- You don’t choose the stock market; it chooses you. A little bit of early trading success can have a profound effect on a person’s soul. If it does choose you, you’ll have to accept that your life and investing will become forever connected.
- Your methodology must provide an unshakeable foundation that you believe in totally, and you must have the conviction to trade based upon it. If your belief is tentative or if you don’t have complete faith in your methodology, then a few bad trades will destabilize and erode your confidence.
- A calm mindset that can focus on the execution and not on the outcome is what produces profits. It takes total emotional control. You must maintain your balance, rhythm and patience. You need all three to stay in the game.
- The markets are always conniving with ingenious techniques to get you to lose your patience, to get you frustrated or mad, to bait you to do the wrong thing when you know you shouldn’t. A champion doesn’t allow the markets to get under his skin and take him out of his game.
- Like a great painting, all good trades start with a blank canvas. Winning traders first paint the trade in their mind’s eye so that their emotional selves can reproduce it accurately with clarity and consistency, void of emotions as they play it out in the markets.
- The “here and now” is all that matters. You can’t think about the last trade or the last shot or worry about the future. You need to put on your “amnesia hat” in order to remain completely unfazed by what came before. Only by doing so can you be totally absorbed in executing your present trade.
- Being prepared and having put in the work results in the bringing together of your intuition and confidence. The two go hand in hand. Extraordinary results can be expected when you are able to see it, feel it and trust it.
Archives of “intuition” tag
rssStay humble
More great lessons and trend following trading wisdom from Michael Covel’s book: ‘Trend Following – Learn to make millions in up or down markets’. I am quoting from page 282-283:
Fortune Favors the bold
Trend following, like any entrepreneurial endeavor, demands you be responsible for yourself. Charles Faulkner emphasized the point:
‘Trend trading and even trading in general isn’t for everyone. As too few people check out what the day-to-day life of a trader is like, and trend trading specifically, I strongly recommend they find out before making a life-changing commitment.’
What does ‘life-changing commitment’ involve? You commit to not wanting to be right all of the time. Most people, let’s face it, must be right. They live to have other people know they’re right. They don’t even want success. They don’t even want to win. They don’t want money. They just want to be right. The winners, on the other hand, just want to win.
What else can you do? You commit to patience and faith in a trading system that is not structured on quarterly performance or some artificial measure of the ‘mass’. You work hard to gain experience. Great experience leads to great intuition. You commit to thinking for the long term and not feeling insecure if you don’t have a steady earnings stream of 1-2 percent a month. You might have one year where you are down 10 percent. The following year you might be down 15 percent. The next year you might be up 115 percent. If you quit at the end of the second year, you will never get to the third year. That’s reality.
The Heart and Mind of Trading
Your heart has a mind, and your mind has a heart. In trading we need to bring heart and mind together. We need to feel intelligently and think with informed emotion. The mind has intellectual emotion and the heart has emotional intellect.
It has been proven through heart transplants that the heart really does have a mind. Heart transplant recipients take on many characteristics, connections, habits, and hobbies of their donors. One woman who had never cared about dancing began to take ballroom dance lessons six weeks after her transplant. She became fascinated with ballroom dancing and became quite good at it. It turned out the donor of her heart had been a ballroom dancer. One child who had received the heart of another child upon seeing the dead child’s mother cried out, “Mommy, I’ve missed you!” And there are many other such reported instances.
It could even be assumed for the sake of this column, that the entire body, cell structure, and so forth are informed by both mind and heart. This is a column about trading, so let’s look at how mind and heart impact trading. We can start with the metaphors of mind and heart.
What is the heart of your trading? Is it analysis? Is it intuition? Is it thought corrected by feeling or feeling balanced by analysis? Is it an outside system created by you or someone else that you employ with emotional or thoughtful action?
Do you trade with heart? Do you put your whole self into it? And does that work for you?
Do you trade with an intellectual detachment? And does that support your chosen results?
What would happen if you brought the two together? What if you traded committed to your heart’s desire but also retained an intellectual remove from immediate results? What if you committed yourself to replicating a verified and trusted method in the market and retained an optimistic view of the final results even while you observed with curiosity the current unfolding of the market?
We need balance in life and in trading. By bringing heart and mind and even body into the trading, we can seek to bring all of ourselves into the equation. We can do it mindfully with heart and clear purpose.
Ed Seykota Quotes
Markets
The markets are the same now as they were five or ten years ago because they keep changing-just like they did then.
Short-Term Trading
The elements of good trading are cutting losses, cutting losses, and cutting losses.
Outcomes
Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.
I think that if people look deeply enough into their trading patterns, they find that, on balance, including all their goals, they are really getting what they want, even though they may not understand it or want to admit it.
Market Trends
The trend is your friend except at the end where it bends.
Charles Faulkner tells a story about Seykota’s finely honed intuition when it comes to trading: I am reminded of an experience that Ed Seykota shared with a group. He said that when he looks at a market, that everyone else thinks has exhausted its up trend, that is often when he likes to get in. When I asked him how he made this determination, he said he just puts the chart on the other side of the room and if it looked like it was going up, then he would buy it… Of course this trade was seen through the eyes of someone with deep insight into the market behavior.
Predicting the Future
If you want to know everything about the market, go to the beach. Push and pull your hands with the waves. Some are bigger waves, some are smaller. But if you try to push the wave out when it’s coming in, it’ll never happen. The market is always right.
Trading
To avoid whipsaw losses, stop trading.
Here’s the essence of risk management: Risk no more than you can afford to lose, and also risk enough so that a win is meaningful. If there is no such amount, don’t play.
Pyramiding instructions appear on dollar bills. Add smaller and smaller amounts on the way up. Keep your eye open at the top.
Markets are fundamentally volatile. No way around it. Your prolem is not in the math. There is no math to ge you out of having to experience uncertainty.
It can be very expensive to try to convince the markets you are right.
System Trading
Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible. (more…)
King of Turtle Traders
I’m currently rereading “Complete Turtle Traders“ and if you’re not familiar with the story, I highly recommend this book. There aren’t many books that I reference often and this is one of them due to the psychological insight of trading and it’s impact on your performance. And what you’re going to read below is just a snippet from the first 27 pages of the book.
Richard Dennis is fast becoming one of my trading icons as I learn more about his attitude and methodology on trading and life. Here are a few quotes from the book that will offer some insight into what type of person and trader he was at that time:
His emotional attachment to dollars and cents appeared nonexistent.
He thought in terms of leverage.
You’re much better off going into the market on a shoestring, feeling that you can’t afford to lose.
Reacting to opportunities that others never saw was how he marched through life.
….you had to be able to accept losses both psychologically and physiologically.
I’m an empiricist through and through.
….the majority is wrong a lot of the time. The vast majority is wrong even more of the time.
He was an anti-establishment guy making a fortune leveraging the establishment.
Dennis read Psychology Today to keep his emotions in check and to remind him of how overrated intuition was in trading.
I think it’s far more important to know what Freud thinks about death wishes than what
Milton Friedman thinks about deficit spending.You have to have mentally gone through the process of failure.
He has the ability under tremendous pressure to stand there with his own money and pull the trigger when other people wilted.
When he was wrong, he could turn on a dime.
One man’s volatility is another man’s profit.
SUBJECT: What makes a frustrating market?
I wanted to end with a quote from one of the most famous Turtle Traders of all, Curtis Faith, that very much resonates with my methodology of zentrading. This comes from “Inside the Mind of the Turtles”which is another book I recommend. Do not buy his second book “Way of the Turtle”. It was absolutely horrible and very poorly written. I’m still reading his new book (very promising) and I’ll let you know how that one goes. Anyhow…here’s the quote and pay special attention to the phase in italics and if you found this post especially useful please retweet and share with your networks. I look forward to reading your comments and any particular insight you may have.
Winning traders think in the present and avoid thinking too much in the future. They look at the future as unknowable in specifics, but foreseeable in character. To win you need to free yourself and your thinking of outcome bias. It does not matter what happens with any particular trade.
10 losing trades + sticking to your plan = bad luck.
Max Gunther set forth basic trading principles called The Zurich Axioms
On Risk:
– Worry is not a sickness but a sign of health – if you are not worried, you are not risking enough.
– Always play for meaningful stakes – if an amount is so small that its loss won’t make any significant difference, then it isn’t likely to bring any significant gains either.
– Resist the allure of diversification.
On Greed:
– Always take your profit too soon.
– Decide in advance what gain you want from a venture, and when you get it, get out.
On Hope:
– When the ship starts sinking, don’t pray. Jump.
– Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.
On Forecasts:
– Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly.
On Patterns:
– Chaos is not dangerous until it starts to look orderly. (more…)
Desire and Fear in Trading
Desire and fear alternate in the minds of traders as they go through the day. But let me ask you whether desire or fear dominates your thoughts and feelings as you trade?
For many traders the primary emotion is fear. They fear loss: losing profits, losing money, losing equity and even their margin. Some fear losing their touch, their feel for the market, their focus, their luck, the respect of their boss, colleagues, or mate, or worse, their own self esteem.
Other traders are flooded with the emotion of desire. They look forward to what the day will produce. They like the thrill of the chase. They have a sense of unlimited potential and abundant opportunities for profit. They anticipate improving their skills, intuition, and understanding as they go through the trading day and week.
Keep in mind that desire is not greed. Greed is an inordinate wanting. It is excessive desire and comes from a sense of scarcity, a feeling that there is not and will not be enough. Desire is healthy: greed is unhealthy.
What you feel depends upon your mental focus. Do you place your conscious and unconscious attention on the possibility of loss or the probability (hopefully) of gain?
What you hold in your conscious attention colors your reality and becomes the quality and fabric of your life and trading. In your life, do you look for what’s missing, or do you pay attention to what you have and can create? Do you think about terrible things that have happened and could happen again, or do you think about wonderful experiences you’ve had and expect even better things ahead? Trading is a microcosm of life. What you do in life, you’ll do in trading.
You can through conscious volition change your focus from loss to gain. You can imagine failure or success. You can anticipate improving your skills and understanding, or you can worry about getting even worse. (more…)
7 Points for Traders
- You don’t choose the stock market; it chooses you. A little bit of early trading success can have a profound effect on a person’s soul. If it does choose you, you’ll have to accept that your life and investing will become forever connected.
- Your methodology must provide an unshakeable foundation that you believe in totally, and you must have the conviction to trade based upon it. If your belief is tentative or if you don’t have complete faith in your methodology, then a few bad trades will destabilize and erode your confidence.
- A calm mindset that can focus on the execution and not on the outcome is what produces profits. It takes total emotional control. You must maintain your balance, rhythm and patience. You need all three to stay in the game.
- The markets are always conniving with ingenious techniques to get you to lose your patience, to get you frustrated or mad, to bait you to do the wrong thing when you know you shouldn’t. A champion doesn’t allow the markets to get under his skin and take him out of his game.
- Like a great painting, all good trades start with a blank canvas. Winning traders first paint the trade in their mind’s eye so that their emotional selves can reproduce it accurately with clarity and consistency, void of emotions as they play it out in the markets. (more…)
Desire and Fear in Trading
Desire and fear alternate in the minds of traders as they go through the day. But let me ask you whether desire or fear dominates your thoughts and feelings as you trade?
For many traders the primary emotion is fear. They fear loss: losing profits, losing money, losing equity and even their margin. Some fear losing their touch, their feel for the market, their focus, their luck, the respect of their boss, colleagues, or mate, or worse, their own self esteem.
Other traders are flooded with the emotion of desire. They look forward to what the day will produce. They like the thrill of the chase. They have a sense of unlimited potential and abundant opportunities for profit. They anticipate improving their skills, intuition, and understanding as they go through the trading day and week.
Keep in mind that desire is not greed. Greed is an inordinate wanting. It is excessive desire and comes from a sense of scarcity, a feeling that there is not and will not be enough. Desire is healthy: greed is unhealthy.
What you feel depends upon your mental focus. Do you place your conscious and unconscious attention on the possibility of loss or the probability (hopefully) of gain?
What you hold in your conscious attention colors your reality and becomes the quality and fabric of your life and trading. In your life, do you look for what’s missing, or do you pay attention to what you have and can create? Do you think about terrible things that have happened and could happen again, or do you think about wonderful experiences you’ve had and expect even better things ahead? Trading is a microcosm of life. What you do in life, you’ll do in trading. (more…)
Time – Space – Reality – Oneness – Markets
What do the above all have in common? That’s right, “nonlinear” concepts!
It is interesting that one of the great minds of humanity, Albert Einstein spent his time on “nonlinear” concepts such as “time, space, reality, and oneness.” I find it more interesting that the interdependence of these “nonlinear” concepts is what makes a market tick as well.
As a trader, “timing” your trade within the “market” is based on “reality” in relation to the “oneness” of other traders and your outcome is determined by the “space” or movement of your position.
It is my opinion based on consulting with many traders that most traders incorrectly view the markets from purely a “linear” mindset and instead should view the markets from a “nonlinear” mindset as the markets are “nonlinear” themselves. This is why rigid logical thinkers or “linear intellectuals” find trading the markets so frustrating. Since they operate from their logical “linear” “beta” mind state, and become frustrated when market behavior does not do what it “should.” This is also why I feel that successful trading has to be both “art” & “science.”
Think about how you approach the markets and to what degree you are a “linear” vs. a “nonlinear” mindset. Also try and remember a trade or trading day where it seemed effortless and you just “let-go” and flowed with the market. In days like these, I’ll bet logical thinking was secondary to enjoying yourself, and selecting trades based on both your trading “tools” and your “intuition” which represents trading the markets as an “art” & “science.” Compare that to days when you where frustrated because the market did not do what it was suppose to based solely on logical assumptions.
Usually fear and greed are by products of logical thinking. Fear and greed are emotions and “nonlinear” in concept, but created by “linear” thinking. Isn’t it interesting that fear and greed are present in the markets and are “nonlinear” as well. Or is it because fear and greed are “nonlinear” and that they are present in the markets?
Maybe the key to a good trading system should be based on how to measure or determine “nonlinear” market events such as fear and greed. The purpose of this article is to have you look at the markets from a “nonlinear” point of view so that you can perhaps “see” market relationships that where invisible to you before.