Every day, every trade requires 100% discipline.
Discipline = Emotional Mastery, A Formula Of Confidence/Caution + Humility.
Confident but no caution = Arrogance. Cautious but not Confident = a lack of Conviction, Weakness.
A Super Trader = A Disciplined Trader. In Discipline, No Weakness Can Exist.
Everyone knows that chasing price is usually not beneficial, we either end up catching the move too late, or we get poor trade location, which makes it more difficult to manage the trade.
However, there are other forms of chasing that are just as common, maybe more common, and just as counter-productive. As a trading psychologist I see these all the time.
Traders who are not profitable are often too quick to chase after new set-ups and indicators, or a different chat room, if that’s your thing. Obviously, we need to have a trading edge, whether it is from the statistical perspective of a positive expectancy, or simply the confidence in a particular discretionary strategy such as tape reading, following order flow, market profile, etc.
Chasing a trade is the fear of missing out. The fear of missing out is associated with various emotions, including regret. In my work with traders and in my own trading, I’ve seen the incredible power of regret. There’s a lot of talk about fear and greed in trading, but the power of regret is often overlooked. Some of my own worst trades, and those of my clients, often have a ‘regret from missing a prior opportunity’ component. When I finally finish my book on the psychology of financial risk taking, I will include much about this overlooked but very powerful emotion. (more…)
1) Becoming Overly Focused on P/L During Trading – Watching your profits or losses tick up and down during a trade; becoming anxious about P/L and letting P/L, not a trading plan, dictate when you get out of a trade. It’s a recipe for performance anxiety. By focusing on process goals rather than P/L, you can stay grounded in good trading practices and minimize performance stresses.
2) Trading Much Larger After a Series of Winning Trades – It is common that traders become overconfident after a series of wins and decide to increase their risk by a factor of two or more. This often leads to large losing trades that wipe out much of the profit, generating frustation and discouragement. Just as it doesn’t make sense to plow into a trade after a large move has already occurred, it doesn’t make sense to plow into risk after a series of profitable trades.
3) Failing to Learn From Losing Trades – Traders often want to put losses behind them and not dwell on negatives. The downside is that they don’t learn from their losses and thus miss opportunities to understand what’s happening in markets and what they might be doing wrong. This is especially important following a series of losing trades: either you’re not seeing the markets well, or you’re not acting well on your perceptions. Both scenarios offer learning opportunities that can help generate profits down the line.
It’s common to think of trading as a stressful occupation, but much of the stress is self-generated. By staying focused on “best practices” in trading, we minimize fear and frustration and build confidence in our development.
I would say one lesson we all need to learn is that after you’ve had a great success, you really should be very worried. Let’s say you sell and say you’ve made 10 times on your money. You should be extremely worried. You should close the curtains, not read, look at the TV, or anything because that’s when you’re full of hubris, arrogance, confidence. You think, “God, this is something easy,” and you’re desperate to jump around to something new. You should do your very best to avoid making another play until you’ve calmed down a lot. Just wait. It’s a very dangerous time for any investor.Likewise, if you take a huge loss and there’s a big panic and things are dumped on your head because you’re overextended or wrong for whatever reason, calm down, don’t say, “I’m never gonna invest in stocks again or commodities or whatever.” That’s the time you really should be willing to invest again if you can gather together some capital money. The investments can be terribly emotional. You have to figure out a way to control your emotions and deal with your emotions if you’re going to survive in these markets.
My advice is that, most of the time, most investors should do nothing. They should look out the window or go to the beach. You should wait until you see money lying in the corner and all you have to do is go over and pick it up. That’s how most investors should invest. The problem is we all think we need to jump around all the time and be jumping in and out and that’s not good. (more…)
I really like this visual because if you turn your head enough it looks like a face hitting the wall. Not sure if that was intentional but that is how I would best describe what trading is like when you are new and/or struggling.
There are subtle but important difference. Yes there are no clients or employees but that means that you have to rely on your own feedback mechanisms. Money is not as effective as one would think.
Initiation- Every trader comes in thinking they will make money, in fact if they have never traded, they probably have convinced themselves fully. They spend time looking for all the answers in charts but it is in the process. It seems like easy money. It is not easy but it is probably the best way to make money. The best of anything takes more work.
Wearing off of novelty– This is a critical time for any trader. This is where the hole gets deeper or ideally the trader stops and starts to work more efficient. Process and not charts. This is the motivation to understand what trading really is and who they really are.
Trough of sorrow- This is also a critical point. Now you have done some work but it has not paid off yet. Do you keep working? Do you get some help? Can you continue to improve?
Crash of ineptitude- You are starting to gain some experience and confidence. But you have a bad day and lose too much. Back to the drawing table.
Wiggles of false hope- This is where you understand what not to do so you are floating along again. The problem is you are only starting to understand what to do. You have corrected the big mistakes and now start down the path of correcting the small ones.
The promise land- Now you understand what not to do and what to do. Now it is up to you to actually do it. You are in the best position of your trading career.
Acquisition of liquidity- Now you are a self sustaining trader. You have the ability to make x amount of dollars to survive. This is what you have to lean on now. This is when trading begins to get real. You are methodically improving.
Upside of buyer- Not only do you understand what not to do and what to do, you always do it. Now the sky is the limit. You control your destiny.
The difference between trading and a start up is you are not looking to be acquired. You have to do this day in and day out, make a career. This does not stop but the process and progressions become second nature and you are seeing positive results. This is not the time to relax but the time to put the foot on the gas pedal. This is true about all of the stages except the first one.
Trading is also different in that any day you can put yourself back into one of the stages. That is why it is important to never forget that the purpose is to make money. As you gain experience you will spend less time in the early stages. The early stages will start to feel like touching a hot stove. You will recognized the situations more quickly and have the strength to make a change immediately.
Initiation- Every trader comes in thinking they will make money, in fact if they have never traded, they probably have convinced themselves fully. They spend time looking for all the answers in charts but it is in the process. It seems like easy money. It is not easy but it is probably the best way to make money. The best of anything takes more work.
Wearing off of novelty– This is a critical time for any trader. This is where the hole gets deeper or ideally the trader stops and starts to work more efficient. Process and not charts. This is the motivation to understand what trading really is and who they really are.
Trough of sorrow- This is also a critical point. Now you have done some work but it has not paid off yet. Do you keep working? Do you get some help? Can you continue to improve? (more…)
Control is the ultimate goal. Getting control is, in my eyes, a 6 step process: |
Having confidence in a trade is easy. You do not know what is going to happen, blinded by opportunity. Every trade is new. Easy to convince yourself that this time it will be a winner. This takes no effort other than convincing yourself. This is what is described in first circle. You can look at a chart and imagine you can do it. Hindsight. As a new trader I was very confident, but I was confident in myself.
Having confidence in trading is much harder. It requires you to have confidence in every trade. You have to look at a series of trades and results not just one. True confidence comes from a trading plan and process. This is what describes in his second circle. Hindsight cannot be used. This is about execution. Execution does not lie and you cannot hide from it. As I matured I had confidence in myself as a trader after doing the work.
“You must practice being a successful trader first. From that state of mind you will get information about what to do, and that will produce what you want to have.”
“Excellence is about stepping outside the comfort zone, training with a spirit of endeavor, and accepting the inevitability of trials and tribulations. Progress is built, in effect, upon the foundations of necessary failure.”
“Amateurs keep thinking what trades to get into, while professionals spend just as much time figuring out their exits.”
“Confidence doesn’t come from being right all the time: it comes from surviving the many occasions of being wrong.” Brent Steenbarger, The Daily Trading Coach “When you attain some degree of control over yourself, you can then see how other traders are not in control of what happens to them.”
* How many of your trades today (or this week) had an explicitly defined risk and reward?
* How many of your trades today (or this week) did you execute according to the defined risk and reward?
* How many of your trades today (or this week) were based upon clear market patterns and a clear identification of how the market was trading?
* How many of your trades today (or this week) were placed out of fear of missing a move? Out of frustration following a loss? Out of boredom in a slow market?
* How many of your trades today (or this week) would you place again if you had the same circumstances?
* How many of your trades today (or this week) came from advance planning and preparation?
* How many of your trades today (or this week) were sized properly, given your level of confidence in your ideas and your desired risk management?
* What did you learn today (or this week), and how will you put that learning to work tomorrow (or next week)?
* How did you feel about your trading at the end of the day (or week)? Proud? Disgusted? Regretful? Satisfied?
* What can you do tomorrow (or next week) to feel proud of and satisfied with your trading?
