Know Thyself

2020-01-28 | Sam Shames

When folks talk about trading they may think of a couple of things – charts, company earnings, fundamentals and research, technical indicators, etc.… however, one aspect of trading that is chronically under-appreciated is the psychology of trading.

I would venture to say that psychology of trading is the most important trait for a discretionary trader to study and understand.

Once a trader has an understanding of what the lines on the charts represent, has an understanding of what setups they like, and understands the strategies to deploy… that’s half, or less, or the process.

Understanding one’s own psychology in a live trading environment remains key.

For example, with my own trading I prefer to have concentrated positions in 3-5 stocks with about 30% cash available at all times. That is my psychological preference as it allows me to concentrate more on the indexes and the limited number of positions.

Lately, I found myself trading 10+ positions and found that my ability to concentrate and execute based on my ruleset was diminished.

I found myself constantly cycling through charts of my stocks, not fully processing any of them. Lack of concentration won’t hurt in a compliant market, but when markets change and we are not able to change, that’s when the effect takes place.

It was like putting two lasers in front of a cat. The cat is unable to decide which light to chase and ends up stuck in place.

That’s the way it works for me. My resolution to this is to understand my own psychology, understand that I am okay with concentrated risk in a number of stocks, and that I perform better overall in that modality.

It’s not the same for everybody. Maybe you are the exact opposite and do better with multiple positions spread out in small bites. That is perfectly okay and is determined by one’s own preferences and psychology.

The takeaway from this blog today I would like to be for everyone reading this to review their own trading psychology, in an honest, upfront, and non-judgmental manner.

By knowing thyself first, a trader can position themselves for success by building from that.

4 thoughts on “Know Thyself”

  1. A good reminder Sam, I was in the same boat recently!! ” Lately, I found myself trading 10+ positions and found that my ability to concentrate and execute based on my ruleset was diminished.
    I found myself constantly cycling through charts of my stocks not fully processing any of them.”
    I’m on my way to change to get back to trade better.

  2. Excellent summary! I have recently started to review my own trading psychology by re-reading Mark Douglas’ Trading in the Zone as well as the numerous courses I have taken with Simpler Trading and my trading log. I am coming to realize that I need to modify my actions to reflect my personality. I will modify my Trading Plan to reflect this newest realization.

  3. This is a great start. I think the challenge I have is figuring out exactly what my flaws are….

  4. thanks for sharing==that has happened to me as well==good reminder to slow down and pay close attention to a few, well thought through trades.

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