- 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
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"SUGGESTIONS OR COMMANDMENTS"
Have you written down your trading rules? Do you have rules for entry and for exit with a profit and with a loss? Do you have a rule telling you whether a market is trending and what the trend is? Do you have rules stating when the market is in a trading range and what that range is? Do you have rules saying what markets you will trade and what has to happen to trade them?
Or do you simply shoot from the hip and call it artistry or intuition? Does this work for you?
Do you follow your rules rigidly without flexibility or discretion? Does this serve you over time?
Do you abandon your rules in the heat of trading, only to regret it? Do you stubbornly go against your rules thinking this time you know better? What would happen if you didn’t do this?
Some people don’t like rules. They don’t want to be told what to do even if it’s themselves telling themselves what to do. They even more don’t like following rules that came with a system for which they paid good (any or excessive) money. They have a polarity response to direction even after it becomes apparent that they’d be more profitable simply following the rules.
Others like to be told what to do, but somehow their rules are conflicting, obscure, or so bound up with discretion as to be meaningless. These traders may not even be aware that in essence they have no rules.
Whatever your situation turns out to be, it may be helpful to think in terms of commandments or suggestions. You may think in terms of absolute rules or simple guidelines.
Do you like clear directions as to what to do? In this case you can think in terms of commandments. For example, when The Ten Commandments says, “Thou shalt not kill,” it doesn’t leave much discretion. Reword your rules as commandments that are precise and clear and easy to follow.
Do you resist being dictated to and bossed around by outside forces? In this case, reformulate your rules as guidelines or suggestions. Give yourself some leeway in certain situations. Reword it so that when you read it, it sounds like a good idea and not a demand.
However, be certain in advance that whether you choose a suggestion or command, the results will be profitable if followed consistently or even most of the time. There’s nothing worse than a bad idea or a rule that doesn’t work. Remember the basics: Find out what works. Verify that it works. And do it.
Typical Trading Errors
| 1. Refusing to define a loss. 2. Not getting rid of a losing trade when it is obviously a loser. 3. Getting locked into a bullheaded opinion about market direction. 4. Focusing on monetary value of trade instead of market structure. 5. Revenge trading to recoup a loss. 6. Not reversing a position when the market is clearly changing direction. 7. Not following the rules of your strategy. 8. Planning for a trade and then not taking it. 9. Not acting on your intuition. 10. Giving back recent gains due to overtrading or inconsistency. |
Six Rules of Michael Steinhardt
1. Make all your mistakes early in life: The more tough lessons you learn early on, the fewer (bigger) errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you something.
2. always make your living doing something you enjoy: Devote your full intensity for success over the long-term.
3. be intellectually competitive: Do constant research on subjects that make you money. Plow through the data so as to be able to sense a major change coming in the macro situation.
4. make good decisions even with incomplete information: Investors never have all the data they need before they put their money at risk. Investing is all about decision-making with imperfect information. You will never have all the info you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation.
5. always trust your intuition: Intuition is more than just a hunch — it resembles a hidden supercomputer in the mind that you’re not even aware is there. It can help you do the right thing at the right time if you give it a chance. Over time, your own trading experience will help develop your intuition so that major pitfalls can be avoided.
6. don’t make small investments: You only have so much time and energy so when you put your money in play. So, if you’re going to put money at risk, make sure the reward is high enough to justify it.
Three Emotions in Trading : FEAR, HOPE, AND GREED
Fear, hope and greed are probably the three most common emotions traders deal with. Holding on to losers, exiting too early, or jumping in before confirmation are just a few examples of the things we do when emotion manages our trades for us. Trading without well-defined boundaries can be tempting, especially when things like intuition and “gut feeling” are things we take pride in as human beings.
We’ve all heard stories about how someone’s gut instinct helped them to avoid a dangerous situation or how someone’s intuition led them to make a perfect decision with little or no substantive information to guide them. As powerful as these abilities may be in our human experience, I’ve learned that they have no place in trading. I have found that what we perceive as gut instinct or intuition while trading is usually just fear, hope, or greed in disguise.
I address these three specific emotions using three boundaries:
1. Stop Loss- At what price point is my idea proven wrong?
This boundary addresses the fear of realizing a loss.
2. Time limit- How long do I give this trade to work?
Hoping that a trade will eventually work out as price goes no where only ties up capital that could be used for better trades.
3. Target- At what price point does my idea come to an end?
Having a clear target for your idea keeps you from being greedy (Exiting the majority of a position at the target and letting profits run on the remainder is an effective way to address greed with winning positions).
Two Types of Intuition
I distinguish two types of intuition – inherent and acquired. Inherent is the one you were born with and it is the end product of hundreds of thousands of years of evolution aka trying to survive in the fields. We are wired to seek instant gratification without a deeper thought about the future consequences, we are loss averse and stubborn.
While the inherent (core) intuition is the pre-installed software, each and everyone of us is born with, the acquired intuition is the upgrade we get through life as it is based on everything we experienced. Your brain remembers everything, even if you don’t realize it. Of course you can easily recall only the most vivid memories as depending on your everyday activity the brain has prioritized what is important and what is not.
When it comes to trading or investing, there is a reason you like some patterns more than others. The question is, should you trust your intuition? The contrarian school of thought in the market teaches that you should try to fade your intuition as it usually points you in the wrong direction. This is not always the case. If you have enough experience, your intuition is your biggest edge as it recognizes combinations of patterns and factors invisible for the normal eye. (more…)
10 Trading Mistakes
1. Refusing to define a loss.
2. Not liquidating a losing trade, even after you have acknowledged the trade’s potential is greatly diminished.
3. Getting locked into a specific opinion or belief about market direction. From a psychological perspective this is equivalent to trying to control the market with your expectation of what it will do: “I’m right, the market is wrong.”
4. Focusing on price and the monetary value of a trade, instead of the potential for the market to move based on its behavior and structure.
5. Revenge-trading as if you were trying get back at the market for what it took away from you.
6. Not reversing your position even when you clearly sense a change in market direction.
7. Not following the rules of the trading system.
8. Planning for a move or feeling one building, but then finding yourself immobilized to hit the bid or offer, and therefore denying yourself the opportunity to profit.
9. Not acting on your instincts or intuition.
10. Establishing a consistent pattern of trading success over a period of time, and then giving your winnings back to the market in one or two trades and starting the cycle over again.
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? (more…)
TRADING ERRORS
1. Refusing to define a loss.
2. Not getting rid of a losing trade when it is obviously a loser.
3. Getting locked into a bullheaded opinion about market direction.
4. Focusing on monetary value of trade instead of market structure.
5. Revenge trading to recoup a loss.
6. Not reversing a position when the market is clearly changing direction.
7. Not following the rules of your strategy.
8. Planning for a trade and then not taking it.
9. Not acting on your intuition.
10. Giving back recent gains due to overtrading or inconsistency.
We can learn a lot from the market, and from ourselves, if we would only listen.
Trading, Gambling, Praying
Intuition is not free
If you are thinking about exiting, it is too late. You are praying at that point. If it is in your plan for your targets to get hit, up or down, continue what you are doing. If you are just hoping your stop does not get hit, on behalf of the market, thank you. I am making the assumption that those who post or say that their stop is going to get hit have discretion in their system. The problem is not this trade it is the hundreds or thousands you will take after that. There is a reason you wanted to get it, that is intuition. If you cannot afford to not make money on a trade, you are fucked anyways.
You lost the lesson too
The market is constantly giving feedback. What happens after the “my stop is going to get hit” statement? What if the market goes in your direction? Are you going to get out at breakeven? Let it run? Take a small lost/gain? What are you going to do next time? The time after that? The outcome will affect your decision. The outcome you remember best will be the one that gives you the best psychological reward not financial rewards. Trading is about answers, not questions. Unanswered question impedes reactions and forces decisions. Decisions are bad over the long term.
Get out already (more…)