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Why Intelligent People Traders Fail

  
  Education
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 1. Lack of motivation. A talent is irrelevant if a person is not motivated to use it. Motivation may be external (for example, social approval) or internal (satisfaction from a job well-done, for instance). External sources tend to be transient, while internal sources tend to produce more consistent performance.

 2. Lack of impulse control. Habitual impulsiveness gets in the way of optimal performance. Some people do not bring their full intellectual resources to bear on a problem but go with the first solution that pops into their heads.

 3. Lack of perseverance and perseveration. Some people give up too easily, while others are unable to stop even when the quest will clearly be fruitless.

 4. Using the wrong abilities. People may not be using the right abilities for the tasks in which they are engaged.

 5. Inability to translate thought into action. Some people seem buried in thought. They have good ideas but rarely seem able to do anything about them.

 6. Lack of product orientation. Some people seem more concerned about the process than the result of activity.

 7. Inability to complete tasks. For some people nothing ever draws to a close. Perhaps it’s fear of what they would do next or fear of becoming hopelessly enmeshed in detail.

 8. Failure to initiate. Still others are unwilling or unable to initiate a project. It may be indecision or fear of commitment.

 9. Fear of failure. People may not reach peak performance because they avoid the really important challenges in life.

 10. Procrastination. Some people are unable to act without pressure. They may also look for little things to do in order to put off the big ones. (more…)

Four Common Emotion Pitfalls Traders’ Experience and How to Solve Them

  
  Education
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Peak performance in trading is frequently hindered because of the emotions a trader feels, and more importantly how their trading behaviors change based on those emotions. I have found that the following four emotional experiences have the greatest, direct impact on a trader’s ability to achieve higher levels of success.

 

1)      Fear of Missing Out

2)      Focusing on the Money and Not the Trade

3)      Losing Objectivity in a Trade

4)      Taking Risk Because you are Up (or down) Money

 Fear of missing out occurs when a trader is more afraid of missing an opportunity than they are of losing money. As a result, traders tend to overtrade in a desperate effort to ensure that they do not miss out on money-making situations. This overtrading can then potentially trigger an undertrading response if the traders experience a “trading injury” such as a big loss along the way. The way to solve this is first to accept the reality that you’re always going to miss out on something, somewhere. The second step is to establish game plans on paper and hold yourself accountable to executing those plans.

 Focusing on the money and not the trade limits performance because the trader quantifies their success based on their profit and loss data. As a result, when he or she is up or down a certain amount of money that they view as significant, they alter their trading behaviors regardless of what the actual, real trading opportunity is that is presented to them. The way to solve this is to quantify your success based on HOW you traded not HOW much you made on the trade. Did you have edge? Was it your pitch? Did you make a high-quality trade?

 

Losing objectivity in a trade occurs because traders develop emotional ties to their previous entry levels. The trader is no longer making trading decisions based on the trade, but rather based on how much they are up or down in the trade. The key to overcoming this is for the trader to continually ask him/herself, “Why am I in this trade?” and “If I was not in this trade right now, would I enter this trade long, short or do nothing?” (more…)

Four Common Emotion Pitfalls Traders’ Experience

  
  Education
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Peak performance in trading is frequently hindered because of the emotions a trader feels, and more importantly how their trading behaviors change based on those emotions. I have found that the following four emotional experiences have the greatest, direct impact on a trader’s ability to achieve higher levels of success.

 

1)      Fear of Missing Out

2)      Focusing on the Money and Not the Trade

3)      Losing Objectivity in a Trade

4)      Taking Risk Because you are Up (or down) Money

 

Fear of missing out occurs when a trader is more afraid of missing an opportunity than they are of losing money. As a result, traders tend to overtrade in a desperate effort to ensure that they do not miss out on money-making situations. This overtrading can then potentially trigger an undertrading response if the traders experience a “trading injury” such as a big loss along the way. The way to solve this is first to accept the reality that you’re always going to miss out on something, somewhere. The second step is to establish game plans on paper and hold yourself accountable to executing those plans.

 

Focusing on the money and not the trade limits performance because the trader quantifies their success based on their profit and loss data. As a result, when he or she is up or down a certain amount of money that they view as significant, they alter their trading behaviors regardless of what the actual, real trading opportunity is that is presented to them. The way to solve this is to quantify your success based on HOW you traded not HOW much you made on the trade. Did you have edge? Was it your pitch? Did you make a high-quality trade?

 

Losing objectivity in a trade occurs because traders develop emotional ties to their previous entry levels. The trader is no longer making trading decisions based on the trade, but rather based on how much they are up or down in the trade. The key to overcoming this is for the trader to continually ask him/herself, “Why am I in this trade?” and “If I was not in this trade right now, would I enter this trade long, short or do nothing?”

 

Taking bad risk because you are up or down money

People do not like to lose – especially money. Normal solid risk/reward thinking becomes skewed once a trader is up a large sum of money. They begin to experience something called “mental accounting” and they treat money differently based on how they made money or how quickly they earned it. On the flip side, when traders are down money, they tend to be consumed with trading for revenge and trying to make it back, oftentimes as quickly as they lost it. As a result, they may take “shots” or do the “screw it” trade because they feel helpless. To solve this destructive behavior, the trader should use their trading journal to document their emotional highs and lows and what triggered it so they can be in tune with when they are feeling over-confident or angry/frustrated. Once they recognize these emotions, they should immediately call a time out and step away from the computer or reduce the risk they are taking until they can bring themselves back to center court.

16 Points for Day Traders

  
  Education
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Accepting risk may cause losses, but accepting unfunded liabilities and negative skew can bankrupt us.

Use models not to predict, but to create a range of possible outcomes for which we can plan.

Markets follow cycles based on the perceptions and actions of its players, and one can gain alpha by using these cycles to manage risk and reward.

Markets SEEK efficiency, but offer tremendous opportunities while traveling from inefficiency to efficiency.

Both people and machines have flaws, so use the best attributes of each for peak performance.

Forecasting is necessary but should be timid in nature, while action is not always necessary but should be BOLD on the occasions when conditions dictate it.

Risk management is made more complete by searching for information that differs from your analysis rather than by that which confirms it.

Successful practitioners turn mistakes into assets by generating learning experiences and continuous improvement.

Remember to distinguish between clues that are necessary, vs. a complete picture revealing a group of necessary AND sufficient measures.

Markets can be generally explained 95% of the time, but extreme events happen much more than a bell curve would indicate…using options guarantees that we’ll survive fat tails and grab positive skew.

We are certain we DON’T know what will happen, so the best approach is to figure out what WON’T happen and blueprint accordingly.

Diversification reduces risk most of the time, but we assume all assets are linked and eventually correlate.

It is critical to have both a brain and a gut; the ability to find an edge, and the fortitude to trade it aggressively.

Profitable opportunities are best entered in the earliest stage of latent power being converted to energy. Too soon is a waste of capital, too late involves too much risk.

Virtually all long-term strategies are positioned to simply ride the tailwinds of rising prices. It is imperative to have methods to protect us from both headwinds and crosswinds to avert disaster.

Treat volatility as a psychological risk to be managed into an ally, not as a financial measure of risk to obsess over.

Why Intelligent People Traders Fail

  
  Education
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1. Lack of motivation. A talent is irrelevant if a person is not motivated to use it. Motivation may be external (for example, social approval) or internal (satisfaction from a job well-done, for instance). External sources tend to be transient, while internal sources tend to produce more consistent performance.

2. Lack of impulse control. Habitual impulsiveness gets in the way of optimal performance. Some people do not bring their full intellectual resources to bear on a problem but go with the first solution that pops into their heads.

3. Lack of perseverance and perseveration. Some people give up too easily, while others are unable to stop even when the quest will clearly be fruitless.

4. Using the wrong abilities. People may not be using the right abilities for the tasks in which they are engaged.

5. Inability to translate thought into action. Some people seem buried in thought. They have good ideas but rarely seem able to do anything about them.

6. Lack of product orientation. Some people seem more concerned about the process than the result of activity.

7. Inability to complete tasks. For some people nothing ever draws to a close. Perhaps it’s fear of what they would do next or fear of becoming hopelessly enmeshed in detail.

8. Failure to initiate. Still others are unwilling or unable to initiate a project. It may be indecision or fear of commitment.

9. Fear of failure. People may not reach peak performance because they avoid the really important challenges in life.

10. Procrastination. Some people are unable to act without pressure. They may also look for little things to do in order to put off the big ones. (more…)

Principles of Peak Performance

  
  Education
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peak-performanceThe first principle of peak performance is to put fun and passion first. Get the performance pressures out of your head. Forget about statistics, percentage returns, win/loss ratios, etc. Floor-traders scratch dozens of trades during the course of a day, but all that matters is whether they’re up at the end of the month.

Don’t think about TRYING to win the game – that goes for any sport or performance-oriented discipline. Stay involved in the process, the technique, the moment, the proverbial here and now.! A trader must concentrate on the present price action of the market. A good analogy is a professional tennis player who focuses only on the point at hand. He’ll probably lose half the points he plays, but he doesn’t allow himself to worry about whether or not he’s down a set. He must have confidence that by concentrating on the techniques he’s worked on in practice, the strengths in his game will prevail and he will be able to outlast his opponent.

The second principle of peak performance is confidence. in yourself, your methodology, and your ability to succeed. Some people are naturally born confident. Other people are able to translate success from another area in their life. Perhaps they were good in sports, music, or academics growing up. There’s also the old-fashioned “hard work” way of getting confidence. Begin by researching and developing different systems or methodologies. Put in the hours of backtesting. Tweak and modify the systems so as to make them your own. Study the charts until you’ve memorized every significant swing high or low. Self-confidence comes from developing a methodology that YOU believe in. (more…)

Key Ingredients to Performing Your Best

  
  Education
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1.  Passion. You must be passionate about what you re doing and having fun. Passion first, then performance.
2.  Confidence. Top performance comes from having a high degree of confidence. You must have the confidence that you can take control and face adversity. You must also be confident that you will have a favorable outcome over time.

 3.  Concentration. Peak performance comes from exceptional  CONCENTRATION. You must concentrate on the process, though, not the outcome A sprinter who is in the lead is thinking about the wind on their face, how relaxed their arms are, feeling the perfect stride…they are totally in the moment. The person who does NOT have the edge is thinking, “Oh, that runner is pulling ahead of me…I don’t know if I have enough wind to catch the leader…” They are tense and tight because they are thinking about the outcome, not the
process.

4.  Resiliency. Great performances come from being able to rebound quickly and forget about mistakes.
5.  Challenge. Great performance comes from pushing yourself and trying to overcome limitations. Staying in the safe zone becomes a monkey on your back. Challenge yourself to take that hard trade. Manage it. If it does not work out, so what…your risk was limited and you can pat yourself on the back for taking the hard trade in the first place.
6.  See and DO … don’t think! Great performance comes from turning off the brain
and becoming automatic. This is being in the Zone …in the groove. You can’t overanalyze the markets during the trading day.
7.  Relaxation. When you are relaxed, your reflexes and timing are superior because
you are loose.

5 Qualities of the Top Super Traders

  
  Education
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1. A belief that you create your results in life.
Most people don’t understand this concept. They repeat the same mistakes over and over again because they blame their mistakes on external factors. For example, if you blame your bankruptcy in one of my marble games on the person who pulled the 5R marble against you, you are not taking responsibility for your position sizing error of risking 20% (or more!) of your equity on a single trade. Consequently, you’ll repeat this mistake over and over again and there will always be someone to blame for pulling the 5R marble against you.
Conversely, top traders are constantly determining how they produced their results and working to correct their mistakes. They create their reality.
2. The interest and desire to really understand yourself.
You cannot understand how you create your own results if you don’t know yourself intimately. I believe that most people live their lives like the automatons in the movie, The Matrix. They just do their thing, not realizing how much they have been programmed by their culture, and their family and friends rather than understanding that they always have a choice in everything.
The great traders I know continually study and challenge themselves, their thinking, their actions, and their reactions.
3. Discipline to continually work to improve yourself.
Top traders often have a passion to work on themselves. A good trader will probably complete the Peak Performance Course once or twice and internalize many aspects of it. A top trader, or a potential top trader, will go through the course many times and develop a discipline that involves spending 1-4 hours each day working on improving himself or herself. (more…)

Overtrading is Recipe for Failure

  
  Education
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Being a professional trader requires a great deal of energy. Like all professionals, there will be times when you are expected to perform at a high level when you feel less than at the peak of your powers. Psychological and physiological effects of family crises and personal health problems, for example, can trigger fatigue and cloud your judgment. However, the most common cause of fatigue or burnout is overtrading. (more…)

Why Traders Fail

  
  Education
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Why Intelligent People Traders Fail

1. Lack of motivation. A talent is irrelevant if a person is not motivated to use it. Motivation may be external (for example, social approval) or internal (satisfaction from a job well-done, for instance). External sources tend to be transient, while internal sources tend to produce more consistent performance.

2. Lack of impulse control. Habitual impulsiveness gets in the way of optimal performance. Some people do not bring their full intellectual resources to bear on a problem but go with the first solution that pops into their heads.

3. Lack of perseverance and perseveration. Some people give up too easily, while others are unable to stop even when the quest will clearly be fruitless.

4. Using the wrong abilities. People may not be using the right abilities for the tasks in which they are engaged.

5. Inability to translate thought into action. Some people seem buried in thought. They have good ideas but rarely seem able to do anything about them. (more…)

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