Trading Psychology | Why Normal Doesn’t Make Money | Part 1

Summary

Tom, a seasoned trader with 20 years of experience, emphasizes the importance of mindset over technical analysis in trading. He shares insights from observing thousands of trades and discusses the human element behind consistent losses in the market. Tom reveals his unique approach to managing fear and the significance of practice in shaping permanent trading behaviors. He challenges the notion of indicators as a 'Holy Grail' and stresses the need for traders to think differently to achieve success.

Takeaways

• 🧠 The speaker emphasizes the importance of mindset over technical skills in trading, suggesting that successful trading is more about how you think than what you know.
• 👀 Tom, the speaker, shares his unique perspective from years of observing traders, highlighting common mistakes and the difficulty of consistent profitability.
• 📈 He argues that trading success is not about technical or fundamental analysis but about one's relationship with fear and the ability to make decisions under pressure.
• 💡 Tom's experience suggests that practice does not necessarily make perfect; instead, it can reinforce bad habits if not approached correctly.
• 🤑 The speaker made over a million pounds one year but also experienced significant losses, illustrating the volatile nature of trading and the importance of managing risk.
• 🚫 With new regulations limiting leverage, the speaker sees a positive side, as it forces traders to confront the reality and risks of trading rather than relying on high leverage.
• 📊 Tom discusses the futility of trying to predict market movements, stating that even he, as a professional trader, does not know where the market is going and that opinions are often biased by one's position.
• 📉 He admits to having a random entry rate, suggesting that even professionals cannot consistently predict winning trades and that success lies in managing trades rather than predicting them.
• 🧐 The speaker warns against 'apophenia', or seeing patterns where none exist, which can lead to false confidence in trading strategies based on flawed interpretations of market data.
• 💭 Tom believes that the key to trading is not to be right, but to make money, and that this requires a different way of thinking from the majority of traders who are losing.
• 🌐 He concludes by stating that trading is a human problem, not a technical one, and that understanding this is crucial for any trader looking to improve their performance.

Q & A

Who is the speaker in the video script?

The speaker is Tom, who has a unique vantage point from his experience working in the city and observing trading for over a decade.

What is Tom's perspective on the role of technical and fundamental analysis in trading?

Tom believes that trading success has little to do with technical or fundamental analysis. Instead, he emphasizes the importance of mindset and emotional control in trading.

What significant event happened in Tom's trading career in 2009?

In February 2009, amidst a bear market, Tom realized that trading was not about technical analysis or fundamental analysis, but about the trader's relationship with fear and market conditions.

What was the impact of the ESMA rules on trading in the European Union?

The ESMA rules required brokers to limit the amount of leverage they provided to clients, reducing it from 200:1 to 20:1, and to disclose the percentage of losing clients, similar to warnings on cigarette packages.

How did Tom perform in trading in the last two years mentioned in the script?

Tom made more than a million pounds in one year and lost nearly 90,000 pounds on Christmas Day in another year.

What is Tom's view on the common mistakes made by traders?

Tom observes that traders tend to make the same mistakes repeatedly and very few are capable of making money consistently, which he attributes to a lack of proper mindset and emotional control.

What does Tom suggest is the main purpose of trading?

Tom suggests that the main purpose of trading is to make as much money as possible, rather than being right or proving one's analysis.

How does Tom describe his relationship with fear in trading?

Tom describes himself as having a high tolerance for fear and being desensitized to certain levels of stimulus, which allows him to make the right decisions under stress.

What is Tom's opinion on the effectiveness of practice in trading?

Tom believes that practice does not make perfect but makes permanent. He suggests that practicing the wrong way can establish behavior patterns that do not serve the trader well.

What phenomenon does Tom mention that affects how people perceive patterns in trading?

Tom refers to 'apophenia,' a phenomenon where people perceive patterns or connections in random data, which can lead to incorrect assumptions in trading.

How does Tom view the role of indicators like Fibonacci in trading?

Tom questions the reliance on indicators like Fibonacci, suggesting that they may not be as effective as people believe and that their use should be critically evaluated.