Archives of “emotion” tag

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The wrong ways to trade

  
  Education
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Without a plan. Get one already. It does not have to be good right now. I have been accused more than once of always thinking I am always right. I am just confident. The only reason I can be confident is because I am willing to change if the information changes. I have to admit I am wrong a lot. You will have to admit your plan is flawed too.

Without good notes. The market changes very fast. The brain is over stimulated, especially in the beginning. Your recall of events will be better if you write them down. The goal is to learn the most, the cheapest. At the end of the day when you review the charts you will not believe you took that trade. There will be something that you missed that could have helped you to act differently. It is your job to make sure it does not happen again, good notes help.

Not maintain trading environment equilibrium (TEE). Have you ever said or done something that you were not proud of because of emotion? What if you could stop time, take a few breathes, evaluate the situation and then act? You have that opportunity in trading, use it. They say that you regret not saying or doing something when you have a chance. That does not apply to trading. Those situations are a few in a lifetime type situations. No trade is more important than another unless it is your last. Let me say that again, no trade is more important than another unless it is your last. Yes you are going to miss the “winner” but it was hypothetical.

Losing more than you budgeted. Every Rupee counts, for every Rupee you lose you have to make another to get to even. This is not a normal transaction, you are not guaranteed anything other than experience. You should be a better trader tomorrow. There is nothing worse than having to have your “best day ever” to get back to even. Sometimes you are wrong, sometimes your system is broke, be able to trade tomorrow. Tomorrow may be next week.

Not having risk capital. If the market has to go your way a certain amount for you to pay your mortgage you are in trouble. The mind goes from reacting to what is there to hoping and praying. It may work from time to time but it is not a dependable strategy.

To summarize. There are no right ways to do anything, there are more efficient ways but that is based on experience. There is a path to failure, fight those battles. Call your father or those that have/ had a positive effect on you and thank them.

False Beliefs About Trading the Markets

  
  Education
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1) What goes up must come down and vice versa.

That’s Newton’s law, not the law of trading. And even if the market does eventully self-correct, you have no idea when it will happen. In short, there’s no point blowing up your account fighthing the tape.

2) You have to be smart to make money.

No, what you have to be is disciplined. If you want to be smart, write a book or teach at a university. If you want to make money, listen to what the market is telling you and trade to make money — not to be “right.”

3) Making money is hard.

Nope. Sorry. Making money is actually easy. Statistically, you’re going to do it about half the time. Keeping it, now that’s the hard part. (more…)

Dealing With Losses

  
  Education
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A few quick caveats:

  1. There is no place for denial in successful investing.
  2. Don’t blame your losses on bad luck or outside manipulators.  Accept the responsibility yourself.
  3. Don’t be dependent upon trading for all your fulfillment and happiness.
  4. Focus on opportunities, not on regrets.
  5. Proper risk control and discipline is non-negotiable for every trade everyday.
  6. Revenge trading – trying to make back a loss – carries with it far too much emotion and is always costly.
  7. Poor money management skills are the number one reason that novice traders wash out.
  8. Learn to recognize your impulsive state of mind and take action to stop it.

Even the best traders in the world book small losses on a regular basis.  If you manage your emotions with consistency and if you strive for a disciplined trading mindset, then you should have no problem surviving a string of bad trades and showing profits at the end of the year.

Basic principles for Traders

  
  Education
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Many of you spend too much time worrying about things like other peoples trading signals, what price pattern it is you are looking at, which strike price to select, how to read implied volatility, etc when you haven’t constructed the basic tenets of portfolio management or asset allocation.

Shame on you.

To your defense, I can’t make any assumptions when I have no idea what your time frame is, what your financial standing is, your risk tolerance, your investing objectives, or anything else looks like about you. What I do know is this… I don’t care who you are or what you are trying to accomplish, you will not last long in the pursuit of becoming a decent trader without creating a firm foundation of these basic principles, which are…

Risk management- Plan your loss before planning your profit.

Diversification- Be bullish, be bearish, be involved in various groups/markets.

Proper Position Sizing- Trade small, trade safe.

Effective Trading Plan- Make sure your plan works, and/or makes money.

Cutting Losses Short- Enter a trade that offers a small loss.

Letting Winners Run- Don’t kill your winners.

Curbing Your Emotion- This is a bi product of trading small.

Desire and Fear in Trading

  
  Education
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Desire and fear alternate in the minds of traders as they go through the day.  But let me ask you whether desire or fear dominates your thoughts and feelings as you trade? 

For many traders the primary emotion is fear.  They fear loss: losing profits, losing money, losing equity and even their margin.  Some fear losing their touch, their feel for the market, their focus, their luck, the respect of their boss, colleagues, or mate, or worse, their own self esteem.

Other traders are flooded with the emotion of desire.  They look forward to what the day will produce.  They like the thrill of the chase.  They have a sense of unlimited potential and abundant opportunities for profit.  They anticipate improving their skills, intuition, and understanding as they go through the trading day and week.

Keep in mind that desire is not greed.  Greed is an inordinate wanting.  It is excessive desire and comes from a sense of scarcity, a feeling that there is not and will not be enough.  Desire is healthy: greed is unhealthy.

What you feel depends upon your mental focus.  Do you place your conscious and unconscious attention on the possibility of loss or the probability (hopefully) of gain?

What you hold in your conscious attention colors your reality and becomes the quality and fabric of your life and trading. In your life, do you look for what’s missing, or do you pay attention to what you have and can create?  Do you think about terrible things that have happened and could happen again, or do you think about wonderful experiences you’ve had and expect even better things ahead?  Trading is a microcosm of life.  What you do in life, you’ll do in trading. (more…)

Resolutions For 2012

  
Education, Life
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Resolutions On Trading & Investing:

  • Define my trading plan and stay with it.
  • Take no trades without establishing a complete and precise trading plan before the initial trigger.
  • Keep an open mind for new market scenarios based on what the price action and pattern setups provide.
  • Always trade with the trend.
  • The less trading I do, the better my results so for 2012 I’m adoping weekly/monthly time frames
  • Once I am in a trade, stick with the original plan for target and stop-loss – Don’t panic!
  • Make every trade meet the strategy requirements and what happens from there is up to the market.
  • I need to exercise greater patience in both buying and selling.
  • Be more willing to take a position, even if it is very small. It is tough though to gain the confidence to do so as the market has been tough.
  • I am NOT going to overtrade. I will only make “A” trades.
  • Don’t ever force a trade, stay in cash when unsure.
  • I resolve not to violate my stops.
  • Wait for opportunities instead of looking for trades.
  • Do not make a move until your indicators say so.
  • Follow this important Gartman rule: “Do more of what is working and less of what is not.”
  • To clarify my trading approach in my mind and in writing.
  • Be dispassionate and thoroughly objective when evaluating positions.
  • Do not be afraid to cut a loss, even if the trade is later re-entered at a higher price / better set-up
  • Never trade on impulse.
  • To memorize and practice the cardinal rules of trading.
  • Only trade when you can pay very close attention or exclusive attention to the market.
  • Dedicate more time during non-market hours to prepare for trading.
  • Take emotion out of my trading. Follow price action.
  • I need to overcome my unreasonable fear of the market.
  • Try to avoid personal bias in making decisions.
  • Wait for pattern to work out – do not jump the gun.
  • Don’t be in such a damn hurry. Wait out the times when the setup is just not there.
  • Avoid buy and hold in times of high market volatility.
  • Actually ignore the news and trade the charts! It’s harder than it sounds.
  • Don’t force the trade. The market will open again tomorrow and there will be new opportunities.
  • Don’t turn a trade into an investment. Continue to focus on price action.
  • Approach each trading day well-rested, of clear mind, and with a positive, opportunistic attitude just like Kirk

 
Resolutions On Learning:

  • Learn to do 1-2 things very well and focus.
  • Write the plan for the year ahead. Specify initial position, goals, entrance and exit strategies for action, identify risks to take and manage.
  • Study more on the weekends to prepare for the upcoming week.
  • I will be more diligent in keeping a journal of EVERY trade made in the year.
  • Quit searching for the holy grail of trading – there is none.
  • Turn off CNBC and all other distractions in the way of my success
  • I will keep good records and document all of my research, trades, and outcomes.
  • Use the right side of my brain and be careful of the left.
  • Do not blindly follow anyone else.
  • Accept failure and move on.
  • Methodically analyze what went right and wrong on each trade.
  • Spend more time nightly looking at charts.
  • Learn 10 new chart patterns this year and trade only setups identified by those patterns.
  • Apply a consistent decision tree toward every single trade.
  • Tune out the noise. No calls during the day. No more “experts”, no more TV and definitely, absolutely and without a smidge of doubt no more twitter.
  • Transition from paper trading to live trading.
  • Need to read more charts and read less newspapers.
  • Assess my strengths and what is working well for me and determine how I can improve. Also, assess what does not add value and eliminate it.
  • Stay with low risk, probability based methods.
  • Every trade I take requires a one page description of why, how, and at what levels I intend to take action.
  • Paper trade new ideas before putting real money at risk.
  • Study and read more, establish a trading plan, follow the plan, experiment, re-evaluate and keep learning.
  • I resolve to improve myself by: managing my emotions better, become more patient and understanding, define my goals more completely, and constantly review my efforts to these accords.
  • My resolution would be to trade/invest during all market conditions. Emotion still has some control over my investments.
  • Work on consistency!! (more…)

Emotions as Information for Traders

  
  Education
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Start with a premise: Suppose you were empathic and could experience the emotions of the trading crowd.

You could feel their fear.
You could sense their greed.
What they felt, you felt.
If that premise were true, then emotion would not be something you would fight, ignore, or minimize.
Nor would emotion be something you’d blindly follow.
For the empath, emotion would be information: valuable information. It would be an indicator no less than market price or volume.
How would it change your trading to view every trading emotion as information to be scrutinized? How would it change your experience of your trading? 
Amazing what a difference a premise can make.

Be Unemotional

  
  Education
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UnemotionalIf you have ever played poker, you will know the high of going “all in”. Your heart is racing like there’s no tomorrow, and you are hoping and praying that the cards will go your way. It’s the thrill of knowing you can double your money in a few moments and also knowing it can all disappear if things don’t go your way.

This type of excitement should not exist in any form in your trading. If you are a thrill seeker, go skydiving. If you are a gambler, go to a casino. If you are afraid to lose money, open a savings account.

Successful Day traders do not let their emotions interfere with their trading. Too often, we let fear, greed, or pride get in the way.

Fear

Fear will prevent you from making the right trades and make you lose out on immense opportunities. Fear stems from lack of knowledge and proper education. You are afraid because you can’t see that a trade is the right trade since you don’t know what the right trade looks like. Once you acquire the knowledge and training, you can begin to trust your decisions because they are based on facts and not emotion.

Greed

Greed is another emotion we must overcome to be successful. Many beginners experience “beginners luck”, and come out on top on their first few trades. Then they start believing that they should have traded with more money so their profits will be larger. So on the next trade, they trade with a large sum of money and they lose it all. Logic will dictate that they should trade with a smaller amount the next time around since they have less capital now. Unfortunately, humans are not logical creatures. Our greed takes over, and we start believing that if we put in more money, we will make up for the lost amount, and come out on top. Sadly, this cycle can only continue until you are completely out of money. The worst thing that can happen to a beginner trader is to have a successful first trade. (more…)

FEAR

  
  Education
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No, not the fear you’re thinking of, the other kind of fear, the fear of missing out.

Many people believe there are two emotions that traders feel, fear and greed, I disagree, it’s only fear.  The fear of loss and the fear of not having enough.  There’s a difference between being greedy and being fearful of not having enough, and it’s important.  Greed is defined by the excessive desire to possess wealth or goods.  Synonyms include lust and gluttony.  The fear of not having enough is very different, and I believe that is what drives market participants.

Trading is inherently a competitive exercise.  We look across the desk at the guy next to us and see that he made X amount of dollars today and we made less.  We look at the major averages as benchmarks, we listen to people taking profits on our StockTwits stream and feel both happy for them and wanting to punch them in the face for making a better trade on the same stock.  It’s only natural.  And when the market is moving well, not being involved while everyone else is, while your benchmark is climbing, traders can feel a considerable amount of fear.

I’ve felt this many times, the fear of not having enough.  And I’ve become pretty good at gauging both my own emotions regarding this and the pulse of the market as a whole.  Many times this emotion can be seen exhibited in the price action through a blow off top where price accelerates at the end of a big move and then reverses sharply.  Intermediate term swing and position trading is about staying with the trend and not getting shaken out, while managing your risk well. (more…)

Self awareness for Traders

  
  Education
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1) the recognition that our thinking and our emotions are intertwined and both influence our perception and judgment that leads to our decisions and actions (this view also happens to be consistent what the leading brain scientists are now saying)

2) much of our motivation – the intertwined thinking/emotion that drives our behavior – is actually subconscious, e.g. we assume we are trading the market but on other levels we are also trading our P&L and our feelings about our P&L  (and what our P&L represents to us) is just one example.

3) when we understand (self-awareness) the underlying/subconscious motivation for our behavior we are in a better position to choose an alternative.

Obviously, nothing can guarantee change or improvement (contrary to many claims made by pseudo “experts”), but at least an approach that emphasizes expansion of awareness puts the odds in your favor.

And I have to play the probabilities here. Because more people tend to respond to a change process that includes an emphasis on self-awareness, I choose to use this  approach in my own trading and in my coaching….it simply has the highest probability
of actually helping.

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