Driving a motor car or motor bike is probably the best analogy I can think of for trading.
Start, Stop, traffic lights, dogs and cats on the road, cows, give way signs, t intersections, signs saying “kangaroos for next 50 kilometres ahead–and that is just in the first few 100 metres of leaving home– and then when you hit the express way, and consider yourself in the clear, there may be road works, or fog, and unsighted hazards ahead.
It’s very rare you can enter an express way…of start to finish, or finish a journey uninterrupted.
It is our jobs as traders to close down all risks as they appear, in whatever form, to cause minimal bumps and bruises to ourselves. Problematic situations will appear when you expect OR when you least expect them, and when you do get uninterrupted runs, you appreciate them, since it is what you have planned for, but see less often than one may hope for.
Be flexible, bend like the tree, always give way when on the road, and when you hear the sirens move top the left and beware of trouble ahead.
1. Think positively. Being optimistic helps in stressful situations. Do not let stress affect your mind and keep focusing on the positive side of your trading. What we think may result in decisions that can lead to better or worst situations. Thinking positively helps in making good decisions.
2. Change your response to stress. Being able to manage stress means developing strategies to deal with stress. Think of stress as a reaction rather than an event. It makes it easier to identify healthier ways to manage stress. Learn to Reframe Your Brain when adrenaline kicks in as the result of a win or a loss.
3. Task division. No man is an island. As a human being, we cannot survive being on our own. Having a trading mentor or trading buddy can provide both a sounding board and a support system.
4. Manage your time. Time is such that once you lost it, you can never get it back. Managing and limiting your trading time will help to keep your emotions and trading on track.
5. Learn your priorities. Our behavior towards ourselves and others may also contribute towards stress. Sometimes it is important to say no towards requests that you find it hard to meet. Keep in mind that by saying ‘yes’ to everything may please everyone but you may add on more stress and cause disappointment if the target is not meet. (more…)
When a new trader comes to me for advice, quite often they have suffered initial losses from their trading activities (sometimes heavy ones) and have not really had a focussed overall trading plan set out, or if they have, they’ve not followed it.
Even if you start trading with limited capital, it is important that you start ingraining good habits as early as you can. Principal amongst these is ensuring that you do not trade too large positions relative to your overall equity.
Depending on your chosen method of trading, transaction costs can also eat into a small account, and the trading vehicle you choose to use should be carefully considered.
However, it is a well known maxim that the vast majority of new traders blow up their accounts within 6 months. This is not necessarily as a result of their method of choosing their entries and exits (although that undoubtedly helps) but more as a result of risking way too much on each trade, or in extreme cases having a complete disregard for risk.
Trading is a marathon not a sprint, and to stay in the game you need to exhibit strong risk control right from the off. The sooner you can ingrain that in your method and your mind, the better. Even the best did not necessarily get a grip on risk control early in their careers – in Market Wizards Paul Tudor Jones talks about losing 70% of his equity on a single trade relatively early in his career. It was only after that experience did he go away and implement rigorous risk control.
From having risk under control, unemotional trading decisions can be taken, improving your mindset and allowing you to follow your system with no risk of self-sabotage. Allied to a proven method for selecting entry and exit points, you will be well on the journey to trading success.
As I work on brushing up writing skills for a potential book on my journey as a caregiver to my wife for 30+ months, I happened across a collection of advice for writers Hemingway sprinkled through his correspondence with colleagues over the years. Wisdom for the ages?
“Listen now. When people talk listen completely. Don’t be thinking what you are going to say. Most people never listen. Nor do they observe. You should be able to go in to a room and when you come out know everything that you saw there and not only that. If that room gave you any feeling you should know exactly what it was that gave you that feeling. Try that for practice. When you’re in town stand outside the theatre and see how the people differ in the way they get out of taxis or motor cars. There are a thousand ways to practice. And always think of other people.”
And for traders as well as writers:
“Dostoevsky was made by being sent to Siberia. Writers are forged in injustice as a sword is forged.”
It makes me think of all the injustices bestowed upon newer traders; complexity, bad prices, one’s own emotional state, the non-obvious inner circle game– the list is endless.
People that are more likely to find success in trading, or any endeavor, tend to be those who take the initiative. Without that belief in your own ability to take action to insure progress, i.e.: initiative, you will never transition from having a vision — hope –to implementation of a plan to achieve that vision – goal. Your belief and confidence need to get stronger with each step toward the goal. This is what will feed your thought process and attitude.
The most difficult part of the journey to successful trading is learning the basics thoroughly. You will know you are on your way when each step starts to get easier.
The real secret is understanding how simple trading is. The hard part is getting out of your own way to get to that point.
Trading is really not as much of a numbers game as it is a mind game. Winning or losing in the long term will come down to whether you quit or keep going on your trading journey. Trading is not for everyone, there is no easy money in the markets. You will fight for your dollars, you will make money by doing the uncomfortable you will lose money when you think you are in a trade that just can’t lose. The emotional and mental pain will be unbearable if you do not believe in yourself and your method. If you are trading with no plan, no rules, and no system or method you will tend to be very hard on yourself for every losing trade. It was your decision that made you lose money, you will beat yourself up, and feel stupid. You will have 100% accountability for your mistake.This will not work.
What you must do is transition the accountability from yourself to your system or method. You must trade a proven methodology that will win based on the market action not your personal actions. You can not control odd out of left field events. You can not help it if you trade a trend or a pattern and suddenly it loses. All you can do is take trades with great probabilities that match your beliefs about the market and if they are losers then you can’t blame yourself you can only cut your losses and look for the next trade that meets your parameters.
When you can shrug off a loss with no emotional or mental pain and move on to the next one you are at the next level. All you can control is your entry parameters, risk management, position size, exit, and mind set, the market determines whether you win or lose, not you. You must have self confidence and faith in a proven method, take your trades let the market separate the winners from the losers.
One of the most important skills a professional trader needs to develop is being able to manage his or her psychological state. Effective psychological maintenance can make all the difference between trading success and failure.
In my own trading, I have found the essential state of mind I must be in to trade at an optimal level. I call it the “zero-state.”
For me, the zero-state represents an emotionally neutral condition that is neither happy nor sad, neither overconfident nor fearful. The adjective “calm” starts to come close to what I mean but the term lacks an important distinction. “Calm” is part of an adjective pair, whose partner has precisely the opposite meaning. “Stormy” is usually given as the antonym to “calm.”
The term “serenity” describes a state that comes even closer to describing the zero-state than calm. Serenity suggests a timeless eternity of “no-emotion,” where I am not connected to the outcome in a personal, meaningful way.
No conventional adjective, however, can fully describe the zero-state. An adjective describes a particular condition. I associate one adjective or condition as one half of a pair of opposites. Both words of the pair form poles on a continuum where I think of the exact center as “zero,” just as on a number line. Conceptually, the Japanese term “mu” comes fairly close to this concept of center. “Mu” has been variously described as neither yes or no, a state in-between that does not acknowledge the question being asked as one that may be answered by either yes or no, with the answer existing in a different plane of reality.
Other Useful Mental States
Other traders I know have found different mental states useful. After all, trading from an emotion-free state (like the zero-state) may not be the best mental state for you. Consider the following options for your optimal mental state in your journey of self discovery and trading mastery.
I know traders who find it necessary and useful to achieve a state of emotional alpha male competitiveness in order to enter the “ring of combat.” These traders perceive the trading environment as combative and they interpret their role accordingly. They anticipate combat, they mentally prepare for it, and they experience trading in combative terms. (more…)
Discipline is the key factor towards the success of trading/investing. Lack of discipline will result a bigger loses when you hesitate in cutting lost or when you enter a trade too early. Discipline no doubt is the bigger key deciding factor in any kind of field.
You need passion to drive you towards the success that you are hunger. You need the passion to do the boring job yet very rewardable at the end of the trading journey.
Tough time come you need to press it on. Never say quit attitude!!! Most of the Good Trader or Investor will experience a major downfall before they succeed in this business. If they did not fight back again then they will never succeed. Once again tell yourself press it on till you succeed.
Many people including me lack the virtue of patience. Trading and investing require plenty of patience as most of the time we are waiting at the sideline and let the newbies to kill each other. Once the market decide to go in the trend then we as a professional trader and investor will act upon it very fast. Being Patience alone will save you plenty and tons of money.
The more sweat you put in the greater reward you will get. Then again if you are doing the wrong thing every time again and again, this mostly likely tell you that your system of trading is not working and thus you need to change. There are a big different between hardworking and just stubbornly sticking to the failed plan. If the system of yours is CLearly not working after you put in months of efforts then you should just change your strategy.
Last but not least you need to strongly believe that you will be able to take money out of the market consistently. Believe that your Tested system will be able to last as long as the market condition do not change much.