Trading psychology in a nutshell

29/10/2012 | By | Reply More

Some time ago I sat two people down and gave them each a simple trading strategy. I wanted to observe first hand how people executed them.

The reason I did this, was that it had become apparent to me sometime ago, that given the same set of instructions, people often execute differently. The difference appears to be psychological.

On one desk we had one person executing fairly well and making a small profit. On the other desk we had another person who was all over the place and making consistent losses. When asked for feedback, the person who was profitable was complimenting the system; the person who was unprofitable criticised the system and me for giving it to them. Neither knew that they were both actually pursuing the same strategy!

When I interviewed them by reviewing the videos of them executing the strategy, you could clearly see the loser being fairly defensive. He was worried about losing and missing opportunities to profit, while the winner was generally a bit more speculative and happy to take some losses along the way.

You could describe the winner as having a happy go lucky attitude. Profits arrived on a regular basis and when it went a bit sour they would abandon and start again almost instantly. There were not ‘afraid’ of the market, merely worked with it. With the loser, they rarely picked up positive opportunities and consistently took losses and stalled for long periods between trades. They appeared to be overthinking positions in the hope of avoiding a loss when in fact losses were likely all the time, even with a positive strategy.

You should never forget that positive and negative opportunties are created roughly equally in all markets. Your objective is to put yourself in the position of picking up the positives while avoiding the worse of the negatives. So stifling was the ‘losers’ attitude that they did less and when they did less, it was less effectivie. Postive trades were often cut short in order to avoid any potential loss, but losing trades were held too long in the hope of recovery. When a losing run hit, they would just stop.

Curiously I was able to improve the performance of the loser by telling them I was going to switch them into practice mode. They responded by improving thier performance but credited the ‘unrealistic’ feel of practice mode with being behind their upturn in fortune. You can imagine their surprise when I told them there were not actually in practice mode and I had misled them. Cue a collapse in performance!

Of course you need a strategy that works, that goes without saying. But it seems even if you are given one, your head may overrule the execution of it! Therefore always try to maintain a positive attitude to what you are doing in order to improve your chance of success.

So, the moral of this story is….. postive mindsets see opportunities and negative ones problems. That’s it is a nutshell.

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Category: Trading strategies

About the Author ()

I left a good job in the consumer technology industry to go a trade on Betfair for a living way back in June 2000. I've been here ever since pushing very boundaries of what's possible on betting exchanges and loved every minute of it.

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