Dr David Paul - The Psychology of Trading & Investing

Here is the link.


David Paul:
1. A method
2. manage our money
3. manage ourselves.

Stick to a simple set of rules regardless of feelings or internal gut feelings. He compares it to training, simple discipline. No one knows if the market will go up or down and not in that order. The “game” is to learn how to make money in the market over and over again.

The money that you make is a function of both the hit rate and risk to reward. Most just think of the hit rate, vs think about the risk to reward and the hit rate. The internet is full of hit rate systems, most of these systems in fact lose more than they hit.

Every trade has two decisions associated with it: long or short, how much do I bet what percentage of my portfolio do I bet/trade. You should not risk 1-2% of your portfolio on any one trade.

The pituitary gland is responsible for every emotional response you have in a day. When you have good trades in a row the pituitary changes the way you feel and think. When you have multiple wins you think you’re invincible, and you up the bet/trade amount. The good trades cause you to go broke, be aware and careful of euphoria when making good trades.

You only need one good pattern, could be a wedge pattern or head and shoulders or any pattern you like.

Have the discipline to do it and use it over and over again. Regardless of your feelings or percentage of good trades. Stick to the pattern you know well, keep it simple and trade no more than 1-2% of your portfolio.

Discipline can be and should be built. Discipline gives consistent gains and hedges your losses. Wealth is built over a long period of time. Discipline requires you grit your teeth and stock to the plan, follow it without deviation for 20-30 trades.

Make your plan mechanical, the more mechanical the better. Stick to it to make it a habit over 20-30 trades. The first few trades are difficult to stick to the plan. But stick to it have discipline, until it’s habit.

Focus on perfect execution of the plan between 5-20 trades. You are 8-13 trades away from the trader you want to be, but they never get there until you adhere to the plan, using no more than 1-2% of position sizing when trading.

Summary
Risk no more than 1-2% of your portfolio Make a plan and stick to it no matter what -create mechanical trading system, more mechanical the better - keep it simple, learn 1-2 patterns and stick to it. Stick to the plan 20-30 trades until it’s a habit. Till you wedge it into your neural pathway. Careful of pituitary euphoria after a string of good trades. Don’t increase your portfolio risk.