Forex Trading Systems Psychology

Posted on: November 7th, 2009

If you’re like the majority of  new traders you’ve probably been bouncing from system to system. I did way more than my share of system bouncing in the first year. I’m not the kind of person who would just learn how to buy when an indicator turns green and sell when red, etc. I like to understand the what, why and how deeply…

This diagram comes from an amazing book I’ve been reading: The 3 Skills Of Top Trading - by Hank Pruden. I highly recommend this book. Hank has been trading for over 20 years and has a ton of experience. He was fascinated by the psychological aspects and really went deep into it. For you Wyckoff fans out there, you’ve probably already been learning from him.

I love that phrase “mental state mangement”, that’s powerful stuff - I would add emotional as well, “mental and emotional state management” - this is the key to being on top of your game. Just like top athletes us traders need to be in the zone and to do this involves knowing our strengths and weaknesses and how we play our game best.

On the left is the Black Box forex system, that’s the buy when green - never deviate. If you have zero discipline (and it’s ok to admit, be real with where you are now) then that’s for you. Then progressing towards the right each stage requires more discipline and better mental/emotional state management.

I couldn’t imagine being all the way on the right though! Ruthless/Outlaw lol, sounds like staying up all night in vegas donating your green to a bad cause.  : D

This book is such a great read, my blog post barely scratches the surface, Hank teaches us how to rate our system and to know its strengths/weaknesses individually and also as they relate with our own very unique selves.

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