trading psychology

Creating a dominant belief requires adherence to several principles of consistent success. Some of these principles will likely be in direct conflict with some of the beliefs you have already acquired about trading.

To overcome this conflict and transform yourself into a consistent winner you must first be willing to change, have clarity of intent, and a strong desire. You must at every turn choose consistency over every other reason or justification you have for trading.

The first step in creating consistent results is to begin observing what you are thinking, saying, and doing. These actions reinforce and contribute some belief in your mental system. You must start paying attention to your various psychological processes. I recommend you write down your thoughts so that you can come back and see how much different your thought process is compared to how it was when you first began this process.

The idea is to become an objective observer of your thoughts, words and actions. Your first line of defense in avoiding a trading error is to catch yourself thinking about it. The last line of defense is to catch yourself in the act of making a mistake. If you do not commit yourself to becoming an objective observer then your realizations will always come after the experience, usually when you are in a state of frustration and regret.

Observing yourself objectively implies doing so without judgment or criticism. Most of us, to avoid emotional pain, typically avoid acknowledging our mistakes. However, not acknowledging our mistakes in daily life usually does not have the same negative consequences it can have as not confronting our mistakes as traders. Mistakes simply point the way to where you need to focus your efforts to grow and improve your trading. It is an understatement to say that you will encounter great difficulty in achieving your trading goals if you can’t acknowledge a mistake.

stock swing trading strategies

If there is anything in your mental environment that is in conflict with the principles of creating the belief that “I am a consistently successful trader” then you will need to employ self-discipline to integrate these principles as a dominant functioning part of your identity. Once the principles become internalized and become “who you are” you will no longer need self-discipline because the process of becoming consistent will become effortless.

Creating a Belief in Consistency – The following beliefs are the building blocks that provide the foundation for what it means to be a consistent winner. I am a consistent winner because:

• I define my profit potential
• I predefine my risk on every trade

To integrate these principles into your mental system at a functional level requires that you purposefully create a series of experiences that are consistent with them. You must learn to be an objective observer and think from the markets perspective (every moment is truly unique). If there is enough will behind your effort, it is possible to experience a major shift in your mental structure very quickly.

This brings us to the end of our tutorial. I hope you enjoyed watching this tutorial and learning this information as much as I did creating it for you.If you need to consult with a good futures broker and learn how to trade futures visit this link. The best futures brokerage at Active Futures Hopefully, while going through this tutorial you were able to look into your own mental process and relate to some of the inconsistencies and negative patterns that were brought up. If that is the case, then you are that much closer to figuring out your own mental patterns that cause you to think inconsistently and behave against your best interest in real time market environment.

swing trading and day trading oscillators and other technical patterns

Most of the time when beginners experience large loses or a market move that was unexpected, the beginner will begin looking at the markets instead of at themselves and blaming lack of market knowledge as the reason why the loss occurred or why they missing the last big move. It’s very important to make the connection that believing you don’t know enough about the markets as the reason for the loss is the same as blaming the market for the loss.

Unfortunately, the reaction we see in most traders is unusually similar in most cases; I would estimate based on my experience dealing with traders for 2 decades that over 85 percent of people react the same way. The typical trader believes that the best solution is to dive right in and begin learning more about the markets because if not knowing enough about markets is the cause of the losses and missed moves, then learning about the markets will solve that problem, this is the logical conclusion that most traders accept to be true.

I personally talk to dozens of traders and commodity brokers as well on daily bases who believe that they don’t have enough market knowledge or don’t know the newest strategies and this is why they are losing money in the markets. Commodities trading brokers in particular feel this pressure because the need to know more than the client. Most commodity brokers who I speak with tell me that they really want to make money for their clients.

This is the second biggest psychological problem beginners experience and in effect what they are doing is shifting the responsibility for both profits and losses away from themselves and on to the market. They are not doing it intentionally but this is what is happening and you need to be aware of that.

market stocks trading

For many years many famous scientists and Psychiatrists thought that profitable traders were smarter, harder working and analyzed the market better. But the biggest failures in trading come from some of the society’s brightest and smartest people. The largest group of consistent losers among traders is primarily doctors, lawyers, engineers, scientists, CEO’s, wealthy retirees and entrepreneurs. Conversely, some of the best traders I have ever witnessed had very little or no formal education or any type of special trading skill. This leads me to conclude that successful trading has absolutely nothing to do with intelligence.

Many psychologists who have studied several highly successful traders have concluded that traders are naturally wired to lose money and that a successful trader’s emotional response is exactly the opposite of a healthy functioning human being. It is very difficult for a great majority of traders to believe and accept that the source of these problems is their attitude and belief system. Many of these thinking patterns that adversely affect our trading are a function of the natural ways we have been brought up to think about our environment and our daily decision making process. These thinking patterns are so deeply ingrained in our minds that it rarely occurs to us that the source of our difficulties is internal, derived from our own state of mind. It seems much more natural and at the same time easier to see the source of our problems as external in the market, and the reason why this occurs is because it actually appears and feels like the market is causing our pain and fear and till you make the connections that we are going to make in this tutorial, it’s very difficult to see it any other way.


chart pattern analysis

Let me give you a simple scenario, take a typical beginner who has little or no trading experience. The trader initiates a long trade that goes his way. The trader’s begins to fear that the market will start coming back down soon and quickly liquidates the position with a small profit, before the market has a chance to continue moving in his direction. Conversely, when the trader gets a losing position he allows it to continue moving against him, because his greed overcomes the emotion to liquidate and gives the trader hope that the position will turn around and go his way. The trader is wired naturally to cut winners and let losers run.

This natural response is the opposite of a professional trader who is wired to do the exact opposite of the example I just provided, and as a result will cut losers and let his profits run. The example I just described occur more often than you can imagine and to truly understand the underlying cause or the underlying reason people behave this way, we have to step away from trading and have to look inside our minds because the reason people behave this way when they start out trading requires a better understanding of basic human nature and the human thinking process.many stock swing trading strategies and other types of swing trading strategies have been written about at sites such this one.

But the key to any swing trading approach or swing trading strategies approach is to truly understand the psychological view of the stock market.The biggest reason why financial disasters are so common among swing traders is because many of the perspectives, beliefs and principles that they learned at a young age and adopted in their daily lives have the opposite effect in the trading environment. Not realizing this, most traders start their careers with a fundamental lack of understanding the skills that are truly necessary to become a professional trader. Unfortunately, these skills cannot be purchased and must be developed within ourselves, only then will you have the skills that are necessary to be a consistently profitable trader.

swing trader stock index futures and stocks

In October of 1988 the stock market experienced one of the largest declines in history of financial markets. One of the major causes of this financial meltdown was not having a system in place to stop computer generated sell orders that were programmed to sell if the market fell a specific percentage within a specific amount of time. These computerized orders were called program trading, and financial experts blamed them for the majority of the steep market drop in 1988.

To prevent from ever happening again, exchanges put into place fail safe to stop the market from trading for a specific time when it reaches a price level within a specific amount of time. These limits are determined by the futures exchange on the basis of variations experienced in the underlying cash markets, and are meant to serve as circuit-breakers when trading becomes especially volatile. If prices reach the upper or lower limit, trading is suspended for a period of time, referred to as the cooling-off period, that may last anywhere from several minutes to the remainder of the trading day. The cooling off period helps to discourage panic buying or selling. Following this period, price limits are usually expanded and trading may resume.

It is important to be aware of the existence of any price limits for index contracts that you trade as trades may be difficult or impossible to execute if prices move to the limit and stay there – a condition referred to as locked-limit. Price limits are adjusted from time to time as price volatility changes.

The Chicago mercantile exchange and the intercontinental exchange position limits are established on a quarterly basis and are triggered by a decline of 10 percent, 20 percent and 30 percent. New limits are established at the beginning of each new quarter and the closing price of the lead month contract establishes the level for the next quarter.

stock trader graphs

A good example comes to mind with corporate earnings. Corporate CEO’s always try to undermine and down play the expected quarterly earnings report, no matter how low or high the numbers are actually going to be, the CEO will report the numbers coming out lower so that when the actual numbers come out the market will rally because the numbers will be higher than what was expected. This practice became extremely common especially during the last 2 decades.

Therefore, when analyzing fundamental indicators, regardless of which indicator, always know what the expected number is, without this information you won’t know if the actual number that came out is higher, lower or in line with the expectation. This is the key to using fundamental information for short term and day trading, the actual numbers being released are far less important than the degree of difference between the actual released number and the expected number.

Public reports and announcements

Government reports and announcements are economic indicators, usually released monthly by different agencies of the federal government. Economic indicators allow analysis of economic performance and predictions of future performance of the U.S. economy. There are probably over 50 government reports that come out during a 1 month time period. The indicators that I will review are the ones that have the most direct relationship or cause excessive volatility to stocks prices and related markets. I have omitted fundamental indicators that do not have a strong relationship to stocks or related financial markets.


The Federal Open Market Committee (FOMC) is the policy-making arm of the Federal Reserve. It determines short-term interest rates in the U.S. when it decides the overnight rate that banks pay each other for borrowing reserves when a bank has a shortfall in required reserves. This rate is called the fed funds rate.

Feds determines interest rate policy at FOMC meetings. These occur roughly every six weeks, typically late January, mid-March, late April, late June, mid-August, late September, early November, and mid-December. These meetings and are the single most influential event for the markets and cause lots of volatility.

For weeks in advance, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.

curreciesstock market reversals

Size Optimization

a. Some of the more popular position sizing methods such as fixed fractional, fixed ratio and percent volatility methods have an adjustable parameter that determines how quickly contracts are added as the account equity grows or trading profit accumulates. An appropriate value for the position sizing parameter is not always easily determined.
b. For example, the delta of fixed ratio position sizing method or the percentage used in both the fixed fraction and the percent volatility method can easily be set too high and cause the risk to be unreasonably high or conversely, the level can be set too low, causing the position sizing method to under-perform and produce lower returns than expected.

c. . The purpose of the optimization is to find the value of the parameter that minimizes or maximizes the objective without violating the constraints. The result of this process is the optimal value of the parameter. A search method is used to find the optimal parameter value.
d. As an example, suppose we want to maximize the rate of return in fixed ratio position sizing without exceeding a worst-case drawdown of 30%. Our objective is the rate of return. The constraint is the limit on the worst-case drawdown to no more than 30%. The optimization parameter is the delta of the fixed ratio method. The search method simulates trading using different delta values, searching for the delta that generates the highest return without exceeding the drawdown constraint. The solution is the optimal delta.

Trading Range


Anything can happen

there are always unknown forces working on the market. Any exceptions that exist in your mind will be a source of conflict and may cause you to perceive market information as threatening.

2. You don’t need to know what is going to happen next in order to make money

this truth makes trading a probability and numbers game. When you truly believe that trading is a numbers game your expectations will be in harmony with the possibilities. Market information is only threatening if you are expecting the market to do something for you.

3. There is a random distribution between wins and losses for any given set of variables that define an edge.

If every loss puts you that much closer to a win, you will be waiting ready and willing to take the next trade “set up”. If you lack this conviction you may anticipate the next edge with trepidation. You may start gathering evidence for or against the trade. If the fear of missing out is stronger, you will gather information in favor of the trade; if you fear another loss you will gather information against it.

4. An edge is nothing more than an indication of a higher probability of one thing happening over another.

Creating consistency requires that you completely accept that trading is not about hoping, wondering, or gathering evidence one way or the other to determine if the next trade will work. The only evidence you need to gather is whether the variables you use to define your edge are present at any given moment. If the market is offering you a legitimate edge, determine the risk and take the trade.

5. Every moment in the market is unique.

If each moment is like no other then there is nothing at the rational level of your experience that can tell you for sure that you “know” what will happen next. Training your mind to believe in the uniqueness of each moment this belief will act as a counteracting force neutralizing the automatic association process. The stronger your belief in the uniqueness of each moment the lower you potential to associate; the less you’re potential to associate, the more open your mind is to perceive what the market is offering from its perspective.