- 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.
- 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. (more…)
Archives of “impulse” tag
rssG. C. Selden Trading Psychology – Hunches And Gut Feelings
Recently most traders probably have spent a great deal of time managing risk and emotions. I know I have. When it comes to correctly gauging and dealing with emotions it is paramount to analyze your reactions in a detached way. The best way to get objective insight is to imagine taking a step back and then ‘watching yourself.’ It’s as if you were your own mentor or trading coach. This is not an easy task. Good results require emotional detachment, a lot of experience and the ability to honestly assess the degree of trading proficiency you have attained. Ultimately it will tell you what those gut feelings you are occasionally experiencing really are worth. That’s exactly what G.C. Selden addresses at the end of his classic trading book : ‘Psychology of the Stock Market’ which was first published in 1912. Here’s an excerpt dealing with ‘hunches and gut feelings.’ Lots of additional and valuable insight for traders is provided. Enjoy!
An exaggerated example of “getting a notion” is seen in the so-called “hunch.” This term appears to mean, when it means anything, a sort of sudden welling up of instinct so strong as to induce the trader to follow it regardless of reason. In many cases, the “hunch” is nothing more than a strong impulse.
Almost any business man will say at times, “I have a feeling that we ought not to do this,” or “Somehow I don’t like that proposition,” without being able to explain clearly the grounds for his opposition. Likewise the “hunch” of a man who has watched the stock market for half a lifetime may not be without value. In such a case it doubtless represents an accumulation of small indications, each so trifling or so evasive that the trader cannot clearly marshal and review them even in his own mind. (more…)
Repetition Repetition Repetition
In Daniel Coyle’s The Talent Code we learn the three rules of deep practice. Rule number two is Repeat It.
“Nothing you can do – talking, thinking, reading, imagining- is more effective in building skill than executing the action, firing the impulse down the nerve fiber, fixing errors, honing the circuit.”
This explanation reveals why it is impossible to transfer trading prowess from one person to another. You can’t talk, think, read, or imagine your way to elite performance. The key lies in the “doing”, going through the motions. Now that’s not to say talking or reading about trading isn’t helpful. It is. I pick up tons of insight from talking with other investors and traversing the trading blogosphere. I’m like a hungry orphan hiding below the tables of successful traders just hoping they’ll drop a few morsels of wisdom I can chew on. Yet it’s not a substitute for “executing the action”. Nothing replaces sitting in front of my computer, monitoring positions, assessing potential trades and most importantly pulling the trigger. (more…)
The Hidden Variable in Your Trading Success
Most traders realize that trading involves a lot of psychology. And most traders readily admit that a significant portion of their trading losses, or lack of performance, is due to “psychology”. Although the term ‘psychology’ isn’t always mentioned as an explanation, you can see it easily enough in the following statements ……”I froze just as I was about to pull the trigger”….. ”I hesitated and missed that trade and was so pissed that I got myself into an impulse trade right after”….. “That large loss was not what I wanted, I held it thinking it would come back because last time I bailed out of this type of trade I got stopped out right before it reversed”….. “I was really nervous about losing money again so I got out of my winning trade way before my target”
Those are four common examples of trading psychology issues manifesting in one’s trading. Do you recognize yourself in the above statements? (more…)
Unsuccessful Traders :Make the same Common mistakes
1 .They like to use complex system, lots of indicators, where they are telling the same old story (price & volume). As I learned so far simple system is the best.
2. They spend more time in trading, then learning, we already know successful traders spend more time improving themselves & their systems then trading, they are very selective.
3. They lost their capital, before the learning process. To become an expert it takes years of right experience.
4. They think but they don’t see, they think market will go up or down so they buy or sell, but they don’t see what the chart is trying to show them.
5. They want to control the market, which is impossible.
6.The have gambling problem.
7. They don’t know when to stop.
8. They think they know every thing, they don’t take advice.
9. When they go through bad time, they change their system, time frame & market.
10.They try to get rich over night.
11. They are very risk adverse people, so when they lose, they can’t tolerate it, they start impulse trading & end up losing more.
12. They never learn their lesson.
The Power of Regret
Everyone knows that chasing price is usually not beneficial, we either end up catching the move too late, or we get poor trade location, which makes it more difficult to manage the trade.
However, there are other forms of chasing that are just as common, maybe more common, and just as counter-productive. As a trading psychologist I see these all the time.
Traders who are not profitable are often too quick to chase after new set-ups and indicators, or a different chat room, if that’s your thing. Obviously, we need to have a trading edge, whether it is from the statistical perspective of a positive expectancy, or simply the confidence in a particular discretionary strategy such as tape reading, following order flow, market profile, etc.
Chasing a trade is the fear of missing out. The fear of missing out is associated with various emotions, including regret. In my work with traders and in my own trading, I’ve seen the incredible power of regret. There’s a lot of talk about fear and greed in trading, but the power of regret is often overlooked. Some of my own worst trades, and those of my clients, often have a ‘regret from missing a prior opportunity’ component. When I finally finish my book on the psychology of financial risk taking, I will include much about this overlooked but very powerful emotion. (more…)
The Hidden Variable in Your Trading Success
Most traders realize that trading involves a lot of psychology. And most traders readily admit that a significant portion of their trading losses, or lack of performance, is due to “psychology”. Although the term ‘psychology’ isn’t always mentioned as an explanation, you can see it easily enough in the following statements ……”I froze just as I was about to pull the trigger”….. ”I hesitated and missed that trade and was so pissed that I got myself into an impulse trade right after”….. “That large loss was not what I wanted, I held it thinking it would come back because last time I bailed out of this type of trade I got stopped out right before it reversed”….. “I was really nervous about losing money again so I got out of my winning trade way before my target”
Those are four common examples of trading psychology issues manifesting in one’s trading. Do you recognize yourself in the above statements?
All four of those statements have in common one thing, fear. Whether it’s the fear of not being perfect, the fear of being wrong, fear of losing money, fear of missing out, the fear of not being approved by others, or some other fear, the common theme is fear. Most trading mistakes are a maladaptive attempt to deal with fear or anxiety.
Emotions like fear and anxiety cannot be eliminated; it is part of the human experience. But how you respond (your behavior, the action you take in response) to anxiety and fear will determine how successful you are as a trader. Some traders recognize this and do something about it; they learn to work with the fear and anxiety to reduce the chance that they’ll continue to fall into the same old behavioral response pattern to fear and anxiety. (more…)
BELIEFS
What you believe, consciously or unconsciously, propels your trading in its many directions. It might be so simple a matter as whether you believe a market is going up or down or nowhere. Traders have biases that distort their perceptions and effect their actions, and they need to guard against these with various protections and bias detectors.
Other beliefs are more veiled and ubiquitous. For example, you may consciously intend to make money, but you have a counter impulse that thwarts you due to unconscious beliefs that go against that intention. Perhaps you unconsciously believe that money is the root of all evil, or that rich people are corrupt, or that there isn’t enough to go around and so you shouldn’t be greedy, or that you should be laying up your treasure in heaven, and not on this earth. Perhaps on some level you believe you shouldn’t make more money than your parents.
When you want something, you have to really want it and not be ambivalent about it. It has to be your desire, and not some alien value set by your parents or society. The flower loves the sun, and stretches to receive its rays. The plant loves water and digs its roots deep seeking the object of its desire. If you want to make money trading, you really have to admire money and have good purposes for its use. If you want to be a master trader, you have to be comfortable with that role, and not see trading as wasteful gambling, or an unworthy profession.
Perhaps you believe that you don’t deserve to make money trading, or that you have to work hard for your rewards. Maybe you believe that only the big boys win, that the market is stacked against the ordinary trader. Maybe you believe that it’s impossible to make money in the futures markets or, worse, any market. Maybe you believe it’s possible to make money trading, but it’s not probable that you can keep your winnings. All such ideas run in opposition to easy and effective trading.
Just as insidiously you may doubt that your system really works, or that it won’t work this time. Some traders get superstitious: for example, they believe that they always, or tend to, lose money on Fridays, and so, of course, they do. When any of their superstitious factors occur, somehow they manage to lose.
Acting On Impulse
Why do so many traders abandon their trading plan? Is it their personality, an inherent pitfall of the trading profession, or temporary insanity? A host of factors may contribute to a lack of discipline. Depending on your personality, background, training, and experience with the markets, you may have trouble reigning in your tendency to act on impulse.
For some people, impulsivity is in their nature. They have trouble focusing their attention. They are easily bored. Seeking out quick thrills relieves the tedium of life. For others, impulsivity is related to emotionality. Some people have so much trouble controlling their emotions that they react impulsively out of frustration. Minor setbacks are inevitable in the trading arena. When the extremely emotional trader encounters one of these setbacks, he or she becomes overly agitated, and may close a position early, or in a fit of confusion, make a major trading blunder that can only be remedied by closing the position.
That said, any trader can act impulsively at times. There are many situational factors that contribute to impulsivity. Research has shown, for example, that when people are tired, they have difficulty focusing their attention. As much as part of your conscious mind cares about sticking with your trading plan, your unconscious mind thinks, “Who cares? I want to take a break.” Psychological resources are limited. When you push yourself to the limits, you will have trouble focusing on your ongoing experience, concentrating on your trading plan, and sticking to it. (more…)
Ten Principles of Short-Term Trading
1) Strength Begets Strength – A market rise that expands the number of stocks making new highs and that finds more stocks trading with strong upside momentum tends to persist in the short run.
2) Weak Rises Tend to Reverse – When markets move higher with fewer stocks making new highs and with fewer stocks showing strong momentum, the rise tends to reverse in the short run, often entering a trading range prior to making an extended decline.
3) Broadly Weak Markets Tend to Reverse – When the market is very weak (many stocks making new lows and many stocks displaying strong downside momentum), it is common to see the market make marginal new lows in the short run, but reverse after that.
4) Weak Tests of Prior Market Highs or Lows Tend to Reverse – When we get a market trading above or below its value area on low volume, few stocks making fresh new highs/lows, and weak momentum, we tend to get a “mean reversion”–a trade back into the value area. That’s basically what this week’s action has been about.
5) Strong Tests of Prior Market Highs or Lows Tend to Persist – When we see expanding volume and expanding new highs or lows on a move above or below the value area, such a breakout move tends to becoming a short-term trend. The longer the prior consolidation period (the heavier the volume within the value area), the more extended the subsequent trend tends to be.
6) Weak Pullbacks Following a Strong Move Will Reverse – When we have a strong market move that expands new highs/lows and momentum, a pullback on weak volume and with relatively few stocks participating will lead to at least a test of the impulse highs or lows and often to a resumption of the strong move.
(more…)