Habits and Trading Psychology of Winning Traders by Adam Khoo

managing your emotions so when trading you'll be facing a whole source of emotions that type to move money at stake in your account because the most people money is a very emotional subject and trust me as you trade you can be feeling a lot of emotions right greed fear doubt frustration excitement whole your going to go to the roller coaster of emotions and be a winning trader you have to learn to think and act contrary to your natural instincts and emotions because many of our emotional patterns cause us to lose money the human mind is right in such a way that will cause the average person to lose money why for example as human beings we have a need to avoid pain to avoid being wrong right and we have the need to be right with the need to like pleasure and this causes most people to follow the crowd and buy high and sell low and lose money which you should between opposite I should be buying low and selling high at the same time because of the fear of being wrong what happens when people see that the stock is going against them they do not want to fail to cut their losses because they say you know what I don't want to take a loss you know so they avoid the loss by not taking the loss until the loss becomes really huge so in the end yet huge losses and once they make a bit of money they want to take some pleasure because they like make money and yourself so it causes people to get what big losses and small games which is the opposite of profitable trading so in this lesson I'm going to teach you how to be conscious of your emotional pattern because once you're conscious of them you can overcome them and what's the best ways to trade very unemotional e2b stash emotionally to trade at a level of capital and risk we're having a few trade that's not hurt you emotionally right I always like to joke that if every morning you wake up for example and you rush downstairs and you go check your account oh my god you know this you know did I make money or lose money or you're constantly checking your account you're trading with too much or you have too much capital B on your emotional threshold the moment you get very emotional you will definitely lose money because you don't think objectively we're going to have a small risk such that even with five or ten building trades it does not affect me emotionally and that's how you trade logically and profitably so let's take a look at some a very common emotions that's going to affect you the first thing is greed okay trust me you're going to get greedy at times and greed will may cause you to raise your profit targets through high on greed may cause you to not take profits when you're supposed to take profits and you spin the trade too long and this causes potential winning trades to become a losing trade there's the old wall street saying Bulls make money Bears make money but pigs always get slaughtered my pigs are greedy right so let's look at example on the Left I've got a chart where for example I I place a buy order over here and I've got a profit target over there at two hour okay so let's imagine your roof is that you take profit at two hours at your roof and sure enough you you place a pie and the price goes up and it hits your profit target and you get to our you get to our profit right now what happens after you exit your profit the price rule seems to go a lot higher right now to most people how they feel regret damn it I shouldn't have taken profit so far I should have taken it later you know I missed out you know they feel they were shortchanged right so they sort of get greedy at the next time I will not take profits a two-hour I'll take it up for our or if it's going to keep my profit target I'm gonna raise my profit target now guess what happens the next time the next time what happens is that you buy over there and you know you put a profit target that's too high right say over there for ah sure enough the price goes up but you know before reaching for our it goes all the way down and you end up losing money a wing trade became a losing trade because you change your rules because agree okay so there's an example second emotion that people feel a lot is here okay so you can cause a lot of things right and what I think that theory calls you to take quick profit so if you're losing those profits now some people think hey there's nothing wrong with taking a small profit it's not profit is better than no profits wrong in trading you can go broke by taking small profits why because if you take small profits for example like I said the key to a trading success is to make sure your average win is more than your average long set the set the key so even if you're right hard to find you still make money right so when you lose you lose one out you have to make sure that when you win you win more than one are you're doing at least two hours to the proper system but the trouble is some people the moment they get some profits like they get zero point five our profits they take the profit goofy they pick a promise with you so if you take small profits what happens you don't allow your your winning trade to achieve their fullest drop-it potential of two or more and by doing that your system may no longer have a positive expectancy why because the profit on your win are not enough to cover the losses on you're losing trades that will happen eventually so if you take a look for example on the left you can see imagine you got a trader with who gets one two three four five six seven eight trays and off it gets five wins and three losses right that's a good win way usually he wins more than he loses but in any any stimulus money why does he lose money because every time he wins he wins 0.5 our 0.2 our but each time he loses he loses one hour so the wind can't cover the losses you end up with a negative expectancy so why does this happen well let me give you some examples right so let's imagine this is your first trade and what happens is let's imagine you place your you're by order over there your stop-loss is here and your target profit is here and sure enough your target profit is to our profit your stop-loss is minus 1 R right as usual okay so let's imagine the first trade you buy over there it goes up goes up and before we should the profit target what happens it comes all the way down to keep your stop loss and you end up with minus 1 R and you go then losing trade ok next one right so you go to the next one and the next one what happens you by tsunami goes up and it goes to again maybe 1.2 re say yes you know I'm profitable but before it reaches the profit target boom hit your stoppers gate and not a lot ok next rate so in the nation it happens again right it goes up and before we should reaches the profit target comes down what has just happened you got three losses in a row so you got minus 3 R now what do you think that does to most people if that happened three times you start to say damn you know I had some profits I had one hour in profits and it is gone right so you know next time if I get a one hour property I'm going to take it and therein lies the problem the moment that happens you're screwed ok why good say the fourth trait is the winning trade okay because I am I gonna have wins and losses right so after three losses the next one the next few words will be wings you know it's statistics its probability right now what happens now now you are fearful of losing what you have okay so the next trait what happens you buy over there your stop-loss is over there your target profit is to our as usual right now now what happens this time this time you buy the price goes up the price goes up and he hits that one point to our it start to come down the oh I've seen this movie before he's going to come down you lose what I have oh my god where i buy the sell right and sure enough as it comes down you sell quickly for your picking and let a lot and you get 0.8 are in profits and what happens after you sell it boom goes up and the profit I get of two hours in other words this trick you're supposed to get to our new ego 0lr and let's see it happen again the next time when you take a small profit to get more profit so what happens in the end you take six straight right six straight the first tree you lost three are the next tree you may only zero point it up you end up losing money if you had allowed the profit to be reached even you get three losses and three wins that each read is to our you would have made money right so you got the conscious of these times because they will happen okay now the next thing is hope okay now in real life is good web hope right you know hope you have good health you know hope your kids will fatty hard and hope your wife will not leave you okay but in trading you can never have hope in training hope is for the hopeless in trading hope will cause you to lose everything that you have all right never have hope in the market so I let me give an example so let's imagine the first scenario and you place a buy or order there your stop-loss is that say I don't know a dozen five cents right and what happens is the moment you buy the price goes down goes down go down and hit your stop-loss and right and is hit your stop-loss the price then proceed to go up and hit your potential profit target how do you feel you've used cheated I see them I was right on the direction adjust that you went down temporarily hit my stop up in your way now and you say to yourself you know what the next time I'm not going to put a stop loss the next time I'm gonna put my stops further away so you won't get and again the moment you do that you screwed yourself for the future that's why there's the next time the next time you bar over there it plays a stop lot over here and what happens after you buy right egos are and sure enough egos Down Goes Down Goes Down and it's gonna hit the spot laws and say I've seen this movie before I remember the last time you hit the stop block and we're not higher so you know what and then we move my stop loss so you move your stop loss lower down because of this hope you will come back and show you enough it keeps going down doesn't come back doesn't come back it's going to hit the spot once again I see my god you know I'm going to lower my stop-loss and give myself more room to be right and he keeps going on keep going on and until eventually - oh my god right so instead of losing one are you end up losing four to five hours and that's why I know people who are right 80% of the time but if you lose money you know why because out of ten times they are right eight times the eight times they are right these six small profits but a two times they are wrong they have huge losses that wipe out all their profits because they have that hope and they don't take that small loss why they keep hoping to be right okay so be conscious of all these pads it's really important handling winning and losing streaks if you look below you will see a typical equity curve of a trader over a hundred trees anyway you know this is for example you may start with ten thousand dollars over here and grow your capital over time to say fifteen or twenty thousand dollars over a hammer trades and if you take a look at how your capital grows it doesn't go up in a straight line right it goes up and down just like the price of the stock so remember that the overall outcome of your trading journey will not unfold leaning a bit it's not a straight line going up so do not look at the trading outcomes of a certain small period and extrapolate them into the future what does that mean so it means that for example if you happen to go through a losing streak over here a series of losses like five or ten losses in a row over here or over here and over here don't get freaked out some people after to get ten losses they might go oh my god if this happens keeps going on I'm gonna lose everything and extrapolate that to the future at the same time if you get a winning streak over here we have a series of ten or fifteen wins don't get too excited and get carried away they might go you know it I keep this up I'm gonna be a millionaire next week and they get too excited so in the long run winning and losing streaks tend to even out each other and the long run of distribution of wins and losses are what makes us profitable long run performance has little or nothing to do the luck factor so I can tell you that in a short term when you tree it's a bit of luck where you may get five rings in a row or some bad luck for win a form of the rule when a long term is go nothing to do is luck because the the band and good luck will get receive the know each other and then lots of it's all about statistics and probability will guarantee your success let me just summarize some common emotional mistakes that newbies making training so be aware of it and avoid it okay the first emotional mistake people make is this they rush into new trades after experiencing a few losses in order to win back the money quickly so after they lose money say locker key quickly get some new trades to make up the losses and that's when they take to a trade on low-quality trades that do not meet the rules what a common mistake is could be the opposite where after they take a lot of losing trades what happens they have doubt and uncertainty in the trading strategy and they are free to take the next trade right so the moment they want to take the next trick trade their handshake and go and the moment you can take the next trick you will not succeed if you keep taking the next rate eventually you will succeed so never be paralyzed by a loss of use of losses that are inevitable at time the next thing is to stain a losing trade hoping things will turn around like what I mentioned just now remember there's no hope in the market hope it's for the hopeless right on the trade by trade bases mix losing traders tend to focus on short-term results and lose their perspective so think about the big picture and things that this clinic losing traders fail to stick to a consistent rispa trade percentage like I said for you to be cross the they consistently to your wrist at rate of 1% for example or 2% do not increase your risk when you're greedy and reduce your risk when you're fearful losing traders constantly change their trading systems or strategies after experiencing experiencing short-term losses this is very common for new traders that I gave in search of the Holy Grail the moment the our trading system keeps some losses we start to say you know what I'm going to change this indicator I'm gonna not change this rule and as they keep changing and going on in circles always fear you know I'm gonna trade Forex now which with options now let's fix futures now that rate stop now and it going on in circles never ever making money because it won't stick to a system long enough for that system to work its statistical magic in their favor next losing traders tend to focus on the account balance instead of following the system right they keep looking at their balance on my money's going up it's going down and when that happens you get emotional and you don't follow the system next losing traders get emotionally affected by losses right when you get losses or your accounts are doing well they get stressed gets fearful to get frustrated they do their confidence and when that happens guess what they can succeed in trading so you got to detach emotionally and trading Knicks losing traders blame and find external reasons for your losses you know I lost money because the markets where I lost money because the Federal Reserve increased interest rate I lost money because Donald Trump won the election okay let's not you blame people you will never succeed in trading because you'll always be something to blame necks losing traders tend to desire to take revenge on a stock or you want to take revenge on the market after experiencing a loss of if they bought a store and they lost money on that stock see you know what Hank I'm going to keep holding that sort of bias not again until that stock makes me in that money back I got you for you the stock doesn't know who you are okay so don't get personal mix losing traders trade with methods that do not suit your personality and too often people will hear about another trader success and out of envy or you know whatever it is and if you compel to copy that verses and that's when it doesn't work because you've got a follower system that fits your personality of trading now on the other hand let's take a look at the habits of successful traders just a summary habit number one successful traders always take action when there's a valid and high probability probability signal in their trading system they don't let fear control that decision and interfere with see our trading successful traders take responsibility learn from the mistakes and they move on they don't dwell on setbacks I love the metaphor from that show finding dolly you know it show from Finding Nemo finding Dory and Dolly or this fish then had a short-term memory and you just go on keep on swimming keep also a moon keep on swimming track so I find it be a good trader used to be a bit like that fish when you get you know some wins or losses it doesn't affect your psychology of taking the next trip you just keep on swimming keep on swimming keep on trading alright there's no memory of the past next expect and accept losses as part of the trading game you have to lose to winning trading and focus on following the trading system and not again the immediate account equity of balance in your account successful traders think statistically and keep our lonesome perspective successful traders focus on being consistent they consistently follow a predetermined entry and exit rules and do not listen to other people successful traders are patient they read only for high probability opportunities remember guys the biggest enemy to your trading success is not the market it's you and a good trade is one where you follow the rules of the system and not one that necessarily led to a short-term profit

Channel: Adam Khoo

Views: 395,652

Keywords: adam khoo, adamkhoowealth1, wealthacademySG, stock trading, stock investing, technical analysis, ETFs, exchange traded funds, CFDs, wealth academy, AKLTG, stock trading strategies, trading psychology, stock trading for beginners

Id: siE2Xz8mpt4

Length: 19min 59sec (1199 seconds)

Published: Mon Jan 23 2017