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Psychology

A Wyckoff Analysis of january 2018 Bitcoin "bubble"In Wyckoff Analysis, four main phases occur during the trading cycle: accumulation, markup, distribution and markdown. Accumulation phase is when smart money enters on a long position, when general public is not interested. Markup phase is when parabolic movements start, driving media and public attentions, when entusiasm and FOMO make their victims. Distribution phase is when smart money start exiting lasting only newbies' money. During distribution, bulls fail to stablish new highs, a big correction may be seen, driving fear to the market, this correction is followed by a lower high. Usually where traders exit positions and public think everything is back to normal, this is called bull trap. The Markdown phase is when ansiety, fear and pain make general public close positions with huge losses.
BITSTAMP:BTCUSDEducation
by UnknownUnicorn288635
7
Case Study for Mismanaging a Disciplined Trade StrategyIn the most recent BTCUSD dip I made a series of mistakes that put me in a slightly nervous position overall, but still generally favorable. Over a series of trades I managed to find myself in a position with an average buy price of $7486.13. Trading profitably on the dips I reduced this average buy price to $7348.21. Throughout this series of trades I had multiple opportunities to take profit and this discussion will focus on trading psychology and process failure. Early in my trading session I had managed to identify successfully entry levels that were reasonably close to where I could make a "dip" profit. Generally my target is around 2%. Given the big dip from $9.2k to below $8k and given the duration and recovery of that dip from $10k I felt confident that the market was oversold and all of the order book charts indicated an overall strong buying to selling ratio. My price target was just below $8.5k and on the first move up it hit $8.4k and I felt like there would be an orderly move over time. What I learned with this recent price action was that trading bots and whales/funds that control them have disproportionate leverage over price action. Not being fully aware of their techniques, I decided against adjusting my price target and I was "too greedy" and completely missed my profit opportunity after being presented double my normal target over two periods. Now having missed that opportunity I was forced to double down knowing that the next price move would likely be much bigger and deeper. Trading for profit on the way down I was able to recoup some of poor positioning but again, I did not quite understand the techniques of these algo bots until near the end when I was able to make an adjustment to how I choose price targets to better compensate for whale/shark algo bots. Setting price targets for exiting my position and reducing my risk came down to three possible outcomes: 1) Sell ALL at a higher price that would make profit but also leave me no room for error if I missed at $7800. This price level would have still been poor risk/reward overall so this exit strategy seemed like a mistake. 2) Sell ~half (47%) of my position at a profit at $7400 and then sell the other half at $8000 for "break even" on that part of the trade. This seemed like a prudent risk management strategy as I would have funds to take additional profit if the market moved back down while leaving in place a position that could become profitable over a longer duration. 3) Sell ALL at the higher price target that would give me a much bigger target but leave me open to poor risk management again. This was definitely the worst option. So I chose 2) which worked ok in that the first trade target was hit as expected. Then, while watching the order book I started to worry because there were big sell walls below $7500. I thought about how stressful it would be to ride that position back through another big dip and because of fatigue also overly focused on this possibility rather than going back to my pre-defined strategy of hodling for $8k on half and trading with the other half. Clearly, stress causes one to adopt a risk averse mental state. And this kind of risk aversion usually leads to the panic selling and "weak hands" phenomenon of selling at exactly the WRONG time, i.e. when you should be thinking about buying. So when I saw the price being challenged at $7k to $7.1k with very clear algo bot action pushing the price in both directions with very light buy order positioning I became a pawn in this algo bot action and decided to exit early and go take a nap rather than have to sit through another big dip with half of my fund at risk. Rather than see any huge sell wall the sell-side volume relented and the price nearly hit my price target of $7.9k. If I had been more disciplined I could have set a contingency (less greedy) target below $8k but I changed my plan using no particular reasoning whatsoever other than fear of these algo bots.
COINBASE:BTCUSDEducation
by powderpc
The markets are there to make you feel stupid or brilliantMany a trader will have made their best analysis based on information at the time and then taken an entry position, only to find that the market does something unexpected. Price may move violently in the wrong direction i.e. not the favoured direction and comes close to a stop loss or actually stopping out the position for a loss. Now with hindsight a trader feels or thinks, " How stupid - I should have seen it coming. I shouldn't have done that. " This happens enough times to new traders. Seasoned traders live with it and have less such self-talk. I think it's important to acknowledge those feelings. These are partly thinking processes and emotional processes. New traders often feel demoralised after 10 or so failures in a row. " Am I doing something wrong? " - they may think. This is a reasonable question. It could be that something is wrong. However, nothing may be found wrong with one's methodology or application of one's personal rules - after a careful reassessment. It's good to check. The BTCUSD chart shows what is some sort of 'head and shoulders' pattern. It's not the best picture of it in the world but something is there. Wherever one takes a position in BTCUSD, it could be wrong. Why? The markets respect no one person. A proportion of traders will have taken a position in this and made some real profits. They will punch the air and with joy go, " YESSSS!! " From my long experience I've learned that 'feelings' of being right or wrong, actually bends the mind a trader. I'm speaking for myself quite clearly. Others may have similar experience. A feeling of being good after a string of wins, often creates a subconscious sense of confidence. Imperceptibly this can creep into future trades and then one realises some major losses. My own strategy is to try at best to reduce trading frequency and exert even greater diligence in entering trades after a series of wins. I aim to expect the unexpected. It's always a tad difficult when I get stopped out for a loss. But I repeat to myself that the stoploss is there to protect against the 'unexpected' - so it's not actually unexpected. It is a limit. It is the expected limit of price moving not in a favoured direction. There is no single path to 'a promised land' in trading. Traders can adopt different methods, different rules, and be consistently profitable. The largest obstacle which is difficult to train out a trader, is their own personal psychology . By this I mean things like attention to detail, biases, emotions, discipline etc. So in many ways feeling stupid or brilliant can affect our future decision-making in imperceptible ways. Traders can lose discipline after losses or big gains. Mark Douglas spoke about these sorts of things. The BTCUSD chart is not intended to attract thoughts on whether to go long or go short. I'm not really interested in whether the H&S is there at all or correctly drawn. I'm taking it beyond that. What happens next to traders who come out of this period - some bruised, some overjoyed? Trading is not about winning one trade or a small handful. It's about the long road ahead. I'm delighted if others can share their experiences.
BITSTAMP:BTCUSDEducation
by Captain_Walker
Fulfilling a promise to share my trading Part 2.1The psychological aspect and my thought process Hello everybody, I'm so sorry that the migration did not as fast as I'd like it to be and, finally on last it's done and I can be back on trading. Before i touch on how i would trade, i suddenly thought sharing my thought process would make so much more sense because literally you will understand how i use my strategies. I felt there are so many good systems around but it becomes ineffective in may cases because i cannot execute it the way its creator does perfectly. After trading for many years, i also felt the best strategies, whether its original or copied, will be successful if it becomes your "strategy". This requires a lot of practise, patience and perseverance to keep trying. So if you are feeling lost out there, don't be because everyone goes through almost the same process. I'd like to do a quick recap on what has been shared so far. In part 1, I spoke mostly on breakout on the A6 traded on CME and then, how to use a simple pullback to trade it. Part 2 follows up on part 1 which focus on not chasing the market if you have missed it as in most cases, from the 3rd impulse move(up) onward as it loses momentum. Rushing into trading a trend that has lost its momentum can keep you longer in a position longer then it should be. This exposes you to risk which can be external (unexpected central bank announcements, data announcements, war etc) or internally which is your psychology at that moment. If you are trading smaller account, the trade locks up your capital which may also lead to additional holding cost or opportunity risk. In some cases, it frustrates you so much that you start doing funny things like scalping, averaging in, adjusting stops etc. Why lose good money after bad? Trust me if you do get into such scenarios, just bite the bullet and cut it off!! Learn from it. The worse that happened to me was, i used to average in and adjust stops frequently for a period of time and occasionally make money out of it. Somehow, this creeps and lived in my sub conscious for a long time and unknowingly caused big draw downs and almost destroy me mentally and financially The next time, just practise and train yourself to be patience if you do encounter such a scenario and ask yourself 3 questions: 1) How many moves the market has made in this direction (stick to your time frame, do not use multiple time frame here!) 2) What is the risk to reward if i enter? 3) Trade smaller Just try to do this and you will see how much you benefit from making small and simple steps that shape your thought process and produces results which also reinforces positive psychology which is confidence! In part 2.2, i will produce a quick peek into my thought process and share how i would trade using another simple technique.
AEducation
by trutt79
Fulfilling a promise to share my trading Part 2Hello everyone, i haven't been publishing much this week due to some platform migration issues. So, keeping my fingers cross that all will be resolved next week, Now, i'd just concentrate on delivering my educational series and hope to continue to benefit the trading public. In the first part, i shared a very simple momentum trading strategy. Simplicity works and allow you to make quick decisions if you are doing day trading. However, it does work on longer time frame as well. Do your own back testing and see how to make a strategy yours. So, after the strong up move, which i defined as the "impulse" move the instrument will come to a point where it loses the momentum. Profit taking, sellers taking up new positions, some news announcement whatever the case is. It doesn't really matter why. As a trader my thoughts are: "i want to go long assuming a longer uptrend is forming". Start to build a case around it. You can be on the sell side if you want to but my experiences tells me the chances of it going higher is there. What if it doesn't? Well, that is why I have a stop loss in place. So, if you refer to the chart above, the market is in the 3rd stage of the impulse move. Usually from the 3rd to 5th move, i don't bother too much until the uptrend line broke. So, the market has pierce through several structural resistances before a nice shooting star formation ended the impulse up move. Why do i still want to long? Again simplicity is at work. As long as the previous "New Structure High, Higher Low" remains intact my view does not change. There are tons of information which you can google on these terms. Feel free to study it. I'd be back on Part 2.1 with the actual trading plan as soon as possible! Till then, try to understand not the trading but how i shape my thinking before i trade it. Nothing is more important as developing the thought process.
AEducation
by trutt79
Fulfilling a promise to share my trading Part 1. (Education)This will be a relatively shorter post and is a follow up on Part 1 (phew.... Good for me and you LOL) So, i got this situation where there was a breakout on the 4 hour, mark with a dash line on the 1 hour. The first thing that came to my mind will be: A) I want to long B) I will not short even if there is a reversal (Unless 7700 is broken) C) Where will i long? What is my initial risk to reward? So, instead of chasing price action, i'd use a very simple method for a certain completion of the latest low. The key part to succeed here is you have to start watching the market and wait for a classical higher high higher low formation usually in the form of 2 candles. You might be asking "Don't you use some sort of indicator"? As a matter of fact, i rarely use it because i find it too troublesome. I'm watching a lot of markets and i'm not going to throw all my eggs in one trade. But if you want, i could use an ATR (for stop distance placement) or RSI (below 80 or above 20). That's it. So, after the formation of "higher high, higher low", my entry is 2 pips above its last high, and 3-5 pips below the swing low. Don't worry about it because my first target is usually conservative at 1:1 risk to reward and likely i'd take half or one third. No right or wrong but try to fix at predetermine amount to exit. The position size i take is never more then 2 percent of my equity but the actual size depend on the stop placement. Once this is achieved, i simply move my stop to break even and target 1:2 risk to reward. I may have exited fully or still have one third of position left. I'd simply trail it with swing highs and low. Remember the golden rule that stop can only move when it is meant to lock more profits then before. I felt this is a very simple way to trade and is easily executable by anyone although it does take a lot of practise to do so. Why rush anyway? Trading is a marathon and the longer you are in the race, the more you are likely to succeed! I hope this simple method helps you. Free free to drop me any questions i'd try to answer as much as possible!
AEducation
by trutt79
Fulfilling a promise to share my trading Part 1. (Education) Please ignore the previous post as I lost internet connection Dear all, as mentioned i not only want to share trading signals and ideals but more on my psychology. There are tons of signals and ideals just on this platform itself. I do not see I'm the best out there, nor am I not trying to be special or trying to sell something. I have always been wanting to contribute to the community and this is one of the best way to do it. The more I share, the more i learn as well. My view of a trading career is that it'd be one of the toughest endeavor you undertake in your life because you need to be constantly aware of your own emotions, keeping your actions in check and be patience. I mean, who can do this day to day? I can't for sure. There are countless days where emotions creep in and before I knew it, I did something totally contrary to my plan. My honest opinion is, I can never be perfect. What I do is to admit that and find ways to be better, but stop trying to be perfect because the market never is as well. HAHA. *** Please bear with my "English", I've a lot to improve on for myself on that. *** I'm breaking down this into a few series because it can be very dry to read all at one shot. OK, let me start by going back to the very beginning in which a 4 hour Bullish Bat is discovered. If I go to a larger time frame, we can see that A6 has been on an uptrend on a longer term basis when it broke 7700. Momentum was good. This move began on 13th July and lasted all the way to 27th. (The first part is dedicated to momentum and swing traders) It's always easy when we are conducting post mortem analysis on price action. Who can't see its an uptrend and we should go long? While that is true, there ain't much ways to learn besides that. I don't see much of a issue if, you already have a trade plan that encompass a entry, stop loss and viable risk to reward ratio. Such post mortem exercise are only useful if you do it in a meaningful way. So, with the beginning of the break on 7700, this instrument should already be on your radar. The first thing that comes into my mind is: 1) This breakout is confirmed as the close above 7700 is confirmed. You have to believe in it because you can't execute or take action if you don't. This is the point where previous false breakout creeps into your mind and says: "haha you are not going to fool me!". If you develop such habitual thinking, you are going to face a lot of execution problems and this is where many attempt to trade "tops" or reversals, in total contrary to a swing trade long. Trading requires a lot of muscle memory. To be successful trading momentum and swing, you must constantly cast away contradicting signals and focus on your predetermined swing or momentum quantifiers. Build it into your subconscious by practice. 2) Accept that the best plan will fail. Having said the first point, are we going to be stubborn and keep trading? The answer is no. You see, even the best get it wrong. So, I personally propose let the market decide on that. If you have a plan, you always have a stop loss. A stop loss is there to tell you to review your trade plan if you got stop out. By the way, if you have the habit of moving your stops, I'd suggest you practice to keep it. Personally, I only move stops when my trade becomes profitable. Once an entry is triggered, believe in your plan and let the market decide. 3) Do not be greedy. Again, I cannot emphasize enough on sticking to the plan. In the last 10 years, greed has been one of the emotions that affects my trades a lot. Who doesn't want a winner? Umpteen times with good profits I failed to capture and ended up being stop out. "Revenge" is sweet. The vicious cycle of doubling up, moving my stop loss began and by the time I realize it, I had a big loss. So, when you enter the market, a stop loss and profit targets is a must.
AEducation
by trutt79
Top 10 Trading Psychology RulesTop 10 Trading Psychology Rules: 1. Plan the Trade & Trade the Plan -Plan all the potential trades beforehand, and trade accordingly with your plans 2. Always be Disciplined -Do not create excuses to break your own trading rules 3. Expect Losses -Do not take a trade unless you are willing to accept the risk 4. Emotion Management -Always analyze your trade objectively and with a neutral of mindset 5. Focus on Trading Well -As a trader, your focus is on making the good trades, not focus on making the money 6. Patient, Patient and Patient!!! -Patient to wait for the Best Setups to trade, do not trade when there are no good setups 7. Trade What You See, Not What You Think -Concern with the effects, not concern about the reasons behind of what are happening. Everything is on your charts! 8. The Trend is Always Your Good Friend -The easiest money is made trading with the trend 9. Trading Evaluation -Record down your trades, why are you entry and why are you exit, continuously improve yourself 10. Trading is a Marathon, not a Sprint! -Be realistic, trading takes time to build experience
AMEX:SPYEducation
by YongLiang