rss

HOW BELIEFS DRIVE TRADING

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.

Strong emotions also get in the way of winning.  Underlying each emotion is some belief about what is happening.  The interpretations you give events color your reality. Underneath each interpretation is a rock core belief.  “That’s just the way it is.” you say. Such a statement flags a belief. Is it really the way it is?  Do you feel guilty, scared, angry, or depressed after a losing trade?  Perhaps you believe that you shouldn’t lose, that one losing trade implies you can’t trade, that one losing trade portends many more losing trades, or that you’ve jinxed yourself for the rest of the day or week.

Equally or possibly even more important are the positive conscious and unconscious beliefs that you hold about trading and investing.

To begin with, to do anything well, you need to believe that it can be done, that you can do it, and that you deserve to do it.  You’re in trouble if you doubt any of these three.  Your trading is at risk if you don’t firmly believe that money can be made trading, that you can make money trading, and that you deserve to make money trading. (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.

Fear will never disappear. Yes, maybe some days you feel more ‘in the zone’ and fear is less of an issue, but most days you’re probably not in the zone; and on those days the fear is unavoidable. Most likely, those are the days when you have your largest losses. The question is, what are YOU going to do to work with the fear? If you cannot eliminate fear, you must learn to work with it, use it to your advantage. Emotions are a form of self-communication; you need to learn what the message is (e.g. If this trade loses I won’t succeed as a trader) in order to begin to learn how to control your actions in response to the fear and anxiety. Your performance will not change until you learn to manage yourself differently when experiencing fear and anxiety.

Qualities of Successful Traders

Emotional stability. You don’t have to be nuts to trade, but it helps!  That is a joke, of course. Emotional stability is grace under pressure. A successful trader must be able to remain calm in difficult situations. Traders that rank very high on the emotional stability scale have very low anxiety levels, remain calm, relaxed, and have a low suspicion level. They tend to be trusting individuals and are not paranoid. You won’t hear them blame the market makers for forcing the stock to hit their stop and they take responsibility for their actions. Successful traders tend to be well
grounded.
 

Discipline. Successful traders are ones that can follow the rules. They are the guys that drive the speed limit. They tend to be perfectionist and take pride in their work. They like to take a project from start to finish and get joy from completing it successfully. Pilots, trained to follow checklists, tend to make good traders. An impulse oriented individual will have difficulty achieving the discipline to become a successful trader.
 

Intelligence. Bill says that successful traders tend to be intelligent. They need not have the IQ of Einstein but they are above average in intelligence. They tend to be good problem solvers and good with numbers, such as statistics. They understand that trading is based on probability, that not every trade will work as planned.

Simple Rule for Traders

Would you like to get someone to hand you all their money?

No, you don’t need a gun.

You don’t need to blackmail or kidnap anyone.

I swear that what I’m about to show you is NOT Illegal!

I guarantee that this article will change everything you have heard, seen or tried in stock market trading.

This is the best lesson you will ever learn in stock market trading.

Trading is part rational and part emotional. People often act on an impulse even if they know they have harmed themselves time and time again in the process of so doing. A winning trader becomes too confident about his positions and misses sell signals. A fearful trader beaten up by the market becomes too fearful and sells too early. When he sees the stock immediately rise again, overshooting his original profit target, he can no longer stand the pain of missing the rally and buys way above his original entry point. The stock stalls and slides and he watches in horror as it sinks like a rock. In the end, he can’t take any more pain and sells out for a loss—right near the bottom. The original plan to buy may have been rational, but actually executing on his plan created an emotional storm.

Emotional traders do not pursue their best long-term interests. They are too busy bragging about a winning position and how smart they were for buying a stock or complaining and coming up with conspiracy theories about a losing position.

Your goal is to take money from emotional amateur traders. (more…)