Mastering Psychological and Emotional aspects is critical in trading.

With conditions very quiet yesterday, (though this morning seems a touch more spicey) I thought I would break from my usual analysis and instead comment on one of my favourite subjects 'Trader Psychology'.

Understanding and appreciating the psychological and emotional aspects of trading, is in my opinion probably the most important part of trading, if one is to truly be successful over the long term. A trader could possess the best trading system/method, the optimum risk and money management techniques, and a deep knowledge of markets, however if this is not underscored by the correct mental attitude it could all count for nothing. Plenty has been written on this subject over many decades, yet achieving and mastering the psychological aspects of trading is something that still eludes the majority of traders. In ‘One-Way Pockets’, a book written in 1917 by Don Guron, which looked into the activities of the most active traders at a brokerage firm, Guron wrote ‘The fact that impressed me most forcibly was the trading methods… ………..may be classed with a number of psychological phenomena that cause the great majority of speculators to do the opposite of what they ought to do’. Later in the book Guyon says, ‘The man who applies this or that method successfully must be able to exercise patience and self-control to withstand all forms of mental temptation, to ignore the dictates of fear and greed.’ Jesse L.Livermore touches on it too in ‘Reminiscences of a Stock Operator’ published in 1923. ‘The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor.’

In the acclaimed classic trading book Market Wizards published in 1989, Jack D.Schwager conducted a series of interview with successful traders. In the preface to the book Schwager asks ‘What sets these traders apart?’ He answers this by saying that ‘Most people think that winning in the markets has something to do with finding the secret formula. The truth is that any common denominator among the traders I interviewed had more to do with attitude than approach’. In the sequel ‘The New Market Wizards’, Schwager says ‘The secret to success in the market lies not in discovery of some incredible indicator or elaborate theory; rather it lies within each individual’. I could go on but I think I would be labouring the point.


The factors I mentioned earlier; trading system/method, money/risk management, and knowledge of markets, are the essential pillars of a successful trading approach. Yet there is nothing is more crucial than to understand oneself and the psychological aspects of trading if one is to overcome the many self-induced obstacles that contribute to trader underperformance.

I will paraphrase Bruce Lee* here, 'To know oneself is to study oneself in action with the markets'.

*Bruce Lee is of course better known as the great martial arts exponent and actor of the early 70s, however he was also an accomplished student and great advocate of philosophy. His core belief was to 'Know Yourself', and the quote I paraphrased originally went ' To know oneself is to study oneself in action with another person'.