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.

Comments: 0 • Posted in: Psychology

Leave a comment

Get Adobe Flash player
RSS Commentary from Kathy Lien & Boris Schlossberg, Directors of Research, GFT
  • 3 Reasons Why the Dollar has Strengthened 03/09/2010
    The stability in the forex on Monday was short-lived as comments by ratings agencies sent investors back into the safety of U.S. dollars.
  • Euro Rebound Loses Steam, As Debt Concerns Resurface 03/09/2010
    Risk FX drifted lower in Asian and early European trade as worries over Southern European sovereign debt continued to dog the EUR/USD while cable suffered from a slew of negative data that pushed the unit back below the 1.5000 level. The Aussie was the only risk currency to hold its ground as data Down Under once again surprised to the upside, but even the […]
  • Aussie Shows Relative Strength 03/08/2010
    While both euro and pound drifted lower in Asian session today, the Aussie continued to hold ground around the .9100 figure boosted by strong business sentiment and labor data. Australian NAB Business confidence survey rose to 19 from 15 the month prior while ANZ Job Advertisements soared to 19.1% from a decline of -8.1% on January. The dramatic jump in ANZ […]
  • What Could Threaten Stability In The Forex Market? 03/08/2010
    With no U.S. economic data on the calendar, it has been an extremely quiet day in the forex markets. Despite the lackluster move in U.S. equities and the fact that many of the major currency pairs ended the day unchanged, traders remain optimistic. We know that the mood in the financial markets is healthy with a dash of caution because gold prices fell mor […]
  • Will Repatriation Boost the Yen in March? 03/08/2010
    It is commonly believed that March tends to be a positive month for the Japanese Yen because of the fiscal year end in Japan. Tax incentives and the desire to window dress their balance sheets usually encourage repatriation by Japanese corporations.