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The Ultimate Psychological Block

It’s my belief that the ultimate psychological block in trading is the ability to consistently follow a set of rules for a long period of time. If you can do this, then you have the Trading Psychology part mastered (as this would also take care of the Fear and Greed aspects).

For some reason, I personally find this simple task outrageously difficult to accomplish. I can see that there are two things that cause this, which are what you might call GOAL DECAY (I just invented that term) and NEW DATA.

GOAL DECAY is when you set your goal on Monday, and it feels meaningful and purpose driven, but by Friday you’ve lost the plot. It seems stupid, pointless, wrong etc. Or else you just plain forgot… Your trading goals start off with energy, but then the energy quickly dissipates and the goal loses force. At this point you are ripe for the second issue:

NEW DATA – Once your previous goal has decayed, your then happen upon or else purposefully go looking for NEW DATA. This new data can also spring up from within your own mind as some great new idea and you set a new goal.

Then this cycle repeats. Somehow going around and around on this Ferris Wheel has to come to an end and some clearly defined goals need to be set. I guess in my previous post I alluded to this in terms of ‘sorting out’ all of the information and techniques I have acquired.

12 Cognitive Biases that Prevent you From Being Rational

Confirmation Bias – The tendency for people to favor information that confirms their beliefs or ideas.  Investors and economists often fail to fully appreciate other views due to a narrow minded view of the world often resulting from what they think they already know.

Ingroup bias – the tendency to favor one’s own group.  In investing and economics we see this in ideologies and particular strategies.  Austrians favor those who believe their own thinking.  Chartists dislike value investors.  Often times, the strongest economists and investors are the ones who are able to move beyond this ingroup bias and explore the potential that other groups have something positive to contribute.

Gambler’s Fallacy – When an individual erroneously believes that the onset of a certain random event is less likely to happen following an event or a series of events.  We see this in trading all the time.  This is the belief that just because something has occurred in the past that it is more likely to occur in the future.  The “trend is your friend” and that sort of thing….

Post-Purchase Rationalization – When one rationalizes past purchases after the fact in an attempt to justify past actions.  Investors often learn about how a bad trade turns into an investment when they rationalize their past purchases.  If you’ve been in the business for a while you know how destructive this can be. (more…)

Patience & Confidence

The market, as much as anything in life, has a way of transforming us from cool, calm, collected individuals into irrational, impulsive, disoriented speculators. Clearly it’s in our best interest in terms of long-term profitability to spend the majority of our time in the former group rather than the latter.

Acknowledging when things aren’t going our way is the first step to becoming a more patient trader, but it’s having the patience to wait things out until we find a more harmonic rhythm that contributes immeasurably to our success.

It’s the losing positions that invariably do traders in. A number of the bigger losers many traders experience come as a result of not being patient and waiting on the right opportunity. Many of us tend to press when things aren’t working out, or we’ve just had a losing trade.

Traders can begin to play catch-up and go on an emotional tilt. It’s the paradox of trading in many ways. The same competitive drive we use to achieve our success has components that can hasten our failure.

When going through my daily checklist, I send out to members of my mentoring program, I always emphasize that the markets provide a multitude of chances to trade. One need not force action when the setups aren’t right. Traders who get into positions with “the best of it” or “an edge” significantly increase their chances for success in the long run.

Confidence comes from a number of sources and is developed through successful implementation of a strategy. It is also a byproduct of the unwavering belief that what you are doing will be successful. This is critical because, at the moment of truth, when you are in a position, self-doubt has a way of creeping in. It’s tempting to deviate from your plan at these times.

While I’m not suggesting that you be inflexible in your position management, I am saying that having belief in what you are doing goes a long way toward your success. In fact, it’s the confidence in your trading skill set that can give you the ability to make a decision to get out of a position, knowing that things aren’t working out. This conviction is a hallmark of great leaders and inspires others.

Universal Laws of Success

(1) Law of LOVE – It says in essence – “LOVE ALL PEOPLE AS YOURSELF”. All other rules are subordinate to this one Law – they must NOT conflict with it. It’s biblical. It applies to everything we do – as individuals – families – business teams – organizations – countries. It is Global in its reach.
(2) Law of CAUSE & EFFECT – This is an orderly universe. There are no accidents. Everything happens for a reason. For every effect there’s a cause or a set of causes.
(3) Law of MIND – Thoughts objectify themselves. We ‘become’ what we ‘think about’.
(4) Law of MENTAL EQUIVALENCY – To achieve success in any area, we must have a ‘clear image’ of that success in our mind a mental picture of our idea of success – a vision.
(5) Law of CORRESPONDENCE – Our outer life will mirror our ‘inner’ life. There is a ‘direct correspondence’ between our experiences and our thoughts and attitudes.
(6) Law of BELIEF – Whatever we believe – deeply – becomes our reality (including our belief that we “deserve” Success).
(7) Law of VALUES – What we truly value and believe in is reflected in our ‘actions’, even though our ‘words’ may say otherwise.
(8) Law of MOTIVATION – Everything we do is triggered by our inner desires, urges and instincts – many are subconscious.
(9) Law of SUBCONSCIOUS ACTIVITY – Our subconscious mind ‘alerts us to things around us’ – consistent with our dominant desires and concerns.
(10) Law of EXPECTATIONS – What we ‘expect with confidence’ tends to materialize.
(11) Law of CONCENTRATION – Whatever we concentrate on – and think about repeatedly – becomes more a part of our inner life.
(12) Law of HABIT – Virtually all that we do is automatic – the result of habit. Habits that move us ‘away’ from our goals must be ‘changed’. (more…)

How To Improve

Turn off the noise – Information may be the world’s most precious commodity, but 99% of the information at your disposal is not. In today’s age of real-time information, opinions, analysis, etc. it is my strong belief that information overload and noise is hindering performance far more than it is helping. The first step is to stop watching all TV and to place severe restrictions on all media. In addition, to perform better this year you must stop wasting time on seeking out advice and opinions that only serve to confirm what you really want to hear in order to justify your positions. If anything, what time you spend in social media should be devoted to looking for ideas that challenge your positions and/or offer unique insight you can really learn something from.

So turn off that Blue Channels crap. And stop reading those silly Websites/Blogs.

The 10 Keys to Winning the Mental Game of Trading

To win the mental game you must have…

  1. …faith in yourself.
  2. …faith in your system.
  3. … an understanding of what trading size you can handle.
  4. …an understanding of the level of losses you can deal with mentally and emotionally.
  5. …a love and passion for trading.
  6. …the belief that it is possible to win in trading.
  7. …the belief that all your hard work will be worth it.
  8. …that you are a trader, that is what you do.
  9. …the ability to have your butt kicked over and over but keep coming back.
  10. …the perseverance to keep trying until you are successful.

The Stock Trader's Steps to Success

Mark Douglas, in his classic book on trading behavior entitled THE DISCIPLINED TRADER: DEVELOPING WINNING ATTITUDES, describes what he believes are the three steps to a trader’s ultimate, long term success.  The following steps have very little to do with technical anaysis and everything to do with the trader’s mental resources.  Douglas explains that the “more sophisticated you become as a trader, the more you will realize that trading is completely mental.  It isn’t you against the markets, it’s just you” (204).  So, if it is just you what are the steps?

1.  STAY FOCUSED ON WHAT YOU NEED TO LEARN.  The trader needs to stay focused on mastering the steps to achieving his goals and not the end result, knowing that the end result, money, will be a by-product of what he knows and how well he can act on what he knows.   A big part of what the trader needs to learn is how to accept missed opportunities.  “Except for the inability to accept a loss, there isn’t anything that has the potential to cause more psychological damage than a belief in missed opportunities.  When you release the energy out of the belief that it is possible to miss anything, you will no longer feel compelled to do something, like getting into trades too early or too late.” (205).

2.  LEARN HOW TO DEAL WITH LOSSES:  Douglas outlines two trading rules for dealing with losses both of which are designed to help the trader deal with any threat of pain and confront, head on, the inevitability of a loss.  The first is to predefine what a loss is in every potential trade.  By predefine Douglas means “determine what the market has to look like or do, to tell you that the trade no longer represents an opportunity” (206).   Secondly, “execute your losing trades immediately upon perception that they exist.  When losses are predefined and executed without hesitation, there is nothing to consider, weigh, or judge and consequently nothing to tempt yourself with” (207). 

3.  BECOME AN EXPERT AT ONE MARKET BEHAVIOR: Simplicity and focus is the mother of success.  “You need to start as small as possible and then gradually allow yourself to grow into greater and greater amounts of market information.  What you want to do is become an expert at just one particular type of behavior pattern that repeats itself with some degree of frequency. To become an expert, choose one simple traing system that identifies a pattern.  Your objective is to understand completely every aspect of the system.  In the meantime, it is important to avoid all other possibilities and information” (209).

Three simple steps yet ironically it is in the simplicity that traders find the most difficulty.  Trading is not difficult, we make it so.  Remember this the next time you enter a trade. 

Dear Readers & Traders………..Don’t miss to read this Book !!101% it should be in your Library.-Technically Yours ,Anirudh Sethi

Characteristics for successful trading

successfultraders-charctersticsA) absolute trust in myself to do what’s necessary when it’s necessary, B) discipline to follow my rules/method even when it’s going through a rough period (which all methods do), C) the unquestioning belief that I don’t know what’s going to happen next and that trading is just a probabilities game, D) that my success isn’t about the system/method – it’s about me and my attitude toward the market and trading, and E) the complete confidence that I really can make consistent profits from my trading over time.

Effectiveness Is the Measure of Truth

In trading as in life, effectiveness has to be the measure of truth. If something doesn’t work, there is no point in continuing to do it. Misperceptions, false unconscious or conscious beliefs, and unhelpful behaviors can contaminate and desecrate your most sought after results.

Imagine the frustration of a trader who perceives that a market is changing direction when in fact it is persisting in its original thrust. Or consider, for further example, an investor who bought into the belief that buy and hold is a valid investment strategy. That investor had to have experienced devastating losses over the past year. Or ponder the trader who repeatedly fails to utilize stop losses and experiences numerous outsize losses because he won’t accept a loss. (more…)

Essentials of a Winning Psychology

fear-1
Four fears that block a winning psychology:

  1. Fear of Loss
  2. Fear of being wrong
  3. Fear of missing out
  4. Fear of leaving money on the table.

Realize that trading is based on probabilities, as such, every trade is unique. In other words, the past does not equal the future.

Probability thinking manifest other states and beliefs:
  • Because we know that we will succeed in the long run and because we know we will protect ourselves no matter what the market does, we acquire the state of “self trust” and the state of being “carefree”.

In turn these states allow us to remain….

  • Focused, confident and carefree when we are experiencing the inevitable prolonged drawdown.
  • Because at the micro level we know that the market is random, we will not allow euphoria to set in and lead us to reckless trades. Each trade will only be one in a series of probabilities.
  • We will view market information not as a source of pleasure or pain but merely as data providing us with opportunities.

Personal Attributes Essential to a Winning Mentality
  • Awareness – the ability to step outside ourselves and observe. The more effectively we can do this, the easier our progress to “Acceptance”.
  • Honesty – the ability to seek to perceive reality in spite of our filters.
  • Courage – the willingness to bear the pain brought about by our awareness and honesty.
  • Commitment – the willingness to do whatever is necessary to achieve our goals

To succeed, a trader must have a vision about where he is heading, and must internalise that a winning attitude is total submission to the trading outcome.
This means managing Fear and Euphoria. To
do this, we need to ACCEPT, with every fibre of our body, the belief that at the micro level the market is uncertain and unpredictable and at the macro level it is relatively certain and predictable.