Abstract of the article
- According to one point of view, 80% of success in trading depends on psychological issues and only 20% depends on individual, technical or fundamental analysis methods.
- Many traders resort to perceptual distortion to avoid the flood of information in order to avoid psychological pain.
- Perceptual distortion and prejudice to predictions in the capital market forces us to accept forced awareness, which will result in many psychological injuries.
Mr. Timothy Slater is the CEO of Compo Turk, which provides technical and fundamental analysis services to stock and futures market traders. Since 1979, due to his unique position, he has talked with thousands of traders, brokers and investment advisors.
Slaughter, who began his career in 1960, quickly realized the psychological barriers to successful trading and capital management. He has deeply believed that 80% of success in trading depends on psychological issues and only 20% depends on individual, technical or fundamental analysis methods.
Mr. Slater continues to say: I believe that a person with average knowledge of technical analysis or fundamental analysis, but with psychological mastery over himself, can earn good income; And vice versa, another person, having at his disposal a very efficient analysis system that has been tested many times and its positive performance has been confirmed in the long run, will end up losing due to the lack of necessary mental control.
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He warns the newbies, although reading the book and analysis methods before entering the market is a necessity, but testing your abilities can only be achieved with real transactions and under real pressure. Therefore, he suggests that you start slowly and examine each trade by asking yourself questions such as: What motivates me to make this trade? How did I manage this transaction? Did I have a successful transaction or not? Why did I lose? Write down your answers and refer to them before making your next trade.
Everything starts from within yourself
Mr. Slaughter’s belief about the behavior of traders in the market is very interesting. He says: I believe that the monster that you think will devour your assets and destroy your profits is you, not other traders. The collection of articles “Experiences of a Disciplined Trader” is a complete and comprehensive guide to understanding self-control and discipline from a psychological perspective and a tool to help train one to become a successful trader in the financial markets.
These experiences are like a step-by-step guide to help you adapt to the different psychological characteristics of the financial markets. Many people who enter the high-risk environment of trading are practically unaware of the differences between this environment and the environment in which they grew up. By not understanding these differences, people can never realize that all the skills they have acquired in the community and have led to their success in life, have caused them to fail in the trading environment and create problems for them.
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The trading environment has fundamental differences with the social environment. The trader must achieve high levels of self-restraint and self-reliance in the trading environment in order to be able to perform successfully in the capital market. Naturally, many of us lack this self-control; Because we learned from childhood to live in a social structure where our behavior is controlled by someone more powerful than us.
Traders gradually realize that the rules of everyday life do not work in the field of trading and that there is never enough power to direct the market, and this action is far beyond their abilities.
Make your own rules
As a novice in the capital market, you should know that the external constraints that control your behavior in society do not exist in the market environment. Also, the market has no control over your behavior and does not have the slightest expectations from you. The market also does not accept any responsibility for your success.
Therefore, the responsibility of what you understand about the market and act according to it is only within you and the only thing you can control is yourself. As a trader, you have the option to either take money from the market and give it to yourself or give your money to other traders.
Only a few traders have come to understand that they themselves are responsible for their actions. In the market environment, you have to make rules for yourself and oblige yourself to follow them. The problem is that in this environment, the prices are always fluctuating and the price movement is also permanent, and accordingly, the decision opportunities that you face to make a profit are countless.
In this environment, you not only have to decide whether to enter or not enter a trade, but also decide when to enter, how long to stay in a trade, and determine the conditions for exiting that trade. Because there is no clear reference to determine these things except what is in your mind.
You should pay attention to the fact that in Iran’s futures markets, such as gold or saffron futures, due to the leverage that exists in these markets, even closing small contracts in each transaction can bring a very large profit or loss potential. This means that you can make enough profit on each trade to become financially independent or lose your entire fortune.
This feature of futures markets can tempt you to abandon your trading rules; Because only a few traders are able to make money from the market and those who do not succeed in making money from the market suffer serious psychological injuries. Psychological injuries mean any kind of mental framework that causes anxiety in a person.
The problem that arises due to the creation of psychological injuries in transactions is that people instinctively create defensive levels in their minds to avoid the influx of information in order to avoid psychological pain. These people actually distort perception by distorting information.
Perceptual distortion occurs when our mental system automatically distorts the data by changing the shape and filtering some information and resolves the conflict between what we expect to happen and what the real environment presents to us. . But the problem is that the market not only does not obey the perceptual distortion created in your mind, but creates something against it, which is called forced consciousness.
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In other words, you are distorting your perceptions, and this distortion continues to the point where the discrepancy between your fabricated mentality and the actual market information becomes so great that this protective shield of your mind and illusion collapses. This usually comes with a state of shock that stuns you and messes up everything in your mind.
It is in this situation that the market forces you to accept that what is imprinted in your mind is illusory and you have to accept a painful forced awareness. In fact, the market teaches us that the environment of the market and trading is completely different from the environment of social life.
Compulsive painful awareness
In normal life, we try to assume that everything is predictable and wait fanatically for those events to happen. But the market reminds us of the fact that what we are waiting for is our illusion and is not necessarily going to happen. This is where we need to learn how to develop the necessary mental flexibility.
Of course, we cannot control the market, but we can control our perceptions of the market and with its help, reach a kind of neutrality in our observations of the market, which in turn, leads to the realization of the information shared between us and the market. The important thing to keep in mind in coming to this painful forced awareness is that as painful as this forced awareness is, it probably won’t stop us from being lured back into taking unreasonable risks in hopes of taking advantage of whatever opportunity the market presents. We have created a block.
But we must note that the repetition of these psychological effects will be very negative for us. If we repeatedly suffer pain from these forced awarenesses, our market operations will gradually become more oriented towards avoiding pain instead of searching for opportunities; That is, the fear of losing, making mistakes and missing opportunities will become our biggest motivation to operate in the capital market.