The Importance of Psychology in Trading

Bob Iaccino, Chief Market Strategist and Co-Founder of Path Trading Partners, joins us live every Thursday from 11am ET, as our risk management educator.

With 30 years' experience working as an active investor in equities, commodities, futures and FX there are few better to talk on the subject of risk management.

Bob has developed a method for breaking down his key fundamentals of risk management, in a way that he thinks retail traders can understand and use to get actionable insights to bring into their own trading.

Below are some excerpts of Bob’s thoughts from a recent live session.

If you’d like to save your seat to watch and participate in the next session, register here.

?

Why is psychology so important in trading?

In trading, psychology is everything. I've shared before that I lost close to six figures in U.S. dollars in less than nine months. This was my first attempt at trading and that's when I started to say to myself - I've got one more chance at this, I must protect my capital. All traders should be thinking that way as well. However, when you’ve experienced huge losses, this can be hard to do.

That doesn't mean you trade from fear. It means you trade from confidence and when you've lost money before, it's very difficult to get that confidence back. You must refocus your thinking into - I have succeeded. Tell yourself - “I've stayed within my risk, that is success.”

For a lot of traders, that’s going to cause you to take a very tiny risk percentages, and I agree with that.

However, I'm going to try and change you to take small positions and bigger risk percentages because the math is the same.

On 100 shares, if you lose a dollar, you've lost $100. On 10 shares, if you lose $10, you lose $100. It's the same math. This is the simplest thing, and people don't think of it that way.

They say - “I must do 100 shares because I want to sell covered calls against it.” ?One step at a time, put one foot in front of the other. Don't try to jump 10 feet before you can even walk, because this is a trade. Trading is a trade , and like with all other trades, it takes time, education and skill to excel at this trade. ?

Can traders change their psychology with time and practice?

This fact about psychology is going to make a lot of traders frustrated. Unfortunately, when it comes to ways of thinking, you can't change it. It's never going to change.

I've been doing this since 1993. In September it will be 31 years for me.

I still find myself saying - “I could have made more on that trade.”

One of the things that helped me, and I don't know if it's going to help other traders, is when I put on a trade, I have a target and I have a stop. Targets and stops are extremely important elements for traders to consider in every trade.

I try to walk away, maybe I miss other trade opportunities by doing so, but I try very hard to leave the screen. GTC orders are helpful in facilitating traders to be able to do this. There's also another function OCO, which is order cancels order. If you could place a trade and an OCO/GTC order, go take a walk, avoid your screen for a week and come back and look at it, I know you're going to say - “I missed trades, I missed this, I missed that.” I understand that, but you can't change your psychology. You can only control it.

Disclaimer: Live Sessions (hereafter referred to as the “Content”) are produced by TradeZero. The Content may include the views and opinions of TradeZero and a third-party participant, Bob Iaccino. Bob Iaccino is compensated by TradeZero for participating in the Content. Mr. Iaccino’s trading experiences and accomplishments are unique, and your trading results may vary substantially from his. TradeZero is not responsible for and neither affirms nor endorses any of Mr. Iaccino’s views or opinions expressed in the Content. TradeZero makes no representations or warranties with respect to the accuracy of the Content or information available through any referenced or linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security.

Trading securities can involve high risk and potential loss of funds. Furthermore, trading on margin is for experienced investors and traders only as the amount you may lose can be greater than your initial investment. Likewise, short selling as a securities trading strategy is extremely risky and can lead to potentially unlimited losses. Options trading is not suitable for all investors as it can involve risk that may expose investors to significant losses. Please read the Characteristics and Risk of Standardized Options, also known as the options disclosure document (ODD) at https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document before deciding to engage in options trading.

TradeZero provides self-directed brokerage accounts to customers through its operating affiliates: TradeZero America, Inc. a United States broker dealer, registered with the Securities and Exchange Commission (SEC) and member of the Financial Industry Regulatory Authority (FINRA) and the and the Securities Investor Protection Corporation(SIPC); TradeZero, Inc., a Bahamian broker dealer, registered with the Securities Commission of the Bahamas; and TradeZero Canada Securities ULC, a Canadian broker dealer, member firm of the Investment Industry Regulatory Organization of Canada (IIROC) and member of the Canadian Investor Protection Fund (CIPF).