5 Ingredients You Need for Excellent Trading Psychology a Beginners Guide

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Content (Clickable)

Disclaimer ....................................................................................................... 3

About Author .................................................................................................. 4

Preface............................................................................................................. 5

Introduction ..................................................................................................... 6

The 5 Ingredients ............................................................................................ 7

1 Positive Mentality & Attitude ................................................................. 9

1.1 Can Win ................................................................................. 9

1.2 Never Give Up..................................................................... 10

1.3 Commitment ........................................................................... 10

2 Emotional Awareness ........................................................................... 12

2.1 Prevention ............................................................................... 12

3 Belief ..................................................................................................... 14

3.1 Market ..................................................................................... 14

3.2 Trading System ....................................................................... 14

3.3 Self (Belief) ............................................................................. 15

4 Money Relationship .............................................................................. 16

4.1 Money Objective ..................................................................... 17

5 Routine .................................................................................................. 18

5.1 Trading Process ....................................................................... 18

5.2 Discipline ................................................................................ 19

5.3 Continuous Improvement........................................................ 19

The Need to Balance ..................................................................................... 20

Thank You .................................................................................................... 21

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Disclaimer

The information contained in this guide is for informational purposes only.

I have written the book based on my personal experience and research only.

It does not take into account your personal circumstances; please dont act solely on this information.

By Viewing any material or using the information here you agree that this is

general education material and you will not hold any person or entity

responsible for loss or damages resulting from the content or general advice

provided by the owner of this website.

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About Author

Hello, my name is Alwin Ng and I am the owner of

TradeYourEdge.com, a website to help Traders

improve their Trading Psychology.

Im not a Trading Guru nor have I made my millions from trading (yet!!). However, comparing myself to

many, I do consider myself pretty lucky to be where I

am now.

Trading is a journey and Ive got a long way to becoming a Market Wizard. Nonetheless, I love what

I do and I truly believe that anyone can trade

profitably provided they have the right Education, Support and Commitment.

If you like what I write, please share my website with your friend and family

(oh, and while youre there, please Like my page as well, Cheers!) and feel free to check out my work on my website.

NOTE: If you would like to share this guide, please direct people to the link

below, so they have a chance to join the newsletter as well. Thank you.

http://www.tradeyouredge.com/subscribe/

Cheers.

Alwin

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Preface

When I started trading a few years ago, I often asked, What do I need to be a successful trader? Clearly I was curious. Then, on the first day of trading class, the phrase that really struck me was this Trading Success is 80% Psychology and 20% Technical.

Sadly, throughout my training, there was limited support given in the area of

Trading Psychology. And that was what inspired me to start my website and

to share my experience.

Through my research, I truly believe the 5

ingredients here are crucial to building, not

just a good but, an Excellent Trading

Psychology.

Nonetheless, Trading Psychology is a

pretty mysterious and a fairly broad subject.

As much as I would like to cover all of it

here, that would be too ambitious.

Hence, this is only meant to be a beginners guide to this subject. The recommendations provided are meant only to be a suggestive and not a one-

size-fits-all solution. Hence, please use the information with discretion.

Lastly, I have to give credit where its due. Some of the ideas here were inspired and incorporated from materials by renowned traders/authors

including Van K Tharp and Ari Kiev. I learnt a great deal from them and I

hope to share these with you.

With that, I hope youll enjoy the read.

Trading Success is 80% Psychology

and 20% Technical

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Introduction

Stories of successful and

flamboyant Traders goes around

very often and this inevitably

attracts lots of people into the

Financial Market. Some succeed

while some fail, this routine is

exceptionally common.

Nonetheless, when questioned,

many successful traders cannot

explain why and how they become successful. Typically, they only talk

about the technical know-how or about the systems theyve developed. Dont get me wrong, I believe they have earned it and should be given credit for

that.

On the other hand, when asked about Trading Psychology, they all agree that

Psychology is crucial. However, no one really explains it in detail. They

would talk about what their personal experience and thats about it.

Struggling traders almost always blame the

market. They claim that they are losing

because the market is not in their favour.

Meanwhile, Traders who constantly

breakeven love to jump from one system to

another, they hope to find the Holy Grail

(which doesnt really exist).

What these traders dont realise is that the market is fair and it treats everyone the

same way. It is the traders decision when they take positions in the market and, hence, it is the responsibility of the Trader if they lose.

Instead, if you understand the Psychology of Trading, youll realise that Trading is fairly simple and theres no one to blame but yourself.

This may not be the ultimate guide for you but this is definitely the starting

guide.

Struggling traders almost always

blame the market.

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The 5 Ingredients

A Traders Psychology is heavily influenced by the persons upbringing, living environment and background. Those are the things that made us who

we are and, believe it or not, it has tremendous impact on how we trade the

market.

Hence, you will soon come to realise that mastering Trading Psychology is

not difficult (though not easy) and theres nothing more than making an effort to become better.

The real problem with improving our Trading Psychology is that its difficult to pin point a starting point.

On that note, Ive managed to narrow down what seems like an infinite list to what I

believe are important ingredients that

Traders should have when working on their

Trading Psychology. I hope that this guide

will provide a stepping stone to help you

start.

The Psychology Mind Map (see Diagram on next page) shows 5 Ingredients

that each trader should master to achieve great trading psychology. Along

with that, Ive also included some sub-categories of areas to help you focus.

Trading Psychology is not difficult (though not easy)

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Fig1: Trading Psychology Map

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1 Positive Mentality & Attitude A traders mentality or attitude (or what ever you may call it) is the back bone of his/her trading psychology. And this is because a traders attitude will determine the very first image that he/she holds in his/her sub-conscious

mind. This is very similar to how First Impression (when meeting new

people) works. That image is built within the first few minutes of meeting

the problem and that image will stay on for a period of time until a new

image replaces it.

If the image in the sub-conscious mind is a positive one, the trader will sub-

consciously work towards a positive outcome. And vice verse.

So how do we perceive mentality? My simple

analogy is to ask if a cup is Half-Full or Half-Empty?

Essentially both of these answers are the same

but its the persons perspective that really matters. The situation can be a problem, a

process or just an average opinion.

My interest is to see if he/she approaches it with

a positive attitude or has he/she already given up

right at the start of the approach?

The interesting part to this is that a persons true colour is usually only obvious when he/she is

under pressure. For example, it is difficult to tell if a traders attitude is positive or negative after he lost 3 trades. On the other hand, we can easily

access a persons attitude if he has had 3 losing months.

Hence, often, we cannot jump strong into the conclusion when analysing

ones mentality.

1.1 Can Win

This is not rocket science but this is a major problem that many Novice

Trader faces. They all want to make money (well, who doesnt?). Nonetheless, a Want attitude is actually very far off from a Can attitude. Traders will, without a doubt, go through many obstacles in their trading

career. The bigger the obstacle, the more Can one should have.

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However, as a trader, the challenge

becomes slightly more complicated and

somewhat different to other problems in

life. And this is very much due to the

lonely nature of trading. When the going

gets though, traders will really need to

fight to survive. And this fight is really

between You and Youself. Dont blame the market because it is YOUR decision when you enter the market.

As Will Smith says it in the video (Click here), Greatness Exists in All of Us. Likewise, building a Can Win attitude towards a Trading career is essential to trading success.

1.2 Never Give Up

It is estimated that Thomas Edison failed at making the light bulb 10,000

times before he succeeded.

As clich as this may sound, I want to emphasise that having a Can Win

attitude is slightly different from having a Never Give Up attitude.

A Can Win attitude gives you the fuel and drive to move forward. However,

during the days when Trading results are not going any where, its like hitting a major road block. Throughout days like these, you really need to

stand firm to your conviction and Never Give Up. You need to hang on and

be persistent in your beliefs and stand up from your fall to try again.

1.3 Commitment

Every successful trader, in the

past and present, would have in

one way or another, committed

themselves to achieving success.

Having a full commitment to

success is crucial to a traders psychology. Once traders are

committed, the commitment

comes not just in the form of

Time and Money, above and

beyond that, they also come in

Greatness Exists in All of Us

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the form of Energy, Emotions and Creativity. The commitment that they hold will give traders the strength to make things work and to find resources

that traders would not normally realise exist.

Commitment is indeed a powerful attitude to have. While it is not difficult to

obtain, it needs to come from within, from your desire and your dreams.

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2 Emotional Awareness

Source: Link

According to Wikipedia, there are 6 main types of Emotions. Within those,

there are sub-types as well. To be honest, the list is endless.

Like it or not, Human Emotions are part and parcel of life. Unfortunately,

emotions often distort a traders mind and prevent them from making rational decisions. Emotions can be a Traders worst Nightmare.

However, the idea here is not to ignore or avoid emotions. Instead, traders

should embrace it, be AWARE of it and manage it.

Institutional traders spend a significant of

money getting it right. They either invest

heavily in education or they invest in

sophisticated Risk Control strategies as part

of their Risk Management. However, these

are the precautions that are often overlooked

by self-employed or retail traders. The end

result will vary and some can be devastating.

In my view, traders should nip the problem in the butt before emotions

become devastating. Hence, I cannot emphasise enough that Emotional

Awareness is crucial for the development of trading psychology.

2.1 Prevention

The clear step after awareness is prevention. Preventing a crisis is a much

effective and efficient way of managing emotions.

Human Emotions are part and parcel of life.

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Here comes the next big task.

For traders to prevent emotional issues

from happening, they need to understand

themselves as individuals and emotions

that causes problems. Unfortunately,

there is no fix and hard rule to doing this.

The only recipe that has always worked is

Practise.

Practise getting emotional, practise feeling the emotional turmoil, practise

being aware of your heart beat, practice feeling the pain when a trade doesnt go your way. Seriously, the list goes on.

If you really want this to work, be innovative and creative and find ways to

learn about YOU. It can be a slow and painful learning process but the

reward of knowing your emotions is just too great to be ignored.

Preventing a crisis is a much effective and efficient way of managing emotions.

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3 Belief

A persons Belief is the core reason why one would be comfortable in taking action to achieve specific goals. For example, if you belief that a car works,

you accept it and youll drive it.

The bigger the Belief, the bigger the action will be.

Another important thing to note is that your

initial Belief comes from gaining knowledge

and, sometimes, experience. Hence, believing

in the car manufacturer is only one part of the

equation. The other part is where the driver

needs to learn to operate the car and drive it

in a safe manner. And theres no other way but Education.

Once youve established the initial Belief, you grow it through the Belief Cycle. This is discussed further in the Routine section.

3.1 Market

All financial market behaves differently and most of them have their own

Personality. Sure, some of them are co-related but, nonetheless, there will be

unique characteristics that make it what they are. For example, the S&P is

fairly related to FTSE 100 but both of these markets are driven by different

speculators and governed by different regulations.

Before you trade the market, you would have established a certain pattern in

the market and you would probably have taken a position based on that

pattern. That pattern, which you have established, is essentially your Market

Belief.

3.2 Trading System

Your Trading System is a methodological approach of taking and closing a

position in the market. This system will have specific risk profile, trade

criteria, exit criteria and requires specific market conditions.

Also, the result of the above is that the system will produce a set of trading

results within a specific scope as well, including trading frequency,

Reward:Risk Ratio, Expectancy, expected drawdown and so on.

In my view, your trading system should also incorporate your risk

management system and money management requirements. This is just a

The bigger the Belief, the bigger the action will be.

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practical approach because you should not enter the market without first

establishing your risk and potential financial rewards.

3.3 Self (Belief)

This is one of the most crucial parts of

trading psychology. This is because you,

the trader, are positioned between the

Market and the Trading System. It is

pointless to belief in the market and/or the

trading system when the trader fails to take

trades.

Above and beyond that, Self Belief is about you, your values and your ability

to eliminate the doubts within you and make a difference in trading (or in life

in general).

Remember that Nobody can make you feel inferior without your consent. The opposite is also true; having Positive Self Belief is a choice. It might not

be the easiest thing to achieve but its not impossible to change if youre currently in the negative zone.

Nobody can make you feel inferior without your consent.

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4 Money Relationship

Money is a unique asset but, more

importantly, this asset can make or break

you. As money is such a personal matter,

everyone views it differently some people love money, some need money

and some see it as a means to an end.

Essentially, what you really need to know

is this What is YOUR Relationship with Money?

The biggest problem with this is that many traders THINK they understand

money. Unfortunately, this is not a typical question and many traders have

not thought about it thoroughly.

The following is an example of how traders would get confused.

Case 1 Trader A is a successful trader. He took a personal loan to top up his trading account a few years ago and he has now repaid all

his debt. He believes that to make sufficient returns, you need more

capital.

Case 2 Trader B is also a successful trader. He believes that the quickest way of making money from taking is by trading leveraged

financial products only. For example: trading stocks and equities are

less attractive compared to trading stock options or futures.

Now, Im not here to debate which one is a better money manager, nor do I want to see whose money belief is better. In fact, in my view, both these

traders are doing exactly the same thing they are both trading on leveraged finances.

However, if Trader A did what Trader B

had done (and vice versa), the results of

both the cases might have been completely

different. Trader A might not be able

comfortable with the P&L fluctuations of a

leverage financial product. And Trader B

might have sleepless nights due to the

liability in his personal account.

I hope you get the picture, traders needs to dig deep to understand how

money affect them and how their money beliefs can be very different from

the conventional view.

What is YOUR Relationship with

Money?

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Once youve established that, you can then decide if Money is a Friend or a Foe of your Trading Psychology and move on by taking appropriate actions.

4.1 Money Objective

Once you understand your relationship with money, it is also useful to

identify the reasons for having money. Questions like these are critical:

What do you want from Money?

Is Money the Only solution? Or is it the best alternative?

And thats the point of this Ingredient. If you want a trading success, make sure to establish clearly the psychology and relationship you have (or would

like to have) with money.

Without establishing clear and valid purposes for achieving financial goals, a

trader may find it difficult to take relevant actions to achieve these goals.

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5 Routine

You may ask what Routine has to do with Trading Psychology. Well, in my view, your routine is where you build your Belief Cycle.

Belief-Action-Results-Review...

A simple Belief Cycle is based on the above chain. Trading the financial

market is fairly routine activity. In fact, the more you trade, the more

repetitive it becomes and, without even realising, youre continuously increasing your Belief.

A good routine is imperative because good routines would ensure that

Actions are managed and Results are monitored. This would then lead to a

reasonable Review process. With that, any Review outcomes become

constructive feedback that reinforces the

Belief, before new and improved

actions are taken.

On the other end of the spectrum, if

theres not routine, no Belief Cycles would ever be built.

5.1 Trading Process

As Van Tharp says it in his book Super Trader, the trading processes are the things that you need to do on a day-to-day basis in order to be a good

trader. In my view, the following items are vital and are the minimum

requirement to establishing a good trading process.

Trading Plan

A good routine is imperative.

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This is a written document to show what, how, when and why you intent

to achieve trading success.

Trade Review

This can be in the form of a trading journal. Which is a record to show

what you actually did? This will eventually be marked against your

trading plan to identify any variations.

5.2 Discipline

Just to be clear, discipline is NOT a sub-set of Routine. However, Ive deliberately put Discipline under this heading because, essentially, you need

to have some sort of discipline to be able to execute a fixed routine.

Its easy to follow the plan a few times but if you had to repeat the same routine in the long term, youll definitely fail without discipline.

This is especially true in the trading world because trading can be lonely and

there is less chance of relying on others to get you going.

5.3 Continuous Improvement

In the war time, soldiers are often told not

to let their guards down no matter how

victorious they were. And this is because

youll never know when your enemies will strike again.

This metaphor is applicable to Traders as

well. Traders should constantly find ways

to improve themselves and their trading

because once they become comfortable, they become sluggish and thats when mistakes start to crop up. If you dont make an effort to prevent one mistake, more will along and stay.

Also, having a routine which integrates continuous improvement will most

certainly enhance your trading belief and make you a greater trader in the

long term.

Traders should constantly find

ways to improve themselves and

their trading

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The Need to Balance

I strongly believe that Excellent Trading Psychology is built upon the

confluence of all the Ingredients mentioned above. Yes, Ill say it again, traders will need all the ingredients mentioned.

Above and beyond that, the trader needs to be good in all of them

individually. One ingredient cannot do without the other because they are all

interlinked.

Unfortunately, because each trader has a

different story, they only focus on areas

where they THINK needs most help and

often ignore anything else. Hence, they

often overlook the need to use these

ingredients in parallel.

Just like baking a cake. You cant bake a good butter cake without good butter but

you also cant bake it without the lack of sugar, flour or milk (ok, I dont know how to bake a cake, but I think you get the point).

If you cannot focus on everything at the same time, my advice is to find your

weakest link and work on that as your starting point. And then, you can

gradually move from one ingredient to another until they all work in parallel.

One ingredient cannot do without the other because

they are all interlinked.

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Thank You

I hope youve enjoyed the book as mush as Ive enjoyed writing it. I cant thank you enough for taking time to reading this and for your support in my

work.

Please leave a comment at http://www.tradeyouredge.com/subscribe/, or if

you rather contact me personally, please contact me on my Contact page.

Lastly, if you havent already, please follow me on TYEs Facebook page, on Twitter or LinkedIn.

Thanks again and I wish you nothing less than success!

Cheers,

Alwin Ng

DisclaimerAbout AuthorPrefaceIntroductionThe 5 Ingredients1 Positive Mentality & Attitude1.1 Can Win1.2 Never Give Up1.3 Commitment

2 Emotional Awareness2.1 Prevention

3 Belief3.1 Market3.2 Trading System3.3 Self (Belief)

4 Money Relationship4.1 Money Objective

5 Routine5.1 Trading Process5.2 Discipline5.3 Continuous Improvement

The Need to BalanceThank You

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5 Ingredients You Need for Excellent Trading Psychology a Beginners Guide