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Trading Psychology

Dmitry Grebenyuk,Private trader, consultant

Russia, Chelyabinsk, November 2009

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95% lose money1

• High IQ• Higher Education• Good start-up capital• Experience• Ambitions All this does not guarantee a hit cherished in the 5%successful Traders!

1. From the book "Intraday Trading", Van K. Tharp

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The reason for failure - high expectations

People think that:

• Trading - it's easy!• Trading - this is freedom!• Trading - is incalculable riches!• Trading - this is a game!

All this self-deception, in fact:

• Trading - this is difficult.• Trading - does not guarantee freedom, but can cause psychological

dependence.• Trading - is a high risk of losing everything.• Trading - a business.

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Cause of failure - in the man

However, most of the blame:• Bernanke, Trichet, Kudrin• "Puppeteer“• Brokers, dealing centers• Trading terminal• Quality Internet• Margin shoulder• Bad weather• Astrology, lunar cycles• Etc.

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Fear

Fear - negatively stained emotion or feeling associated with a sense of danger, real or imagined.

…And suddenly I now open a position, but it goes against me?

…It should be possible to record profits, and then suddenly now

thearket will unfold!

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Greed

Greed - excessive desire of possession or consumption .

…Now I come to all margins and earn 100%! …I'm in no hurry to fix 20% of the profits, because the price could

rise even higher!

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Complacency

Complacency - the property of the individual, the core of which stands a positive assessment of the individual's own skills and abilities as sufficient to achieve meaningful goals for him and meet his needs.

…Last month I earned 100% profit in the next month I make

1000% profit …Stop-loss put only fools and cowards, I did the bravest and the

smartest

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Hope

Hope - painted a positive emotion associated with the expectation of meeting the needs; expectation benefits / grace, from the higher forces / entities / elements.

…Well, now the price have to go in my direction. Trading

indicators tell me about it! …Lord God, I'm so good, let the

price go my way! Please!

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Cause of failure: human weakness

FEAR GREED

Complacency HOPE

TRADER

And where there is weakness, there appear emotions.Negative emotions.

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95% choose the emotional Trading

Strong emotions are detrimental effect not only on deposit with the trader, but also greatly undermine the health of the trader (Stress and Psychosomatics), leadrupture of relations with close friends.As a result, instead of trading, a person receives a "dependence" instead of profit, gets a loss. Control over emotions - the basis of stable earnings.

95% of traders fed the exchange industry (the stock exchange, brokers) and the remaining 5% of successful traders

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Emotional Trading - a way to stress

Stress hormone

Corticosteroids(cortisol, glucocorticoids)

Catecholamins(epinephrine and norepinephrine)

Muscle tissue breaks down and turns the tissue proteins into energy.Cortisol during intoxication are possible: peptic ulcer disease, loss of muscleweight, aging skin, brittle bones, insomnia, reduced immunity, increased blood sugar, decrease testosterone, cellulite, etc.

Becomes more frequent palpitations,Increases blood pressure,Reduces digestiveActivity ...

... Leads to hypertension

Problem situation

(causes of stress) Current state:

acute stress Cumulative effect

stress: chronic stress Stress Disorders

Physiological discomfortAcute emotionsOf memory and attentionViolation processesdecisionDisorganization of behaviorViolation of communication

AnxietyAggressionDepressionAstheniaSleep disorders

and dob

PsychosomaticsThe syndrome of emotional"Burnout"Type A behavior(or coronary behavior)And dob

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Salvation - rational trading Rational Trading - Trading is the

rules, a discipline of mind and body.Every successful trader - a trader, able to understand themselves and their weaknesses.Universal rules of trading is not rational.Every measure of their own understanding of them for myself.

However, there are three important signs indicating that the rules work:

- Emotional stability, excellent health trader- Good relationships with people close- Sustained capital growth

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Rational trading: two ways

• Trading System (the person makes a decision that has control over the management of capital)

• Automated Trading (the algorithm makes a decision, a person monitors the operation of the algorithm)

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Holy Grail is not • It is useless to look for the very

wonderful superindikator, which will provide millions here and now

• Know yourself - the key to success • Simple idea - worked in the past will

work now• Technology is changing the world,

but the man himself remains a man• The market is irrational and it is good • Two types of trade: the trend and

kontrtrend

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Terms of rational trading:

1. Enter a small part of the bargain capital (20-30%); 2. Use protective install STOP-LOSS; 3. Do not mix styles of trading - selected trend, trade with

the trend;4. Averaged a winning position (do not use the averaging

of losses); 5. The maximum daily risk of 3-4% of the deposit; 6. Less redundant information and noise (do not listen to

analysts, do not watch TV, do not read the chat rooms and forums traders);

7. Work timeframe: 30 minutes - 1 hour, attendant - 1 day, week;

8. No observations of the screen during the trading session - check the market at certain intervals;

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Terms of rational trading (continued):

9. One need not have any views on the future behavior of the market;

10. Always once a month, removal of part of earned money;

11. Having a trading plan, keep a journal of transactions, analyze the transaction;

12. Do not overload the controversial trading system trading signals - the simpler the better;

13. "Money loves silence" - Your success needs to know you and your broker;

14. Having an additional source of income, do sports, have a hobby - does not generally seen in the market, the main purpose of his life;

15. Holy Grail - it's not 1000% per month, the Holy Grail - a steady 10-20% per month for 10 years.

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Even rational trading does not save you from stress

Rational trading significantly reduce the risks of stress, relieve ofstate of "tilt", to maintain health.However, the risk of stress will always be present.Using "anti-stress" techniques, we can reduce the risk of stress.Stimulating hormone production of "happiness" wewould reduce the negative effects of stress on the body.

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Antistress methods:

• Psychological (autogenic training, meditation);

• Physiological (massage, acupuncture, physical and breathing exercises);

• Biochemical (neuroleptics, vitamins, macro, antioxidants, herbal medicine);

• Physical (bath, sauna, hardening, water treatment).

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Hormones "happiness"

Serotonin • Ultraviolet (tanning,

travel to warm countries)

• Foods that promote serotonin (dark chocolate, honey, bananas, dates, figs, mushrooms, peanuts, sesame seeds, pine nuts, cheese, oily fish)

Endorphins

• Laughter

• Sex

• Sports

• Good food

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Conclusions • Inflated expectations and human weakness - the reason for

the defeat of 95% of traders. • Emotional trading leads to loss of money, reduce health and

destroy relationships. • Knowing yourself and your weaknesses - the path to rational

trading, and through him to the stable earnings and good emotional condition.

• Rational trading - a business. This is the most rigorous self-discipline as a life habit. If you do not have enough discipline - find an occupation which it develops (or even a martial art of origami).

• If applicable to trading as a gambling game - sooner or later people will lose everything. From that as a trader applies to his work formed its expectation. In gambling, the expectation of profit is negative.

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Conclusions (continued)• Human nature is immutable. Emotions drive most

people .• The vast majority of traders and will believe that

they are able to ride the market, unable to understand that first and foremost, they must conquer himself, his weakness.

• The path to victory over a runs through self-awareness. Self-awareness comes through practice, through the pain and sweat.

• It is impossible as in the movie "Matrix" take the blue pill and instantly see. Every successful trader has to pay a price for its success.

• Market - is a possibility, but not a guarantee. • Market - a reflection of the trader.

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List of recommended literature 1. Risks: • "Against the Gods", Peter L. Bernstein• "Fooled by chance", Nassim Taleb• "Black Swan", Nassim Taleb• "Exchange strategy without risk", Van Tharp 2. Psychology: • " Disciplined Trader ", Mark Douglas• "The Psychology of Finance, Tweed3. Probability theory and game theory: • "Probability theory", Wentzel• "Game Theory", G. Owen• "Theory of Poker, David Sklansky• "Everything about roulette, John Golleon• "Trading. An additional dimension of decision-making "Safonov 4. Strategy: • "Exchange trade on trends," Michael Kovel• " Way of turtles ", Curtis Faith• " Trade stocks ", Livermore• " FOREX. Gambling ", Igor Toschakov (LA Igrok)• "Indicator Ichimoku as the basis for the trading system", Terekhov, AY

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Thank you for your attention!

Contact:Dmitry Grebenyuk,private trader, consultantlisandro@yandex.ruICQ 280-685-420

Thales was asked:-What on earth is difficult?-Know yourself-What is easy?-Advise other(Diogenes)