Lecture on Trading Psychology and Strategy

Introduction

• Debate among traders: Importance of technical analysis vs. strategy and trading psychology.
• Having a good strategy is crucial at the beginning of a trading journey.
• As one progresses, trading psychology becomes more significant (80-90% of success).

Trading Statistics

• EU regulations reveal that about 75% of traders lose money.
• Study by FXCM (2015) on 255,000 traders showed that 62% of trades were winning, yet traders often ended in losses due to poor management.
• Losing trades were 70% bigger on average than winning trades.

Common Trading Mistakes

• Moving stop loss to break even prematurely.
• Taking low probability trades due to FOMO (Fear of Missing Out).
• Not executing after a winning trade to avoid giving back profits.
• Taking profits too early, not following management plans.
• Increasing position size after a loss to "get back" to break-even.

Psychological Errors

• Trading mistakes are often due to emotional responses.
• Subconscious fear of losing money drives poor decision-making.

Evolutionary Perspective

• Our brains still operate with a fight-or-flight mechanism from the Stone Age.
• This makes responding rationally to market risks challenging.

Market Psychology

• Emotional brain (amygdala) vs. Thinking brain (neocortex).
• Stress triggers emotional responses that can hijack rational decision-making.
• Traders need to manage emotions to think clearly and follow strategy.

Strategies for Improvement

• Mechanical Strategy: Clear rules in every scenario; assists in following plans without emotional interference.
• Rewiring the Brain: Long-term work on mindset, embracing probabilistic thinking.

Managing Emotions

• Avoid emotional extremes (e.g., elation or despair) to remain centered.
• Strive for balance and objective view of trades.

Recommendations

• Use both short-term strategies (mechanical plans) and long-term psychological work to improve trading.
• Photon Trading offers mechanical trade plans and educational resources to aid traders.

Conclusion

• Understanding the why behind mistakes can help traders adjust their behaviors.
• Trading success relies on a combination of strategy, risk management, and mindset.
• Successful traders think like surfers, adapting to the market's flow rather than trying to fight it.

Influences and Further Reading

• Inspired by Tom Hugard, Hermetic principles, John Demartini, Les McKa, Randy Howe.
• Recommend diving deeper into these resources to understand trading psychology better.