This article was written by Dr.Brett N. Steenbarger, Ph.D., an active trader who is also professor in psychology at Behavioral Sciences at SUNY Upstate Medical University. He is also a columnist for the MSN Money website (www.moneycentral.com), Stocks Futures and Options Magazine (www.sfomag.com) and Greatspeculations.com. His famous book is ‘The Psychology of Trading’ (Wiley, 2002).

Brett Steenbarger

Here is one article about his observations of a number of traders who came to consult him:

The impression I get, the traders in general make 3 basic mistakes. When they come to me to find a psychological solution, the basic problem is not yet to the point of serious psychology. Since I’m also a trader, I’ve had a profit and never lost, so I can describe it thus:

1. Not having a valid trading system

They believe the problems experienced in trading are psychological factors such as undisciplined, or lack of patience. But after I ask some questions, the main problem does not have a completely valid trading system, at least according to their beliefs. They are nervous and always hesitant when trading because basically they are not exactly sure what is being done. Doubts arise because they think whether the correct trading system used will be as expected.

Continuous doubt will cause anxiety. And can you trade properly in such psychological circumstances? When I asked them frankly to say they have never backtested their trading methods or strategies, the basic part of the trading system, so how could they know the expected drawdown? If they do not know the reliability of the trading system for the past, how can expect the system to run on the current real-time price movement?

Traders who seek psychological solutions while they do not master the trading methods used remind me of a couple who are looking for psychological solutions because they can not communicate well. After I met, it turns out they are not compatible with each other, so what can they communicate?

2. Switching methods or methods of analysis

The second mistake I found was trying to change the method or way of analysis before knowing the correct application of the method to the current market condition. If you encounter such a thing, then you need to create a trading journal to find out the most appropriate method, and then you do not have to use many methods when trading. You will become less confident and tense if you switch methods. Although the purpose of trading is to gain profit in a short time, but the approach that wants ‘once gebrak’ is not applicable.

3. Always think negatively after a loss

You never lose, but may also have a profit. You always remember when you lose because you are actually afraid of loss. If you are afraid of loss, your thoughts about trading will always be negative. If you experience this, you should rest for not trading until you are sure that losses are part of the game (as often spoken by big traders). Do self-motivation until you can think positively. For the past 15 years I have been counseling and therapi on an average of 130 clients per year with this self-motivated technique.
To prevent these mistakes, start using HOTEAFOREX as your flexible trading tool.

Level 1: Baby (Enthusiastic Beginner)

At this stage, traders are usually in a period of enthusiasm for the first time to know forex. Usually traders at this stage is a new trader who knows forex, whether it’s from the internet, books, seminar workshops or from friends. In this stage, traders will assume that trading can bring tremendous profits and they will assume they can get rich quick from forex. All things about forex look so beautiful at this beginner stage. Things that often do not occur to the traders at this stage is a high risk factor of forex.

Many of the traders at this stage will start experimenting with trading. At that time, they will estimate price movements, in the absence of clear directions or rules of their trading, leading to speculation (gambling).

Some of the lucky ones will be able to make big profits in some trades. They start thinking that making money in forex is very easy. At that point, sometimes they will start doubling the position when entering the market and playing hajar while there is capital. Traders who suffer losses tend to double positions in hopes of turning back. But what happens is the greater the loss, until finally Margin Call.

And this can happen repeatedly and subconsciously can become habit and trading rules for a trader.

This stage will generally last for 1-6 months.

Level 2: Child (System and Indicator Finder)

At this stage, traders will begin to realize that forex trading is not as easy as they imagine. This is where they feel that their knowledge of forex is not enough. Next, they will start reading ebooks, websites, books as well as visiting forex forums. At this stage the trader will become a system hunter, indicator and robot. Traders will try to find holy grail (who do not know about the Holy Grail, read my article about Mental Holy Grail that makes forex trader can not succeed) and assume that which determines the success of a trader is because there is a magic system that can generate profits.

This is where traders begin to fill the full chart with various indicators and start to be familiar with terms like Moving Average, Support & Resistance, Fibonacci, Stochastic, MACD, RSI, etc. At this stage, traders will continue to move from one system to another while continuing to search for other trading systems. Traders will learn about how best rule to enter position based on indicator. Not infrequently you even buy some trading signal service from several websites. After dozens or hundreds of times trying different systems and nothing works, those who give up will say “Forex Trading is not for me”.

This stage is the stage that most spend a lot of money and time. This stage can last for 3 months to years. This level is the most important before you can go to the next level and there are only less than 30% who made it through this stage in the world of forex. If you are a stubborn person and feel you know everything, then you can never be a successful forex trader.

Level 3: Teen (Trader Starting Own Trading System)

At this stage, the trader already has trading rules and is consistent with his trading rules. Traders are starting to realize that there is no such thing as holy grail in forex. Therefore they begin to use rules that match their own psychology and trading style. Traders at this stage are also less likely to use indicators and re-use basic indicators such as moving averages on their trading systems. Most traders at this level also are not in a position based on emotion because they know they can not predict the market.

Those who are in this stage also no longer calculate the rate of return based on trades per tradenya, but calculate it in a period such as weekly or monthly. Here traders have started to realize that trading is about consistency and discipline. There are times when traders at this stage still like to impose a position even though it is not in accordance with the trading rules. Traders also like to watch charts for hours every day just to wait for floating plus or minus.

If you are already in this stage, you are close to the stage where you will be able to trade for living.

Level 4: Adult (A Successful Forex Trader and Trade for Living)

At this stage, traders will enter positions based on the system they use. They will do the cut loss as easy as they do take profit (really without emotion). The feeling of gaining 200 pips will be the same as when you get 10 pips. At this stage they also no longer enter a position that does not follow the trading rules. Traders here also do not see too many charts and only trade on certain hours only. They started to enjoy trade as a job.

Traders will begin to feel what’s going on in the market and know exactly what to do. At this stage, you will feel that trading is something that just ordinary even tend to be boring.

Due to the influence of the erratic currency market, often this will affect our psychological. Therefore it is very important to be tough and have high confidence when trading.

Basically, confidence is the ability to actively focus on better performance and avoid negative thoughts such as anxiety and fear. But with an ever-changing market and seeing loss when trading sometimes makes you unable to maintain your confidence.

1. Focus on the process

Almost every forex trader that I know chooses trading as his profession, and all it does to make it look like an office job that keeps earning money on a regular basis. However, focusing too much on the results of trading will damage your mental as a whole.

One thing to keep in mind is the market is unpredictable. There is no guarantee that you will win or lose. Everything is still a probability. Instead of focusing on the profit and loss results, why do not you put your focus and mind to make sure you are obedient and disciplined in your trading plan.

You should not focus too much on the outcome, but on how disciplined you are when trading.
Every time you follow the rules you make that’s the success story itself.

So reward yourself when you succeed in self-discipline waiting for the candle to close before entering a position or closing a position. You may not see the results right now, but in the long run, your discipline will turn into a consistent habit of making mistakes, which of course will result in consistent confidence and trading with consistent profits.

2. Exercise, Exercise and Exercise

Do you know the reason why boxing champion Manny Pacquiano spent his days practicing for a fight that lasted for about 36 minutes? Because only on the basis of maximal preparation, he develops self-confidence through mastery of ability.

Manny does not know exactly what his opponent will do to defeat him. But, having gone through a strenuous training, he has mastered the fundamentals of boxing ability, how his body moves, and how to anticipate when his opponent’s fist comes.

As a trader, you will not be able to precisely predict which sentiments are affecting and how the market moves. This means that the key to self-confidence and success is to prepare yourself every day until you know how you handle the various scenarios of the market that can happen.

3. Look at the bright side of everything

Ask yourself “From all the confident people you’ve met in your life, how many of them have a personality and a negative outlook” I’m sure the answer to that percentage will be very small, even non-existent. Successful and confident people tend to be personable and optimistic because when you focus on the positive, you tend to get positive results.

So, while feeling again unlucky, reflecting, eating all the ice cream in the fridge when you are in the middle of floating and big losses, keep thinking positive and you will be able to follow your trading plan correctly. Remind yourself, if you already have a properly tested trading plan and proper risk management, the average law will work and the profits will come.

One way to train this is by actively focusing on the things you do right with each trade, especially if the trade is moving against you.

– Review of economic data? Check
– Analyzing charts? Check
– Risk Restrictions? Check

By ensuring you have set up what you can and will focus on handling forex trades either profitable or loss will undermine your fear of loss, and will give you the confidence to pick up a valid signal and make a good decision.

As with developing your forex skills, trading with high confidence is easier to talk about than practiced and it will not work without hard work.

Let’s think for a moment, have we ever imagined how does casino work and make money? Every day, the Casino makes a lot of profit, despite the fact that the operators in the casino can not predict exactly which people are going to lose and win.

win in the casino
Come to think of it. How is that possible? Is not it supposed to be random results that can lead us to get consistent profits? And if that’s the case, should not the random results end up in inconsistent profits?
Casino can consistently make a profit because they understand that in every game, casinos have advantages that players do not know about. They understand that over time, the end result will yield consistent and predictable profits.

Like casinos, in fact, forex traders are also similar. Traders try to generate profits consistently in a market condition that seems random (random). The key is in probability.

It may seem easy to say but hard to do. In fact, to be able to earn consistently profitable trading requires 2 views that you may be sincerely, that is

1. Do trading with specific and independent

At this stage, you must understand and accept uncertainty and unpredictability in every trade.

Let’s go back to the casino example. We take the example of a popular Blackjack game. When playing blackjack, you will not know exactly what card you will get, nor do you know what cards will be performed by other players. This factor has a direct impact on our own outcomes.

And there are some who make money from playing blackjack because they understand that each game is statistically independent, if following the basic strategy, they can reduce the profits that the trader has and make a small profit.

This also applies to trading. We understand that every trade stands alone with other trades. If you win or lose 10 trades in a row, this has nothing to do with the next trade. When you can receive this, you will be able to take trades without being psychologically affected.

2. Look at the whole, not per Trade

You should understand that when samples are counted in large quantities, the probability of profit and loss is relatively stable and predictable. This certainty is a fixed variable that can be known at the beginning and most importantly, is within your control.

When you consider that each trade is independent of each other and believes that letting a good possibility run by itself, you will easily remove the emotion from your trade.

For example, you tend not to get out of trade early, if you know that your trade way has a big probability of winning.

But before you put confidence in your trading method, you must be sure that your method has an advantage over the market. Because if there is no excellence, you are like going into a casino and not knowing what you are doing.

The key to having excellence is not found on a multimillion-dollar system that he says can guarantee profit. In fact, the best traders who consistently make profits discover the benefits of their methods by consistently looking for opportunities and tirelessly polishing them over time.

And another important thing is, good traders do not depend on luck, they depend on the knowledge of their system, because they have spent much effort to make it work.