Archives of “emotional pain” tag

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Six Insights for Disciplined Trading

  
  Education
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1) Trading is a probability game.  You can’t be a perfectionist and expect to be a great trader. Your losses (that you hope will return to breakeven) will kill you.

2) Jumping in too soon or getting in too late.  These mistakes come from traders not having a well-defined plan of how they will enter the market.  This positions the trader as a reactive trader instead of a proactive trader, which increase the level of emotion the trader will feel in reacting to market movements.  A written plan helps make a trader more systematic and objective, and reduces the risk that emotions will cause the trader to deviate from his plan.

3) Not taking profits on winners and letting winners turn to losers.  Again this is a function of not having a properly thought-out plan.  Entries are easy but exits are hard.  You must have a plan for how you will exit the market, both on your winners and your losers.  Then your job as a trader becomes to execute your plan precisely.

4) Great traders don’t place their own expectations on to the market’s behavior.  Poor traders expect the market to give them something.  When conditions change, a smart trader will recognize that, and take what the market gives. 

5) Emotional pain comes from expectations not being realized.  When you expect something, and it doesn’t deliver as expected, what occurs? Disappointment.  By not having expectations of the market, you are not setting yourself up for this inner turmoil.  Douglas states that the market doesn’t generate pain or pleasure inherently; the market only generates upticks and downticks.  It is how we perceive and respond to these upticks and downticks that determine how we feel.  This perception and feeling is a function of our beliefs.  If you’re still feeling pain when taking a loss according to your plan, you are still experiencing a belief that your loss is somehow a negative reflection on you personally. 

6) The Four Major Fears – fear of losing money, being wrong, missing out, leaving money on the table.  All of these fears result from thinking you know what will happen next. Your trading plan must approach trading as a probabilities game, where you know in advance you will win some and lose some, but that the odds will be in your favor over time.  If you approach trading thinking that you can’t take a loss, then take three losses in a row (which is to be expected in most trading methods), you will be emotionally devastated and will give up on your plan.

Trading is toil

  
  Education
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toilTrading is toil, especially because it’s already hard work in the first place to find a model, a “setup”, a strategy that actually works, but then you must adapt it, which is the very hardest part. Once you have a “love” (something that makes your trading profitable), whether it is a strategy, model, parameter, or setup, it becomes very painful to watch your love fade and die.

I know we shouldn’t personalize trading, but the fact is we (or I) develop an emotional relationship to our precious tools — every time I come across something worthwhile, after much toil, I feel so glad. I feel a sense of work well done. It’s a very pleasant feeling. And I cannot refrain from emotional pain when a market relationship I was profitably trading becomes weaker and eventually non-existent.

To adapt,  one must have the emotional strength to, after much toil, model a strategy, and say to yourself: “you may have no value in the future.”

Trading is strange, because it demands skills one would probably not wish to nurture if it wasn’t necessary.

5 Trading Mistakes & Destroy Yourself

  
  Education
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  1. 5-rulesInstead of cutting a loss the trader holds it stressing over it for the rest of the day or a week. This destroys the trader’s mental capital and inflicts completely unnecessary emotional pain. The first loss it the best loss.

  2. A trader that trades their opinion instead of the price action has a lower success rate than someone who just trades price action. The vast majority of traders make money by following trends and chart patterns not their own opinion.
  3. A trader who puts on the one big trade that they think they just can’t lose on is usually the one that blows up their account. A trader must always have stops and must always manage risk regardless of their belief in any one trade.
  4. Believing that you are right about a trade and the market is wrong is a sure path to destruction. The market is always right because price is reality. How do we know when we are wrong? We lose money that is proof enough.

  5. A trader who endlessly searches for stock picks and predictions instead of  learning how to trade a robust method while managing their own mind and using risk management is doomed to failure.

     

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