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Inside the Mind

  
  Education
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When I impulsively take the first type of countertrend trades (i.e. missed a good trend), here’s what is going through my mind:

  1. Woah, the move has already gone quite a distance.
  2. Sigh, I should’ve taken that entry earlier. I shouldn’t have followed my trading plan so strictly.
  3. Should I get in now? No, I cannot get in any more, I cannot chase the market, it’s too risky, I have no logical stop nearby, you don’t know when it might reverse down quickly.
  4. I have already missed the move. I need to wait to enter in the opposite direction when the trend ends.
  5. The trend has gone too far, it must turn soon
  6. Look! There’s a bit of resistance, the trend is about to turn, go short! (for an uptrend)

And the countertrend trade is made! Below are what I think are the psychological process at work:

  1. Observation
  2. Regret
    • Trading is always full of regrets. You always think you can do better.
  3. Indecision, uncertainty, anxiety
    • Fear of losing out starts to take hold.
    • When you don’t have a well-defined trading plan that caters for all scenarios, or if you don’t believe in your trading plan, you will face indecision and anxiety.
  4. Resignation
    • I  accepting that I can no longer enter in the direction of the trend.

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1+14 Mental Behavior of Traders

  
  Education
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  1. Boredom: The trader wants some “action” so they put on a trade. Trades are for when entry signals are hit not to alleviate boredom.

  2. Pessimism: The trader starts to have a negative attitude about losing money. Be positive if you are learning form losses becasue you are paying tuition for this education.
  3. Frustration: Frustration comes from expectations not being met. Don’t focus on your P& L, focus on executing your trading plan.
  4. Overwhelm: Focus and simplicity are the keys to profits, complexity and lots of information are the road to be overwhelmed and unprofitable.
  5. Disappointment: Disappointment should not come from losing trades, disappointment should only come because of a lack of discipline in trading your plan.
  6. Doubt:Only trade a system AFTER you have thoroughly researched, back tested, or studied it in real time. Trade only with proven faith in a system, naive hope quickly leads to doubt and failure. (more…)

OPTIMISTIC & PESSIMISM in Trading

  
  Education
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PESSIMISM 

Pessimism is defined as a tendency to stress the negative or unfavorable or take the gloomiest possible view.  Obviously, the successful trader is not pessimistic. If so, then he would never trade in the first place or if he did, he would only trade short; a “permabear” if you will.  A purely pessimistic trader would also doubt his edge, doubt any market direction, only trade after the move has happened, cut his winners short while allowing his losers to run, overtrade, under invest, etc etc.  In other words, a purely pessimistic trader would break all the rules.

OPTIMISM

Optimism is defined as the inclination to anticipate the best possible outcome while believing that most situations work out in the end for the best.  The unsuccessful trader, especially the beginning trader, is optimistic about getting rich in the stock market.  No matter what every trade will eventually make money he reasons.  The optimistic trader also loads up on a “sure thing”, seeks to justify every trade via confirmation bias, adds to losers, brags about winners while hiding losers, refuses to develop as a trader, etc etc. Just as with pessimism, the optimistic trader breaks the rules.

Inside the Mind

  
  Education
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When I impulsively take the first type of countertrend trades (i.e. missed a good trend), here’s what is going through my mind:

  1. Woah, the move has already gone quite a distance.
  2. Sigh, I should’ve taken that entry earlier. I shouldn’t have followed my trading plan so strictly.
  3. Should I get in now? No, I cannot get in any more, I cannot chase the market, it’s too risky, I have no logical stop nearby, you don’t know when it might reverse down quickly.
  4. I have already missed the move. I need to wait to enter in the opposite direction when the trend ends.
  5. The trend has gone too far, it must turn soon
  6. Look! There’s a bit of resistance, the trend is about to turn, go short! (for an uptrend)

And the countertrend trade is made! Below are what I think are the psychological process at work: (more…)

How to Handle a Justifiable Loss

  
  Education
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  • Accept the loss and forget about it.
    • Record it in your record book and do not rehash it.
  • Do not discuss the loss with anyone.
    • Do not recruit anyone’s sympathy or sorrow.
    • Do not feel sorry for yourself.
    • Do  not soothe your loss by going overboard on food, drink, or sex.
  • Do not feel as if you have been punished.
    • Do not punish or hate yourself for losing.
    • Do not allow yourself to accept any punishment from loved ones.
    • Do not accept ridicule or blame from your broker.
  • Do not blame your trading system.
    • Do not alter your technique, system, or methods.
  • Do not fear making the next trade
    • Do not respond by allowing your market studies to fall behind.

Dr.Elizabeth Lombardo, Better Than Perfect-Book REVIEW

  
  Education
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BETTER THAN PERFECTPerfectionism as it is usually understood can be a terrible curse, especially for a trader. It leads a person to act out of fear rather than passion—and sometimes not to act at all (why bother? I’ll botch it anyway). The perfectionist has both an “incessant drive to control the future” and “the unsatisfying feeling that, no matter how hard [he tries, he] will always come up short.” (p. 7)

In Better Than Perfect: 7 Strategies to Crush Your Inner Critic and Create a Life You Love (Seal Press, forthcoming September 23) Elizabeth Lombardo, a clinical psychologist and author of the national bestseller A Happy You, tackles the problems perfectionists create for themselves and suggests ways to overcome them.

For the most part Lombardo’s solutions involve reframing attitudes and motivations. Take the fear/passion dichotomy. “When you are fueled by fear, you focus on what you don’t want. Your goal is to do everything in your power to reduce the possibility of an undesired outcome. … Just by switching your perspective from one of fear to one of passion—working toward a desired outcome instead of avoiding an unwanted result—you can begin to feel more motivated, engaged, positive, and hopeful.” (p. 50)

Perfectionists are inclined to compare themselves to others and to judge themselves negatively. Of course, it’s not only perfectionists who do this; they are simply more intensely competitive. As Lombardo says, “Perfectionists don’t just want to ‘keep up with the Joneses,’ they want to kick the Joneses’ butts!” (p. 185) Well, that sounds more like trader talk; maybe a dose of perfectionism is actually a good thing, at least professionally. Lombardo admits that “many champion athletes, prominent scientists, and celebrities demonstrate perfectionist traits.” (p. 6)

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Benedict Carey,, How We Learn-Book REVIEW

  
  Education
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Benedict Carey, a science reporter for The New York Times, has written a fast-paced, well-structured book that should have broad appeal. How We Learn: The Surprising Truth About When, Where, and Why It Happens (Random House, forthcoming September 9) not only summarizes a wide range of research findings that challenge traditional views but offers useful tips for both teachers and students.

BENEDICT

For instance, most people do better if they break out of routines—if, for example, they vary their study or practice locations. Distributed study time is more effective than concentrated study time. Mixing multiple skills in a practice session sharpens our grasp of all of them. Forgetting is critical to learning. And sleep—well, we all know the value of sleep to learning and creating.

Of particularly interest to traders may be the chapter entitled “Learning Without Thinking: Harnessing Perceptual Discrimination.”

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8 Words For Traders

  
  Education
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1. CONFIDENCE: absolutely essential in an environment that feeds on emotional    instability.
2. TRUST: if you cannot trust yourself who can you trust? Trust your rules, trust your edge, trust that you will do the right thing-no matter what!
3. FOCUS: you will never learn all there is to learn about the market.  Push your ego aside and focus on one market and one edge.
4.  ACCEPTANCE:  you have to accept what the market is willing to give or you will give the market what it wants to take.
5.  RESPONSIBILITY: you and you alone are responsible for the money you lose and the money you make.  Take the credit for both.  Either way you deserve it.
6.  PATIENCE:  The market is not the place to learn patience, it is the place to practice it.
7.  RULES:  the market has no rules and no one else will do it for you. Develop rules for entering AND exiting trades before trades are made.
8.  RESPECT:  you have to respect the market for what it is not for what you want it to be.  The market has a logic all its own.  You may not like it but you have to accept it.

AN ATTITUDE ADJUSTMENT

  
  Education
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Whether it is a child, a spouse, friend, neighbor, or an acquaintance, we have all experienced times where someone gets the best of us. No matter how hard we try to conceal character weaknesses, that other person causes us to lose patience, get angry, agitated, or frustrated. Even a loved one gets “under our skin” from time to time.  Most often, we blame the other person for our irritation and we let it show, thus exposing our own irrational way of dealing with the situation.  We end up being the one who looks out of control.  What is really ironic though is that the one we are so upset with, you know, the one who “got under our skin” usually had no intent to evoke our irrational, immature, and out of control actions.  They are usually ignorant to the cause of our irritation.  When another gets under our skin it is best to look inside, not outside for the answers, knowing that it is our perception of current events that matter most. We should work on changing ourselves to better cope with others instead of trying to change others hoping they will better be able to cope with us!

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