Archives of “February 2019” month

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Loss of discipline & Failure of willpower

  
  Education

Consider the following scenarios:
*  We decide to enter a position at a particular price level, it hits that level, and we create an excuse and fail to take advantage of an opportunity;
*  We set a stop loss on a position, but rationalize staying in the position when that level is hit, creating a loss that wipes out many days of gains;
*  We establish a process for researching markets and keeping ourselves in peak condition, but become distracted by life events and fail to follow our process;
*  We take an unplanned trade after losing money and widen our losses.
In each of these cases, we have what traders commonly call a loss of discipline.  In fact, it is a failure of willpower:  an inability to sustain intention.
Our focused attention–our intentionality–is a finite resource.  It becomes fatigued with use.  When we frame trading problems as one of lack of discipline, we treat our challenges as character flaws.  When we frame trading problems as one of lack of willpower, we open the door to strategies that preserve the willpower we possess and expand our level of willpower over time.

Developing The Right Mindset

  
  Education
  Tags

First, you need to find a systematic method which removes most (if not all) of the emotion and discretionary judgment from your trading. Be prepared… this could take years. Once you have identified a system that can be profitable over the course of time, then you have to develop a mindset in which you:

  1. Focus on executing your system perfectly for each individual trade;
  2. Focus on weekly or monthly gains and not the results of individual trades;
  3. Track and quantify your performance mercilessly;
  4. At the end of each day, each week, and month evaluate your actions and then commit to doing better tomorrow;
  5. Stay positive in your thoughts and spoken words;
  6. Stay away from negative influences that cause you to have doubts and fears about your ability as a trader;
  7. Teach others to maximize their performance and, in so doing, maximize your own.

Sharpen Your Trading With Occam's Razor

  
  Education
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 Would you believe that a 14th century priest, and his concepts, can help make you a better trader?  Well, English logician and Franciscan friar William of Ockham really can make you a better trader.


Ockham developed the concept commonly referred to as Occam’s Razor.  Simply put, this principle favors the simple over the complex, when there is a choice to be made, or a path to be followed.


How can this apply to trading? A few different ways.


First, if you are a system trader, perhaps your approach has too many rules, too many parameters, or too much optimizing.  While every parameter you add might make your system better historically, the more parameters you have, the less prone the system is to work going forward.  Simpler concepts and simple rules tend to be based on fundamental market principles – ones that aren’t as likely to change.


Second, if you are a discretionary trader, you might trade off of news reports from Blue Channels  and multiple other sources.  Multiple news sources might give you more data, but does it really give you more knowledge?  You might find that with multiple, conflicting pieces of information, you actually can’t trade at all – rather, you are a victim of “analysis paralysis.”


Third, maybe your trading office looks like the control room for the Space Shuttle. If you try to trade off all of the information shown on all the screens, you might just find yourself overwhelmed.  It is better to stick to a few monitors of information, and know that information very well.  The best traders don’t need a dozen monitors to trade well – usually 1 or 2 monitors is plenty.


Many new traders tend to think that that more complicated they make trading, the easier it will be to “solve” the markets.  Instead, they should be listening to William of Ockham, and making things simpler.  Simple, done correctly, can lead to more profits, and stand the test of time better than complicated approaches.

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