Daily FX 'Trading Psychology' Webinars

Daily FX released a series of webinars covering a wide range of topics from risk management to the trading process. Enjoy.

Here, we focus on the psychology behind the performance and you can understand yourself and the work better to become a better trader. Grab a pen and notepad and checkout the videos below to start your journey to performing better.

Trading Psychology

Fixing Mistakes, Working on Weaknesses

This may sound obvious, but this is an overlooked area of trader development – identifying weaknesses and turning them into strengths. It’s one of the reasons many trading mistakes are made over and over and over again.

Cultivating Confidence

A lot of traders approach the market without having a defined game-plan, that is, not having a full understanding of what their methodology is for identifying trade set-ups as well as what type of strategies they want to deploy to exploit their identified edge. 

Using Emotions to Your Benefit

This video first examines the age-old cliché – “Don’t trade with emotion.” For starters, this is not realistic and really shouldn’t be attempted. We are not robots and so we should not try and act like one and suppress what is going on inside our head.

6 Mistakes Holding Traders Back

This webinar covers common mistakes traders make and ways to overcome those issues which undermine trading performance.

Understanding How Biases Impact You

This video discusses several cognitive biases which impact traders and the decisions they make, and ways to help overcome them.

Trading Clichés, Fact or Fiction?

Several trading clichés and ways to address these vague expressions are discussed


Fixing Mistakes, Working on Weaknesses

Small fixes can add up to big change

This may sound obvious, but this is an overlooked area of trader development – identifying weaknesses and turning them into strengths. It’s one of the reasons many trading mistakes are made over and over and over again. Even fixing the little stuff, making tweaks here and there can add to up to a big difference. Fixing a mistake in one area can help remedy a problem in another, and so on, it’s a process.

It starts with keeping good record, journaling and review

Without good records it is very difficult to pin-point problems let alone fix them. Going through your trade history can help you quickly see what you need to work on. For example, you can calculate risk/reward ratios, or see that you make money specific types of trades but lose on others. 

In addition to looking at your trade history, a journal will help in identifying behavioral patterns which may need fixing. These are the hardest to remedy, but you can’t begin to address them if not brought fully into the light. The process of review should be done periodically, even if only once a week it can go a long way towards making progress.

Take it slow and don’t overwhelm yourself

This will depend on your experience level, but you likely have several areas which need work. And that is OK. The key here is that you take it one step at a time and go slow. By trying to tackle all your issues at once you will become overwhelmed and frustrated. 

Start with the most important. These are typically problems related to risk management. A topic we discuss weekly, for more check out this webinar dedicated to risk management. While talking about risk, another point to make is that some problems cross over into other facets of your trading, and so fixing one problem helps fix another.

For example, by trading within your personal risk tolerance you will avoid both larger drawdowns and find it easier to stick to predetermined stop losses and targets.

Be patient with your progress

There will be setbacks. Trader development is a process and can be a frustrating journey if not handled properly. So, don’t go hard on yourself if it takes longer than you like or think it should. Just be persistent and take it slow. If you find that along the way you start to slip and regress, take a step back, and, if needed, take a little time off to regain perspective. 

It’s our competitive nature to want to push on through difficulties, but often times the best approach is to stop struggling and further tangling ourselves up in a mess. The problems and their solutions are more likely to appear when not trying too hard.

Source: dailyFX.com

Cultivating Confidence

It goes without saying, but confidence is essential to trading or anything we set out to do, for that matter. There are certain ways to approach building confidence, maintaining it, and making sure you stay on track.

Having a game plan is paramount

A lot of traders approach the market without having a defined game-plan, that is, not having a full understanding of what their methodology is for identifying trade set-ups as well as what type of strategies they want to deploy to exploit their identified edge. Having a road-map in of itself will get you started off on the right foot and instill confidence before entering the ‘heat of battle’. The following are key factors to know…

Know your methodology/toolbox

There are countless ways to go about analyzing the market, with no truly right or wrong approach. The key point here is that you have a methodology, and a relatively simple one, as too much complexity causes paralysis by analysis, an enemy of confidence. 

In addition to understanding your toolbox, whether it be technical, fundamental approaches, or a combination of the two, you should have specific trade set-ups outlined which you have found to give you an edge (statistical advantage over time). 

What time-frame are you most comfortable with

You should have a targeted time-frame. For example, the daily and 4-hr time-frame are excellent time-frames to concentrate on when trading FX. They provide ample information and opportunity, while slow enough that you aren’t forced to make decisions on the fly. This is where day-trading can become quite difficult, as it is mentally taxing due to the pace at which markets are fluctuating. Trading intra-day time-frames is certainly a viable approach, but make sure you understand what it entails. And be consistent, don’t turn day-trades into swing-trades and swing-trades into day-trades, know your intentions ahead of time. This will help steer clear of indecision, another clear enemy to confidence.

Which markets will you focus on?

Know the markets or currency pairs which you are trading, keeping your universe small is always a good idea. Not all asset classes or even instruments within an asset class move the same, they have their own personalities. Knowing the behavior of a small universe of symbols will give you more confidence when your P&L starts moving around.

Understand your tolerance for risk

One of the big mistakes traders often times make, is they tend to trade with too much risk. When you trade beyond what you’re capable of handling it leads to outsized losses and fear. Once fear sets in, it’s easy to lose objectivity and make even more mistakes. The accumulation of losses and mistakes of course then leads to diminished confidence. 

What is an acceptable loss-per-trade, 0.25%, 0.5%, 1%, etc.? This varies from person-to-person, and is dependent on strategy type and time-frame you’re focused on. Breakout strategies have lower win percentages, but typically higher risk/reward ratios, while range-trading strategies on the other hand typically have higher win percentages with lower risk/reward ratios. The former type of strategy means more consecutive losses, thus a good idea to trade with smaller size as a string of losers can add up quickly. The latter, you still have to account for a string of losers, just perhaps not as many. 

This is where looking at your trade history can help in determining how many losers in a row you could suffer (add a few extra in for good measure) and multiply that by the amount you risk per trade. Can you handle that max figure? If not, adjust your size down. 

Regarding time-frame: If you are trading longer-term time-frames, then you can risk more per trade due to lower frequency and larger expected moves. On the extreme end of the spectrum, if you are day-trading you could experience a large number of losers in a short period of time leading to an outsized accumulation of losses. 

Focus on the process not the results

This is easier said than done, but if you have a game-plan in place and can accept what you have at risk, focusing on the process of making good trades becomes significantly easier. Utilizing a check-list, whether it be physical (beginners) or mental (advanced), can ensure you are checking off the right boxes before entering into a trade. 

By being able to check off the appropriate boxes for a trade set-up, entry/exit(s), risk, etc., you build confidence in knowing you are doing the ‘right’ thing, and have a plan in place for all scenarios. It will also help keep you out of trades which you probably shouldn’t be involved with in the first place. Those types of ‘bad’ trades which end up becoming losers ultimately undermine your confidence in your ability to make good decisions.

When confidence is down, repairing it

When you are experiencing a large drawdown, first thing is first – get out of the fire! Take a step back from trading, you are almost certain to find immediate relief. Once you’ve had time to recuperate, study over your trade history and look for the mistakes which led to the drawdown.

Once you’ve isolated what you’ve been doing wrong, start trading again with reduced trading size. Get a few good trades on the board before returning to a normal trading size. The focus here is not about making money, but rather restoring your confidence without causing further damage.

When you’ve mastered the universe (over-confidence)

After a big profitable run, overconfidence tends to set in. It’s just as important to handle success as it is to handle failure, because these good periods can quickly turn into bad ones if one doesn’t make sure they are continuing to trade properly. If you don’t humble yourself, the market will do it for you.

As soon as you feel like you have it ‘all figured out’, it’s time to double-down on your efforts of making sure you are taking good trades. Remember: Winning trades can be bad, losing trades can be good. That is, if you took trades accordingly to plan and lost, that is just part of trading. But if you took trades which are outside of your game-plan but yet made money, you perhaps got lucky and over time the carelessness will catch up to you.

Source: Daily FX

Using Emotions to Your Benefit

To begin today’s session, we first examined the age-old cliché – “Don’t trade with emotion.” For starters, this is not realistic and really shouldn’t be attempted. We are not robots and so we should not try and act like one and suppress what is going on inside our head. As discretionary traders, we are not programming our trade criteria and removing our ‘self’ from the decision-making process as say a quantitative trader would. But while we are not ‘quants’ we still need to have hard-fastened rules in place to guide our decision-making process and risk-management. A trading plan. This is the first step towards mitigating negative emotions (i.e. fear) and emphasizing positive ones (i.e. conviction).

But no matter how prepared we are, we will still have to face the thoughts and feelings which impact our trading. It all begins with self-awareness. This is an aspect to understanding and addressing our issues which was hammered home throughout the webinar. Self-awareness. Can’t stress it enough. Through self-awareness we are able to connect the cause and effect. What is causing me to feel a certain way and how can I address it?

Let’s start with fear, for example, it’s a very common problem in trading. Something is causing it, but what exactly? A common culprit is trading too big. When trading with improper trading size you magnify volatility unnecessarily and it causes you to make irrational mistakes which you normally wouldn’t make if you weren’t under the stress of taking a potentially larger loss than you are willing to accept. The simple solution? Reduce your trading size to a comfortable level. Another culprit for fear (or nervousness) is you are in the ‘wrong’ trade. By ‘wrong’ trade we mean one which doesn’t fit your trading plan. Using a checklist is a good idea to help keep you in the ‘right’ trades. It could be physical or mental.

It could be a larger problem at hand which is causing you to be fearful. Perhaps you’ve had a bad run and are experiencing a draw-down. While drawdowns are a natural part of trading, if not controlled they can become severe enough to cause paralysis when trying to make trading decisions. If you reach this point, the first piece of advice is to acknowledge it and then take a break away from the markets. Get out of the fire. The time-off is almost certainly to make you feel better right away. Then get to the root of the problem which caused the drawdown, and from there fix the problems one at a time as to not overwhelm yourself by trying to fix everything all at once. Once you have done this, returning to trading with inconsequential trading size is prudent. Your goal here is to get back on track by making quality trades which help build your confidence back up.

Conviction, excitement are key emotions we want to feed off of. As I put it in the webinar – you should feel this on EVERY.SINGLE.TRADE you enter. It’s the final piece of any good trade – conviction. If you do not have a level of excitement or conviction then there is a good chance you are not in the ‘right’ trade for you. By ‘right’ it is meant the correct trade according to your trading plan. Good trades will be losers just as bad trades can be winners. The idea is to keep yourself winning and losing on only good trades. Making sure you have conviction on a trade will help ensure this.

If you are lacking conviction or excitement but still have a good set-up, then it could be market-related (i.e. too volatile) or personal (you’re just not feeling it). Staying away from market conditions which aren’t ideal is prudent. Not trading when you aren’t ‘feeling it’ is a good idea. Don’t look to the market to make you feel better, it’s a bad place to look for a pick-me-up and will likely lead to feeling worse. The simple solution is to just step away.

Feeling greedy, overconfident? Like you find yourself only wanting to take trades which you deem as possibly big winners. The good news is you are doing well. The bad news is that if you aren’t careful you will slip and end up in a drawdown. Recognizing this (self-awareness) and acknowledging is first. This a good time to make sure you are using proper trade mechanics (i.e. sticking to stops, targets, good risk/management, good trade set-ups…). Sloppy trading as a result of overconfidence can end a good run, that we certainly don’t want.

To summarize: It all starts with SELF-AWARENESS. Listening to your emotions and understanding them. By listening to yourself you can match the objective (cause) with the subjective (emotion) to help ensure you are trading in the right frame of mind.

Source: Daily FX

6 Mistakes Holding Traders Back

Today, we discussed common mistakes traders make and ways to overcome those issues which undermine trading performance. We did a run through of six, but it was really a few more layered within the broader scope of mistakes outlined.

Mistake #1 – NO Trading Plan (lack of preparation). Too few traders have an actual game-plan. Essentially, these traders are ‘flying blind’. Your trading plan doesn’t need to be super detailed, a couple of pages is sufficient. It needs to include risk management parameters, outline of type of analysis used in decision-making process, favorite trade set-ups (include a couple of reference charts), and how to handle both drawdown periods as well as times of success.

Mistake #2 – Don’t keep good records, or periodically review. You will find out a lot about your trading through review sessions. It’s a good idea to go through your trade history (identify strengths/weaknesses). You will identify patterns (good and bad, such as poor risk/reward, inconsistent position-sizing, trades which you tend to execute better than others, etc.). It is also a good idea when problems are identified to fix them one at a time so as to not become overwhelmed. It’s also good practice to keep a regular journal, whether written or electronic. Note anything which ‘strikes’ you. Generally, though, keep the tone positive even when addressing negative issues. Once every few days is fine, or everyday – this will likely depend on your time-frame (whether you are very active or take more of a swing-trade approach). Include things you did right/wrong, state of mind which may be impacting your ability to make good decisions, market observations or new trade set-ups you identify, and so on…

Mistake #3 – Trade TOO big/inconsistent trade-sizing. One of the biggest mistakes traders make. Risking too much per trade places more emphasis on the P&L and not on correctly managing the trade (Manage the trade, not your P&L). Impaired judgement due to fear and anxiety leads to more mistakes, which then can cascade into a whole host of other mistakes. So, keep your risk-per-trade meaningful, but not overwhelming. Inconsistency in position-sizing is another big problem as this leads to inconsistent results. In the webinar, we took a look at a graph which illustrates the difference between consistent and inconsistent position-sizing.

Mistake #4 – Over-trading. Traders fall victim to this all the time. Lots of mediocre or worse type trades mixed in with good trades equates to sub-optimal performance. We took a look the inverse correlation which often exists between level of activity (#of trades) and profitability. How can we become more efficient? Use a checklist which helps keep you on the right path. The checklist should reflect your trading plan. For newer traders, it is recommended that a physical checklist is used, but as you become more experienced you will be able to go through the process in your head. A checklist of reasons for entering a trade and risk parameters will help you avoid trades you shouldn’t be in.

Mistake #5 – Poor Risk/Reward. All too often traders will have risk/reward ratios of 1:1 or even worse. This forces you to be right far more often than wrong. Depending on your style of trading, having a win/rate of 50% may be quite high. For example, a breakout/momentum trader will have a low win rate but those trades should yield high levels of profits relative to losing trades. We did a quick run-through of a trade in progress to provide an example of not only good risk/reward, but also the logic behind determining entry/stop/target.

Mistake #6 – Overcomplicate matters. Remember this acronym – K.I.S.S. Keep It Simple Stupid. More is not better, more is often times just more. You want to identify confluences in analysis, but make sure you are seeing confluence and not redundancies caused by using forms of analysis which are highly correlated (i.e. several overbought/sold indicators will all give similar readings creating false confluence). Another thing to keep in mind, short-term traders should not overly concern themselves with every single data point and macroeconomic fundamentals. The reaction to the news is what often-times matters the most. This is not to say ignore events or be unaware of when they are happening (you want to know from a risk standpoint), just be careful not to overanalyse every piece of information.

Source: Daily FX

Understanding How Biases Impact You

Today, we discussed a number of cognitive biases which impact traders and the decisions they make, and ways to help overcome them.

Loss-aversion bias

The preference for avoiding a loss to acquiring an equal amount in gains (-$1 vs.$1). When faced with risk traders tend to make mistakes such as setting stops too close to their entry, or exit prior to their stop-loss, or exiting too soon before the predetermined target is met. A solution for overcoming this bias is to have each trade planned out ahead of time and trade with a position size which allows you to more easily stay the course. Also, thinking about the pain of missing out on a trade your analysis tells you that you should be in, in of itself, should offer plenty of motivation to stick to the trade presented to you. Letting a winner get away from you can be more painful than taking a loss.

Hindsight bias

The tendency to ‘think’ you could have foreseen an event happening once it’s happened (I knew it all along!) We all suffer from this from time to time. The question you should ask yourself is, did my analysis tell me I really know what was going happen, or is it my mind just messing with me? Often times the answer will be, no, no you didn’t really know ahead of time. Being objective in this situation will help keep frustration at bay from a ‘missed opportunity’, and ultimately keep you from making mistakes which can be bred from frustration, like chasing a trade that ‘got away’ or making some other silly mistake which doesn’t fit within your game-plan.

Directional bias

The preference to trade primarily from one side of the market. This often stems from your early experiences of whether you had success in bull or bear market conditions. The reinforcement from early experiences can cause a trader to focus on opportunities from only one side of the market. This can be a hard one to overcome, but asking yourself if you would take an opportunity in one direction if it was in the ‘preferred’ direction can be helpful. Also, taking smaller more comfortable size on ideas which go against your directional bias can help build confidence towards being more flexible.

Source: Daily FX

Trading Clichés

In today’s webinar, we discussed several trading clichés and whether they are really true or not. Additionally, we discussed ways to address these vague expressions which we so frequently hear.


The following are the clichés we discussed in today’s session: Psychology and risk management is 90% of trading; Trade without emotion; When in doubt, get out; You won’t go broke taking profits; Let your winners run and cut your losses early; You’re only as good as your last trade; The trend is your friend; Don’t catch falling knives; Buy the rumor, sell the news.

Source: Daily FX

Understanding How Biases Impact You

Today, we discussed a number of cognitive biases which impact traders and the decisions they make, and ways to help overcome them.

Loss-aversion bias, the preference for avoiding a loss to acquiring an equal amount in gains (-$1 vs.$1). When faced with risk traders tend to make mistakes such as setting stops too close to their entry, or exit prior to their stop-loss, or exiting too soon before the predetermined target is met. A solution for overcoming this bias is to have each trade planned out ahead of time and trade with a position size which allows you to more easily stay the course. Also, thinking about the pain of missing out on a trade your analysis tells you that you should be in, in of itself, should offer plenty of motivation to stick to the trade presented to you. Letting a winner get away from you can be more painful than taking a loss.

Hindsight bias, the tendency to ‘think’ you could have foreseen an event happening once it’s happened (I knew it all along!) We all suffer from this from time to time. The question you should ask yourself is, did my analysis tell me I really know what was going happen, or is it my mind just messing with me? Often times the answer will be, no, no you didn’t really know ahead of time. Being objective in this situation will help keep frustration at bay from a ‘missed opportunity’, and ultimately keep you from making mistakes which can be bred from frustration, like chasing a trade that ‘got away’ or making some other silly mistake which doesn’t fit within your game-plan.

Directional bias, the preference to trade primarily from one side of the market. This often stems from your early experiences of whether you had success in bull or bear market conditions. The reinforcement from early experiences can cause a trader to focus on opportunities from only one side of the market. This can be a hard one to overcome, but asking yourself if you would take an opportunity in one direction if it was in the ‘preferred’ direction can be helpful. Also, taking smaller more comfortable size on ideas which go against your directional bias can help build confidence towards being more flexible.

Other biases discussed include ‘confirmation’ bias, ‘recency’ bias, ‘anchoring’ bias, and ‘gambler’s fallacy’. For full details, please see the video above.

Source: Daily FX