I am starting a five-part series on trading psychology as I believe that most aspiring traders have constantly overlooked this element in their trading business. I want to bring home an important point about trading. Whereas you can learn the best strategy in the world (if there is any), and you can learn from the best traders in the world (if there are any), and you can learn from Optionetics (for that matter, from other educational providers). However, there is something you cannot learn from the others, which is your trading psychology.

To me, learning trading psychology requires that you as a trader self-discover your trading personality and your emotions. No one except you is in the position to offer any advice or suggestion about your trading psychology. Perhaps I have said this before in my discussion board. Tom Gentile said that 50% of his trading profits come from trading psychology. In my case, this number is actually more than 80%.

Let us for a moment assume that both Trader A and Trader B have identified a bullish opportunity on Stock XYZ. Let us further assume that they use the same option strategy, i.e. a long call spread. Trader A is an emotional person. He is aware of the importance of putting up a trading plan but lacks the discipline to follow it. He is emotionally attached to the computer screen and watches his trade every single second. The moment the trade goes against him, he chickens out by exiting the trade immediately. He does not follow his trading plan and lets emotion override what he is supposed to do.

On the other hand, Trader B is a disciplined person. I found it an interesting observation that professionals such as attorneys and accountants tend to have this credential (yes, I am speaking for myself because in our profession, we do have to follow the law at all times). So, Trader B, being a disciplined person, follows the plan. He lets the trade do what it is supposed to do. Unlike Trader A, even if the trade goes against him for just a second, Trader B is not chicken out. In fact, he switches off his computer and does something else when the market is open. He does not go back to the screen to watch how his trade goes.

So, do you see the difference between Trader A and Trader B? In the long run, who will survive in the market? I think the answer is pretty obvious.

Here is a rea- life example on my trade on 11 September 2008. As you are aware, I consider myself to be a newbie in forex trading as I started this business not long ago. On that day, I was supposed to do a trade using London Momentum Trading System at 3:00am E.S.T. As usual, if the trade goes against me, the maximum loss will be 192 pips. However, if I am right, the trade will yield 192 pips, too. So, what happened on my trade? At one time, I was on the verge of being stopped out because I was only 4 pips away from my stop loss. Do you think I behaved like Trader A by quickly changing my trading plan? No way. We are not supposed to do that. Did I move my stop loss higher so that I could ‘hope’ that the trade would not be stopped out? Of course not. I followed my trading plan with discipline and let the trade do what it was supposed to do. Eventually, the trade turned back to my preferred direction and I chalked up 192 pips on that day. In fact, on that day, I broke my personal record by chalking up a total 322 pips on three forex trades, including the London Momentum Trade I mentioned above.

Some of you may ask how the heck I can do this, considering that I have been in the forex business for such little time. You’ve got to believe this. It is trading psychology that accounts for my recent success in forex trading. You and I can read the same books on forex trading. You and I can sign up for FXTE to learn forex trading from Jimmy Young and Ross Beck. You and I can learn the same trading system. In fact, the London Momentum Trading System is a system taught in FXTE’s 2-day intermediate class by Jimmy Young. But why do some traders find it difficult to survive after attending the classes? I think by now you are clear about it. So, if you have difficulty in your trading business, it’s time for you to address the trading psychology issue rather than signing up for one class after another. If you don’t fix this issue, you could complete 20 courses and still not be able to make any money from this business.

So, go figure!

To access previous articles written by Jack Wong, please click here.

Jack Wong 
Staff Writer and Instructor
Optionetics.com ~ Your Options Education Site

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