Despair = Losing Money – Trading Better Do not despair look at your losses as part of doing business and as paying tuition fees to the markets. Disappointment = Expectations – Reality Enter trading with realistic expectations. You can realistically expect 20%-35% annual returns on capital with great trading after you have experience and have done the necessary homework. More than that is possible but you will have to be one of the very best to achieve greater returns than this. Regret = Disappointment in a loss+ Caused by lack of Discipline If you followed your trading plan and lose money because the market did not move in your direction so be it, but if you went off your plan and traded based on your feelings and opinions then you should feel regret and stop being undisciplined. Enjoying your Trading = Winning Trades – Fear of Ruin Trading is much more enjoyable when you are risking 1% of your capital in the hopes of making 3% on your capital with a zero chance of ruin. It is not enjoyable when you are putting a huge percentage of your capital on the line in each trade and are only a few bad trades away from your account going to zero. Trading Wisdom = Understanding what makes money + Years of successful trading To get good at trading you have to trade real money. Wisdom comes from putting real money on the line for years and proving to yourself that you can come out a winner in the long term. Faith in your system = Belief through back testing + Experience of winning with it for years Whether any individual trade is a winner or loser should not influence your faith in your system and trading method. You should trade in a way that each trade is just one trade out of the next 100. Much of emotional trading can be overcome when you do not have doubts about your method. When you hold an almost religious fervor over believing in your method, system, risk management, and your own discipline you will overcome many of the emotional problems that arise in the heat of action during a live market. |
Archives of “disappointment” tag
rssDoubt and Disappointment
We all want certainty both in and outside the charts. Problem is certainty is nothing more than hope wrapped in expectation. Life is uncertain. A successful trade is uncertain. If certainty is what we want then certainty we will get. However, be prepared to meet certainty’s friends, doubt and disappointment. Doubt and disappointment are, shall we say, in “cahoots” with certainty. You can’t have one without the other. This is a blessing really that we all too often turn into a curse. A blessing because we have two new friends who can help keep us balanced, honest, and above all, human. A curse because we choose to ignore their advice when we should be embracing it. Embrace it you say? Yes. Because doubt and disappointment can lead to new discoveries and a deeper appreciation for what life has to offer. Maybe, just maybe, what we believe to be certain, you know, that which we wrap up in hope and expectation, is not so certain after all. Maybe, just maybe, our friends doubt and disappointment can lead us down a better path and a better life. Maybe, just maybe, doubt and disappointment can teach us a new understanding about the markets and the charts, wherein we pin so many of our hopes and expectations.
What a ride this market has been on! No roller coaster can compare. And the ride is far from over and triple digit days will continue for some time. Today could easily be a triple digit day to the upside or downside or both! Who knows? We have no certainty about where this consolidation will end and in what direction. All I know is when a certain trend begins we will still be faced with doubt and disappointment, either because we doubt the new trend or are disappointed that the direction is not quite what we expected, when we expected it. Then again, nothing in the market is quite what we expect. Don’t be surprised if the market does exactly the opposite of what you want or expect. If you are certain of its direction…I have two friends to introduce you to.
Emotions & Trading
he hardest thing about trading is not the math, the method, or the stock picking. It is dealing with the emotions that arise with trading itself. From the stress of actually entering a trade, to the fear of losing the paper profits that you are holding in a winning trade, there are many different types of stress. How you deal with those emotions will determine your success more than any one thing.
Here are some examples of emotional equations to better understand why you feel certain emotions strongly in your trading:
Losing Money and failing to learn to Trade Better results in Despair.
Do not despair look at your losses as part of doing business and as paying tuition fees to the markets. If you are getting better at trading do not despair even if you are losing money.
When Expectations clash with Reality it causes Disappointment.
Enter trading with realistic expectations. You can realistically expect 20%-35% annual returns on capital with great trading. More than that is possible but unlikely. (more…)
Trader's Emotions
Despair = Losing Money – Trading Better
Do not despair look at your losses as part of doing business and as paying tuition fees to the markets.
Disappointment = Expectations – Reality
Enter trading with realistic expectations. You can realistically expect 20%-35% annual returns on capital with great trading. More than that is possible but unlikely.
Regret = Disappointment in a loss+ Caused by lack of Discipline
If you followed your trading plan and lose money because the market did not move in your direction so be it, but if you went off your plan and traded based on your feelings and opinions then you should feel regret and stop being undisciplined.
Enjoying your Trading = Winning Trades – Fear of Ruin
Trading is much more enjoyable when you are risking 1% of your capital in the hopes of making 3% on your capital with a zero chance of ruin. It is not enjoyable when you are putting a huge percentage of your capital on the line in each trade and are only a few bad trades away from your account going to zero.
Wisdom = Square Root of Experience through years of successful trading
To get good at trading you have to trade real money. Wisdom comes from putting real money on the line for years and proving to yourself that you can come out a winner in the long term.
Faith in your system = Belief through back testing + Experience of winning with it for years
While you have to hold the opinion of whether each trade is a winner or loser it is different for your trading method. A lot of emotional trading can be overcome when you do not have doubts about your method. When you hold an almost religious fervor over believing in your method, system, risk management, and your own discipline you will overcome many of the emotional problems that arise with other traders in the heat of action.
Unavoidable Disappointment
If you’re trading for emotional satisfaction, you’re bound to have lots of problems and continue to struggle, for two reasons. First, often that what feels good is often the wrong thing to do. Second, the game of trading, and it is a game in many respects, involves being disappointed fairly often.
Even for profitable traders a certain number of trades will lose money, and even the winners don’t always work perfectly or match your exact expectations.
As a trader, it’s impossible to avoid disappointment, not every trade is going to work. You get stopped out and then see the trade go on to work without you, or you hesitate and miss the move, or you exit early to book profits and watch the move continue without you. When you think about it, trading involves a lot of disappointment. I cannot think of any other job that involves disappointment on such a regular basis. Even the most successful traders experience this. No way to escape it.
When you experience a lot of disappointment you’re going to experience a high degree of stress. And when stress overwhelms you…and by the way, stress can masquerade as performance anxiety or pressure to succeed, the emotional part of your brain will run right over the logical analytical part of your brain. You’ll know when that happens because that’s when your rules go out the window or you veer from your plan and you take a revenge trade or an impulse trade or you freeze up and hesitate. (more…)
Greed, Fear and Irrational Behaviour
Where trading and investing in stocks, options, futures, forex, etc are concerned, there is no doubt that people have a tendency to behave strangely. Exhibiting irrational behaviour is common. People come up with all sorts of reasons and excuses for the way they are behaving, even while subconsciously admitting that they are deviating from their plan without valid reason.
The field of Behavioural Finance attempts to interpret and understand why people behave the way they do with financial activities. It is an investigation of how people’s decisions are affected by cognitive errors and emotions.
Some key points in Behavioural Finance are:
- The ‘Fear of Regret’ – where people beat themselves up about incorrect decisions or errors of judgement. They avoid this pain by holding onto positions that are moving against them, despite the intelligence that they should exit the trade while the loss is small.
- People are more upset by potential losses than pleased by wins.
- People perceive chance wins as trading success.
- The more people win, whether by method or luck, the more confident they become. This is very dangerous for those who win by luck.
- People are more exuberant and optimistic on bullish days and depressed and pessimistic on bearish days.
- People tend to make irrational decisions reflecting biased or wrong beliefs. People have a tendency to cling to beliefs, even when presented with evidence to the contrary. (more…)
3 Types of Confidence
I see three types of confidence among traders:
First, is what I call ‘false confidence’ That’s the person who talks big and poses like a big shot. This type of person often takes big risks in an effort to either impress others or to assuage their own discomfort, and the results can be terrible.
Next, there is temporary confidence, which is conditional on recent performance. This is the person whose self-esteem is tied to their account equity or P&L. When on a good run, they feel confident and take larger risks (often the prelude to giving it all back). And when performance is lousy they start grasping at anything, maybe exiting winners prematurely or taking on excessive risk to get their money back.
Finally, we have true confidence. This is confidence that does not depend on recent results. It is based on a deep sense of inner trust. This is the person who has a history of doing the right thing, regardless of the outcome. Doing the right thing in the sense that they act in their own best interest and trust and understand that doing such over time has a positive impact on results. The trust runs deep enough to provide resilience in the face of disappointment. This is true self-confidence, the kind you want in trading and in life.
Almost everyone says that discipline is a requirement to succeed in trading. But most people never talk about what really underlies that type of discipline. The answer……true self-confidence.
Is Your Self-Esteem Tied To Your Account Equity?
Does your self-esteem rise and fall with your account equity? If so, your probably in for some difficult times ahead with you’re trading. For some traders, a trade is more than a 
trade, it can represent how successful they are as a person, how much status they feel, etc. When your self-concept is closely tied to your trading outcomes the result is a yo-yo effect in terms of your self-esteem and your internal state. And our internal state has a lot to do with how well we trade.
Trading already involves a lot of uncertainty, and tying one’s sense of self-worth to the ups and downs of trading is unnecessarily adding emotional volatility to the picture and is usually not a good idea.
Most traders need to work on being more resilient in the face of disappointment. Trading will always involve disappointments, its part of the territory. A delicate balance between being fully engaged in the trade with a ‘watchful curiosity’ and without being overly attached to the outcome, is how many successful traders describe their internal state.