If there is something that experts tend to agree is that the psychological aspect is fundamental in the trading and therefore one trader who want to succeed in this field must invest the time needed to resolve any deficiency that has in his personality which may negatively affect their performance in the market. In fact, professional traders work at least one year in their problems psychological before even start designing a trading strategy, which of course most do not, quite the opposite-Mechanical traders.
An area where psychological problems usually appear on trading is in the error handling. Therefore, let’s see in the trading psychology from the point of view of the errors. When a trader does not follow its own rules, that is the first and most serious mistake, so simple. And make the same mistake repeatedly is that known as self-sabotage.
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Self-sabotage is an area of rich opportunities in psychology to understand ourselves and improve our trading performance. In this article, however we focus on different types of traders-related errors.
First, let’s talk about one way of measuring the impact of errors in the trading. The efficiency of the trader is one how effective dimensions is an operator to perform error-free operations. Therefore, a person who commits five errors for every 100 operations has an efficiency of 95%. In an article, a professional trader described part of his methodology which defines as one of the most important aspects document their mistakes in order to improve their efficiency. Among their findings, found that a level of 95% is pretty good, especially considering that most traders do not even reach 75% efficiency, which is a pretty bad level. This means an error for every four operations. This aspect can be significant for a category of traders: discretionary traders based their strategies on clear rules.
Mechanical traders-Personal Opinion.
In my opinion, when this type of traders becomes efficient, becomes, by far the best type of operator and is the goal to which all traders should aspire. On this basis, we can define a type of traders whose characteristics are opposed to discretionary traders: mechanical traders.
Mechanical traders are those who believe that they can eliminate the psychological factors affecting the trading to operate as if they were a machine. Many people aspire to become mechanical traders as if they were a computer (some fly using automated trading systems), since they consider that in this way they can take Dela equation typical human errors that separates winning traders from losers alos.
Now, the reality is that people fly based on their beliefs about the market, therefore we see below some of the most common beliefs that mechanical traders have:
-With mechanical trading, I can be totally objective and avoid making mistakes (with the exception of the error psychological replace my system).
-The mechanical trading is objective. Testing with my system will allow me to determine my future results.
-The mechanical trading is necessary.
-If the underlying logic of a system can not be converted into a mechanical trading system, as will most likely not be profitable.
-Human judgement is prone to errors. However, I can eliminate these errors through the mechanical trading.
Now, let’s analyze those claims. Is the mechanical trading really objective? First of all one might think that not esasi due to the different types of errors that can drag an automated trading system: data errors, errors in the platform software, errors in programming and many others. In fact, one of the most common in this type of system errors are the programming. Now, consider the errors in the data. Mechanical traders have to deal constantly with this type of obstacle, envelope with respect to accuracy of the information. For example, errors in prices may appear in the data flowing on a fairly regular basis.
Occasionally, they are resolved in a few seconds and the error ‘disappears’, but at that point, these flawed data could have led to the opening of a position in the market. An error that is common in this type of system is its rigidity. Since they operate based on programmed rules, not you can adapt to the market as if a human can do it. The market conditions are changing and a trading system that works perfectly today, can that morning become a resounding failure. For example, a system designed to operate in a market trend will produce multiple false signals in a side market (no clear trend). This is for me, the main defect of the mechanical trading. Doesn’t exist yet, far, a system of this kind that has the adaptability of a person.
There is another class of common mistake in mechanical trading systems: the error of omission. Since the criteria through which are so precisely defined inputs and outputs of the market, these systems tend to lose good (even excellent) opportunities that a discretionary trader would have easily seen. Therefore, once we begin to operate only with rules so inflexible that they can be programmed on a computer so it runs operations automatically, we become vulnerable to errors of omission, which can lead us to lose good operations, our system won’t take advantage due to its precision. You are missed opportunities do not qualify as errors, but severely restrict the output potential Dela underlying logic behind the system. In the long term, the results of mechanical trading systems are usually poor in comparison with the results of a trader that uses the same system (general strategy) but with some discretion in such a way that it manages to take advantage of those opportunities that do not cuadran 100% with precise rules of the automated system.