Psychology in Harmonic Trading: The Psyche of Traders
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Psychology in Harmonic Trading: The psyche is a complex and diverse power that no other living being other than humans seems to have – or at least have in the same excellence. A dog eats, sleeps, humps, urinates and is wildly happy to see its master or mistress at any time of the day or night. A cat might have its own personality but it generally does mostly what dogs do although it does not seem as passionately happy to see its master or mistress as is the dog.
Trading requires us to examine our own conscious awareness and when we do, we find out that our personality often governs the way we approach trading. The problem is, we don’t always focus consciously on how we approach a trade.
Are we quick on the trigger; do we carefully consider each trading opportunity; do we place pending orders and sweat over each tick until they’re triggered or do we nonchalantly go out and not worry whether the trade becomes active or not?
There a quite a few things to learn when we decide to take up trading as a career, among them, how to retrain your brain to think differently. Many people believe they can learn to become a trader overnight….that there is some magic panacea out there that will transform their lives from the ordinary, everyday run of the mill existence to an exciting, rewarding and rejuvenating life as a wealthy trader.
As many ancients before us discovered, Rome was not built in a day. It takes quite a while to train our minds to change the way our brains process things and to learn a methodology that gives us an edge. That edge is having probability on our side.
Seasoned traders may know enough but the ones who don’t, need to learn a new method, change their way of thinking and the way they act while trading. They need to make sure they know the market very well. Know why it moves and the way it moves. Traders who have been trading for some years do not always make a consistent income from the business. And it is a business. It’s not a hobby – unless you have so much money you don’t need to make more to live comfortably and then, good luck to you…have fun…:)
People new to trading are like new born babes who have to learn to do more than cry and eat. As they grow, they need to crawl before they walk; learn to walk before they run and learn to run before they jump. In other words, they need train their conscious awareness and build the foundation of learning about trading first before they can succeed in becoming profitable traders.
These potential traders need to understand the market; understand the impact fundamentals have on the market; understand the technical tools and the tools that work and the ones that don’t work and then put that together and use harmonic pattern trading to become a profitable trader.
Enter the educational sites FXGroundworks.com, HarmonicStocks.com and HarmonicFutures.com. Under the banner of Harmonic Nation, these sites are specifically designed to teach the principles of harmonic pattern trading. They are also designed to alert traders to patterns that show up on their sites and make identifying harmonic pattern opportunities a much easier task.
But within that learning curve, one of the hardest things for people to do is to figure out their own psychological profile. They have some idea about their own aptitude and their own attitude to learning. They know whether they have the determination to work hard and work consistently to succeed, or whether they don’t. All part of the psychology in harmonic trading.
Trading is not for the faint-hearted. However, neither is it all that hard to become good at trading. It can be done with the right attitude, the aptitude, the determination and the right technical approach; with the right mental approach.
We need to understand what drives price movement. This can be the emotion and belief of people who think that if they enter the market at a particular time and place, a trade should go their way. But what if some kind of catastrophic event or some manipulation by market makers moves price in a way we may not be expecting?
If for instance a trader buys a position, he or she is relying on other people also buying the same pair at or around where they enter the market, sending price up. If they sell a position, they are relying on other traders selling the same pair at or around a similar price, sending price down. If we are wrong, then we are wrong. We must not take the loss to heart. It is nothing personal.
Fear and greed become a factor and is fuelled by the extent of peoples’ lot sizes. Traders will view a trade far differently if they are trading standard lots ($10.00 per pip) than they would if they were trading micro lots ($0.10c per pip). Panic increases in direct proportion to the size of the money at risk.
Our risk is directly connected to our psyche and our tolerance for taking chances. Our personality generally goes hand in glove with the way we conduct ourselves in life.
Our ego is one of the most damaging parts of being a trader. Once our ego becomes involved in a trade – that is we are winning or losing in a trade – our ability to make a rational decision can become impaired.
The market movement (price action) can influence our trade management. Coupled with our ego, our predilection towards fear and greed and our exposure to the ebb and flow (retracements) of price, it can become very hard to ignore what’s happening on a tick by tick basis. To see this in action, open up a one-minute chart and watch the wild fluctuations of the market. It’s a good exercise to get a feel for the seething movement that is the marketplace.
Patience is a key factor. If you’re a patient person you are more likely to be patient with trading. If you are somewhat impulsive then there’s every chance that you are more impulsive as a trader. However we all go through different phases to get to the place where we can more or less leave a trade alone to work itself out. We must bear in mind that we need to take money when it’s offered by the market.
We need the precise execution of our trade to fit our trading plan. If we don’t execute the trade to fit our plan then we are really just gambling. We need to try not to think about the pips or the money or the win/loss; we can only think about whether or not the potential trade fits our plan and fits our rules.
One needs to be open-minded to the possibility of the movement of the market. One must be able to understand that we can never know where price might head; that we can only ever take a position based on our trading plan, our learned method and our best prediction that price might go in the direction we want. If it doesn’t, we can’t take that as a personal affront. It is merely a trade that didn’t go our way.
As a trader we will go through extreme emotions that are based around fear and greed. The pain in trading can come from a string of losses but should not come from draw-downs from your account.
In times of great uncertainty and volatility, the importance of a plan increases. Don’t get distracted by the noise of the market. Don’t confuse your plan with your strategy. Your trading strategy should be harmonic pattern trading; your trading plan is the way you trade those harmonic patterns.
It’s about finding out as much as you can about harmonic trading and taking nothing for granted. It’s about changing your view of trading and the way you approach each and every trade. Change is something that is difficult for some people to come to grips with. Changing the way they deal with their trades can be the single most challenging thing for them to do. Changing their conscious awareness of the way they need to trade, is harder.
Taking a winning trade requires no expertise at all. Winning consistently takes skill. People need to learn mental dexterity in order to become a consistent winning trader. The management of the trade requires an extraordinary focused approach. We need to be able to put aside trades that lose and embrace trades that win.
Unless we can follow our trading plan and let the methodology execute once we have put it into play, we will make a number of mental errors and blow our chance of succeeding as a trader.
A technical method such as HAT – that is an EA that assists harmonic trading – is designed to put the odds in our favor over a succession of trades. Not just one or even several trades, but over a period of time. This is cold comfort to the trader who has taken 10, 15 or even 20 losing trades in a row….then has one winner…then faces more losing trades. However…..if the 10, 15 or 20 trades amount to 500 pips and the one winning trade equates to 1,200 pips….the odds of becoming a consistently winning trader are high.
There is no way to know the sequence of a successful winning harmonic trade or losing trades for that matter. All we can know is that with this method, 70% of the time, over time, we will be able to take winning trades.
We have to learn not to expect or hope that trades will go our way. We must realise that we are not interested in being right about a trade, or wrong about a trade. We are just dealing with overall probabilities.
We have to understand that hoping price will go our way is like rearranging the deck chairs on the Titanic and hoping it won’t sink. We need to really focus our minds on taking the trades and not being bothered by the losers. Equally, we need to focus on letting the winners run and not cutting them short.
Don’t feel let down by losing trades. We need to figure out how much we are willing to risk on those losing trades and then be prepared to let that risk play out if it moves against us. How much distance are we willing to give the trade to see if it will move in our direction?
Just be sure you followed all the rules of your trading plan – you didn’t jump into a trade; you had no knee-jerk reactions; you made sure your risk versus reward was in check……then just accept losing as part of a haphazard outcome. It’s a game of chance, with harmonic trading giving you a better than even chance of getting a good outcome. Harmonic trading, over a succession of trades, gives you an edge. Because you don’t know what order that succession of trades will come in, you need to ride out the losers and let the winners run.
The harmonic technical methodology identifies a trading opportunity. No technical method, including HAT, can do what the trader expects or wants it to. The randomness of the market makes it impossible to predict where price will go next. Conversely, no method of trading with fundamentals can predict price movement either. It takes other traders to move the market and to make you a winner or a loser.
To make money in the market, everyone needs to buy low and sell high. The difficulty is, everyone’s mindset and opinion on what constitutes a high and what makes a low is different.
So work on changing your approach to how you trade. Work on not taking losses personally and following your trading plan. Make sure your trading plan matches your risk tolerance. And then do what you should do best; cut the losers short and let the winners run and measure it over a period of time. After all, trading is a numbers game. Your psychological trading approach must accept that fact and run with it.