-THE MORE STUBBORN YOU ARE, THE MORE YOU WILL LOSE. THE STOCK MARKET IS ALWAYS RIGHT. -DON’T CHASE STOCKS JUST TO DO A TRADE. AVOID BOREDOM TRADES. IF NO TRADE IS THERE, PASS, AND SOMETIMES DON’T TRADE ANY STOCKS AT ALL. -TRY TO GET IN BEFORE THE HEADLINES INSTEAD OF BUYING THE HEADLINES. Market homework absolutely required to be a success. |
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rssTop Ten Reasons Traders Lose Their Discipline
Losing discipline is not a trading problem; it is the common result of a number of trading-related problems. Here are the most common sources of loss of discipline, culled from my work with traders:
10) Environmental distractions and boredom cause a lack of focus;
9) Fatigue and mental overload create a loss of concentration;
8) Overconfidence follows a string of successes;
7) Unwillingness to accept losses, leading to alterations of trade plans after the trade has gone into the red;
6) Loss of confidence in one’s trading plan/strategy because it has not been adequately tested and battle-tested;
5) Personality traits that lead to impulsivity and low frustration tolerance in stressful situations;
4) Situational performance pressures, such as trading slumps and increased personal expenses, that change how traders trade (putting P/L ahead of making good trades);
3) Trading positions that are excessive for the account size, created exaggerated P/L swings and emotional reactions;
2) Not having a clearly defined trading plan/strategy in the first place;
1) Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality.
In Search Of Emotional Discipline
Common Characteristics between Successful Gamblers and Successful Speculators
Just Listen :
On a warm summer’s evenin’ on a train bound for nowhere,
I met up with the gambler; we were both too tired to sleep.
So we took turns a starin’ out the window at the darkness
‘Til boredom overtook us, and he began to speak.
He said, “Son, I’ve made my life out of readin’ people’s faces,
And knowin’ what their cards were by the way they held their eyes.
So if you don’t mind my sayin’, I can see you’re out of aces.
For a taste of your whiskey I’ll give you some advice.” (more…)
FEAR
There is nothing to fear except fear itself…’so said FDR when talking about America’s policies for exiting the great depression. Of all the known negative emotions that affect trading, I would argue that Fear is the most pervasive, and potentially the most destructicve.
Even that other emotion we are always warned about – Greed can be alternatively described as ‘the fear of missing out’ and so it’s very essence is derived from fear. Frustration too is essentially born from fear as is Boredom, these being two other potentially harmful emotions that can afflict traders.
Fear in trading comes from the fear of a losing trade/losing run and the loss of money/not being right. This fear of losing stems from operating in an environment of uncertainty where the result is not known in advance. This uncertainty though does not have to result in fear per say.
The human brain is not naturally wired for trading in it’s evolutionary development. It takes years of practice and development for someone to re-train their brain to accept uncertainty and manage it. This is the necessary acquiring of the psychological skills required to trade successfully. Essentially when it is more natural to hope we fear and when it is more natural to fear – we hope….in trading we have to do the opposite. Add to this the technical skill requirement of having to be right at the right time as being right at the wrong time is still a losing trade, and it is not hard to see that a process has to be undertaken to train our brains from a fear based outlook of uncertainty to a risk management outlook toward it. (more…)