Cases - Finance

Trading psychology is one of the most important areas a trader must understand. Most traders often overlook this crucial area, believing that trading systems are the most important aspect of trading successfully. However, when you think about it, your beliefs about the market can have a sig

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

nificant effect on how you trade.

To illustrate the importance of psychology, the following is a quote from world renowned trading coach Dr Van Tharp:

“When I’ve had discussions about what’s important to trading, three areas typically come up: psychology, money management (i.e., posit

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

on sizing), and system development. Most people emphasize system development and de-emphasize the other two topics. More sophisticated people suggest that all three aspects are important, but that psychology is the most important (about 60 percent), position sizing is the next most importan

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

(about 30 percent), and system development is the least important (about 10 percent).” When it comes to trading, one of the most neglected subjects are those dealing with trading psychology. The majority of traders spend days, months and even years trying to find the right system to

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

uit them. But having the right trading system is just a small part of what is really needed to trade forex, or any other financial market successfully. Don’t get me wrong, it is still important to find or develop a trading system that suits you, however, it is also important to have a well

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

efined money management plan, as well as an understanding of all the psychological barriers that may affect the trader’s decisions when trading. In order to succeed in the business of trading, there must be a balance between all these important aspects of trading.

In the trading environmen

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

, when you lose a trade, the first idea that pops to mind would probably be, “There must be something wrong with my system”, or “I knew it, I shouldn’t have taken this trade” (even when your system signaled it). But sometimes we need to dig a little deeper in order to see the nature of our

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

istake, and then work on it accordingly. This means looking at the possible psychological biases you may have when it comes to developing and executing a trading system. This is explained in more detail below.

When it comes to trading the Forex market as well as other markets, only 5% of t

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

aders achieve the ultimate goal: to be consistent in profits. From my research I believe the main reason for this is a lack of understanding of what a trader should actually be taking into account, which could be largely attributed to their own psychological biases they have toward trading.

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

Psychological Biases To best explain how trading psychology isn’t just about positive thinking, here is an example of how your psychological biases can effect your trading.

Consider a new trader that has an interest in trading the forex market. They would most likely bel

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

eve that a trading system is the place to start, so they go off on the internet and search for keywords such as “forex trading system”, or “trading system”. They would also be likely to want to find a trading system that is very accurate, say around 80% + accuracy. The reason for this? Well

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

from my research I have discovered that this way of thinking has been taught to us at a very young age mostly by the school system. School teaches us to be right 80% + of the time, and if we are not, we are considered a failure. The internet can also be blamed for this. If you were to searc

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

for anything trading system related, you would soon be bombarded with advertisements such as “System produces 90% accurate trades” or for those advertisers who are really pushing their luck: “100% wins, 250+ trades, NO losers BUY NOW!” All these advertisements cause you to believe that it

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

s necessary to be right the majority of the time in order to succeed at trading.

Now the problem here is two fold. Firstly, their belief that a trading system is so important is not actually correct. There are other factors that are in fact more important such as, money management and psyc

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

ology. And secondly there belief that they need a trading system that produces profits a very high percentage of the time is not absolutely correct either.

These are bias’s you have toward trading system development because you do not yet understand what is really involved in developing an

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

implementing a system that actually works over time.

This is where the ‘Mathematics’ of trading system development and implementation come in. To illustrate how you do not necessarily have to have a trading system that wins 80% or more of the time, consider the following:

You have a trad

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

ng system that is accurate and makes money only 50% of the time. On average you make three times as much as you loose. Let’s say your average win is 60 pips, and your average loss is only 20 pips. The following equation will work out how much you can expect to make on average:

(PW multipli

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

d by average win of 60pips) Minus (PL multiplied by average loss of 20 pips) = 20pips.

Key: PW = the percentage of time you make money (or Win), PL is the percentage of the time you lose money.

This means you could expect to make 20 pips on average, even with a win rate of only 50%! Now i

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

is important to keep in mind that the purpose of this article was not to explain the specifics of trading system development, nor the mathematics involved. It was to explain how your own trading psychology can have an effect on the way you trade the financial markets.

Conclusion <

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

strong> By understanding areas such as trading psychology, and money management at an early stage of your trading career, you will be able to develop a system that produces profits consistently, and be up there with the top 5% of traders who actually succeed in trading the financial markets

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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