Trading Psychology; The Greatest Weakness Is The Human Element

In his book "45 Years In Wall Street" (1942), W.D. Gann page 25 states in relation to trading psychology the greatest weakness is the human element.

He writes that when a trader makes a profit, he gives himself credit and feels that his judgment is good and that he did it all himself. When he makes losses, he takes a different attitude and seldom ever blames himself or tries to find the cause with himself for the losses. He finds excuses; reasons with himself that the unexpected happened, and that if he had not listened to some one else's advise, he would have made a profit. He finds a lot of if's and but's, which he imagines were no fault of his. This is why he makes mistakes and losses the second time.

The investor and trader must work out his own salvation and blame himself and no one else for his losses, for unless he does he will never be able to correct his weaknesses. After all, it is your own acts that cause your losses, because you did the buying and the selling. You must look for the trouble within and correct it. Then you will make a success, and not before.

One of the main reasons why traders make losses is because they do not think for themselves and allow others to think for them and advise them, whose advice and judgment is no better than their own. To make a success, you must study and investigate for yourself. Unless you change from a "lamb" to a thinker and seek knowledge, you will go the way of all lambs, - to slaughter underthe margin caller's axe. Others can only help you when you help yourself, or show you how to help yourself.

Mr Gann goes on to say that a person can get the best rules and methods (or strategies) in the world for trading, and then lose money on account of the human element (Trading Psychology) which he considers the greatest weakness. He says you will fail to follow rules. You will work on hope or fear instead of facts. You will delay. You will become impatient. You will act too quickly or you will delay too long in acting, thus cheating yourself on account of your human weakness and then blaming it on the market. Always remember that it is your mistake that causes losses and not the action of the market or the manipulators. Therefore, strive to follow rules, or keep out of the speculation for you are doomed to failure.

Straight forward words from Legendary Trader William Gann about how trading psychology can greatly impact a trader without his or her even knowing it.


Another quote from another of his books 'New Stock Trend Detector' WD Gann 1936. page 93

The Following of Rules Makes Profits

"The human element beats most traders. The market does not beat them. Eliminate human judgment and guesswork. Do not buy or sell on hope or fear.

The man who will make up his mind to follow rules strictly to the letter will make profits. Prove to yourself that the rules work which I give you and then follow them. Buy and sell when the rules indicate that it is time to buy or sell and then do not close trades and take profits until the rules indicate that it is time for a change in trend; then make your trades accordingly and you will make a success". WD Gann.


Larry Williams Thoughts on Trading Psychology

Larry Williams on page 171 of his book "Day Trade Futures Online mentions psychology of trading in the most simplest of terms. After explaining his rules for exiting a position, says..... "That is all I have to tell you about exits. Don't GET GREEDY, let THE RULES, not your emotions, take care of your trades". L Williams.


Successful traders have learn't how to control their natural emotional weaknesses relating to following their system or trading method. It is a natural tendency to close a trade for a profit just because it is available for the taking. Thoughts come up into your head saying "quick take this profit before it disappears" ..... then after taking the profit you watch on the sidelines as your profit doubles had you followed your rules and left the trade to mature. These emotional states also apply to controlling losses. Successful traders are good at taking small losses when their system tells them to do so. The novice will not be able to take losses because he feels that it will hurt him. So he holds on in hope that the market will turn around. The taking of small losses are part of the business of trading. Sometimes a series of unexpected consecutive losses occur that will have the novices emotions running wild. The experienced trader has already learn't how to come to grips with this real possibility. He still keeps trading the same system that he has tried and tested and has faith in. He knows his position sizing strategy will be able to handle these series of losses when they occur from time to time. He is not fearful or discouraged. He knows he will also meet up with a series of consecutive profits as well that will more than make up for any losses he takes.

To trade any system successfully the individual trader must do his part in making sure that the other components of achieving success like trading psychology are not undermined. If for example only 'one' element is missing or lacking it will mean our trader will fail. It could be a good system but the trader fails to follow the system rules. He takes profits too soon. He does not follow his predetermined stop loss strategy.

Read more about what Neuroscientists have discovered in recent years on how to improve mental fitness / trading psychology here.

The three trading essentials of System, Money Management and Trading Psychology can be likened to the components of a car

Engine = System / Strategy. Read more about systems here.

Wheels = Money Management / Position Sizing. Read more about money management here.

Chassis = Trading Psychology / Emotions

The question is what component is the most important? System? Money Management? or Trading Psychology?

If we have a problem with any one component of our car, either the engine, wheels or chassis, we will not get anywhere too fast. Same for traders, lack in any one area and the trader will have problems with their account balance.

It is interesting to note that many successful traders say that trading psychology is the greatest element relating to their success.

Consider the following different scenarios;

Imagine having a great system, great mental discipline but poor money management = failure
Imagine having a great system, great money management but no discipline to trade the system as designed = failure
Imagine having great mental discipline, great money management but a poor trading system = slow progress.

We can see that the majority (if not all) whom desire to become and stay successful traders have lots of work and study and practice to master all these 'Essentials'. Intelligence is not the factor that will provide success, rather it is bold perseverance to keep on trying and improving in all these areas.

Trading Psychology can be likened to a weak point on a car. If it's broken you will not reach your destination.

What will prevent a car from arriving at its destination? Engine problems? Wheel problems? or Chassis problems?

Yes, it's any one of these things.

Your thoughts on trading psychology?

Are you struggling to deal with your emotions when trading? Have you found a cure or something that helps? What works for you? Share it!

Or Maybe you would like to share a disaster story? The time your emotions got the better of you in one of your more memorable BAD trades?

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good performance boils down to discipline Not rated yet
We believe the results of good performance boils down to the disciplined trading approach adopted by traders. In trading money should be subjected to the …

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Totally agree. In a perfect account, trades would be: IN >> MAKE A PROFIT >> OUT ...just like that! No open trades waiting for the market to move …

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