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Patience is a virtue

  
  Education
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As a professional trader I still get all the urges to system chase and break the rules as much as anyone, but the key is learning how to control those urges.

This week has seen some fantastic set ups in the market, and I have known which way the price would likely move thanks to the powerful tools I have at my disposal, but the problem has been that the price just hasn’t been retracing to the levels that I have been waiting at.

This can cause some people to want to just jump in because they have been right about the overall direction the last 10 times, or even worse some people may even be tempted to enter the market without using a stop loss thinking that the price will come their way in the end.

These urges and acting upon them show a lack of patience and discipline and this is what the market punishes the most. (more…)

Eight questions

  
  Education
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questions1. Are you willing to face your failures without recrimination?

2. Do you delude yourself with notions and rationalizations that you are limited by the nature of the marketplace or the tape?

3. Are you willing to acknowledge your successes, or are you afraid that others will be disappointed or hurt if you tell them you have succeeded?

4. Do you hold back from succeeding because of some childhood notion about not deserving to win?

5. Do you hold back in your trading because of a reluctance to let it be as good as it can be?

6. Are you held back by imagined restrictions placed on you by other obligations?

7. How much do you distort reality because of fear of the consequences?

8. How willing are you to commit 100 percent to being in the game?


It's not the trade, it's the battle.

  
  Education
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Too many traders believe that their last trade is a reflection of just how good of a trader they are (but they are the only ones who feel that way about themselves). This boils down to one word – expectation. If you expect to win all the time, or even the vast majority of the time, you’re setting yourself up for a lot of heartache. That frustration, though, is the very same force that will truly make your negative perception of yourself a reality. And even a good trade can be damaging if you let it warp your disciplined approach. The fact of the matter is that this is a game of odds, and should be played over a long period of time. Focus on the war – not the battle.

Jesse Livermore: Preparation And Experience Is Required For Success

  
  Education
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“Of course the same things happen in all speculative markets. The message of the tape is the same. That will be perfectly plain to anyone who will take the trouble to think. But people never take the trouble to ask questions, leave alone seeking answers. The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile.”

"TRADING WISDOM: ADDICTION TO PERFECTION"

  
  Education
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“One of the great evils of trading is false exactness…Trading is a fuzzy process and I mean fuzzy in the best sense of the word. That is, as in fuzzy logic, as in the willingness to accept the idea that things aren’t exactly quantifiable and to forge ahead anyway” –John Bollinger (creator of the Bollinger Bands)

 

 

Trading is not about perfection. It is about probability and progress. All charts, analyses (fundamental and technical) and trading plans are built on probabilities.

Why then, do so many traders strive for perfection? Why do so many traders miss trades, waiting for exactly the right entry and then beat up on themselves when it doesn’t come and the position runs away while they sit there scratching their heads and condemning themselves?


 

 

The answer lies in one of the cardinal sins of trading which is PERFECTIONISM.

Perfectionism can be a great help to people in many professions, but can be fatal to a trader. Perfectionists, always trying to find the Holy Grail of trading go from one service to another, from one system to another, looking for a way that they can be right all the time. YES! Now, I found it. It’s this trading room, or this service, or this indicator! Wait… something is wrong here. Not all of these trades are working and I have draw downs! How can it be that this particular method failed and I actually had to take a loss? Must be something wrong. I will try harder and look for an even better system, a more expensive service, a new and improved guru, some absolutely no-fail software so that I can have ONLY WINNING TRADES.

This is perfectionism in action. Not only does this type of irrational behavior and belief undermine and demoralize a trader, but it takes away all the enjoyment and fun of being in the markets. It leads to depression with depletion of psychic and physical energy, and leaves the perfectionist to confront his basic and overriding fear— fear of failure. In the extreme, it leads to physical and mental illness, including addiction to prescription drugs, alcohol, or illegal substances as well as other addictions. The pain of failure or the haunting fear of failure is simply overwhelming, and one turns to whatever works to medicate the pain. (more…)

Mental Toughness

  
  Education
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The mental part of the game. Its an aspect of trading that can easily be ignored, we all choose how we approach this game. Some see failures as opportunities to learn and progress, while others see them as outright failures and road blocks which should be avoided at all costs. Its all about attitude. 
 
I feel that trading should be ‘easy’ It should be effortless and without conflict. If we are going to be in this game for 20+ years. I feel its important to make the experience as easy as we can. We shouldn’t be ‘fighting’ with the market, in the boxing ring, hoping, fearing and stressing. 
 
There is RISK management, but SELF management is equally as important. When we are actively trading the market, we are free to make buy and sell decisions whenever we want. The tough part is consistently making the correct buy/sell decisions. These decisions come with conflict!
 
 
Taking Profits

So this is the hardest part of trading. It can be made simple if we accept a few hard facts. 
 
1. You will never sell at the top. 
2. Your going to be wrong when you sell. 
 
This is fact. As soon as you sell, the stock will probably keep going up. You may look at it 5 months later and its up 100% since you sold it. Point is, when you sell, your probably going to be wrong. This creates a conflict. 
 
As humans, we do not want to be wrong. We seek perfection, we want to nail the top! It can help explain why people run up stocks 20% to watch them come all the way back down to break even. The reason why they did not sell is because they are afraid to be wrong. By selling you are forced to draw a line under your mistake. But being wrong in the stock market is inevitable.  (more…)

Perfectionism and Avoidance

  
  Education
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Perfectionists are often motivated by avoidance: the need to avoid unpleasant emotional experiences. Traders who seek the perfect system are also likely to be motivated by the need to avoid unpleasant experiences.  

Avoidance
Imagine taking part in a game where participants are divided into two groups, blindfolded and asked to stick out their right hand. The first group is given ten dollars each time they extend their hand. They soon learn how to play the game and, no doubt, enjoy playing at every opportunity.The second group is also given ten dollars, randomly, about 80% of the time. The remaining 20% of the time, instead of being given a dollar, their hand is jabbed with a pin. Most participants in this group are likely to quit fairly quickly — they focus on the pain and ignore the reward.With trading losses, the only pain that you will suffer is the emotional reaction to a loss — often far worse than being jabbed with a pin. If you concentrate on avoiding losses rather than on maximizing your overall gain, you are unlikely to succeed at trading. 

Believe you can win

  
  Education
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If other traders can do well in the market, so can you. However, if you don’t have enough courage and confidence in yourself, you will never achieve success. The events over the past year have tested many people in this regard and some now think the game is rigged against them. Nothing could be farther from the truth as opportunities remain. Those who will win in the markets first start by believing they can do it. Then they back up that strong belief with serious hard-work and determination to find their trading edge. However, it starts with you first having faith in yourself.

10 More Trading Rules

  
  Education
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1) Trading rules don’t normally fall out of the sky.Number-10

2) The emotional work is normally not undertaken by developing traders. After all this game should be easy.

3) Not enough time has been spent finding a system that is a fit to the personality of the trader.

4) You don’t really feel congruence with the approach.

5) As soon as you have a few losers you tinker with the approach or move to a new approach.

6) You are under-capitalized or for some other reason you mess with the approach then don’t hold yourself accountable for the fiddling and blame the approach.

7) You have unrealistic expectations as to the performance of the system in terms of win rate.

8) You are ‘bricking it’ about entering drawdown territory.  

9) Your system actually isn’t complete.  You haven’t got all of the following bases covered: market selection, position sizing, entries, stops, exits, tactics.

10) You learned a system or got a system from a marketeer or pseudo trader and it’s actually just crap.

Trading Mantra

  
  Education
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There are some things we can control as traders and some things that we can not. We need to learn the difference to limit our frustration and win in this game.

We can control:
How much we risk per trade.
How big a position size we take.
What time frame we trade.
What market we trade.
Our style of trading.
Whether we stick with our trading plan or go off of it.
If we honor our stop losses and trailing stops.
How we react to a winning or losing trade.

 

 
We can not control:
Whip saws when the trend reverses on us.
Gaps in opening prices both up and down.
Headline risk.
Natural disasters.
Whether a trend continues or reverses the moment we open a position.
Whether any individual trade wins or loses.
How many winning or losing trades we have in a row.
 

 

The battle for your long term trading success is won or loss in your head. The decision to whether keep going after losing money or to quit is made at the point of maximum frustration with the markets. To keep going you have to keep positive, and keep trading. Knowing the difference between you making a mistake or the market simple not matching your style will go a long way in keeping down your stress and negative self talk. 
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