what someone else believes? I know I have, and the trade usually ends up not working. Trade consciously.