1. Harness the power of intention
As you become more and more focused as a trader and as you learn to clear your emotions the power of your intention will become stronger and stronger. Begin the day by setting the intention that you will be successful, that you will be profitable, and that you will be safe. If possible visualize it, or feel that it will happen.
If any feelings or thoughts come up contrary to that intention (e.g. I lost yesterday perhaps I’ll lose today) go straight to the next point and clear that thought/feeling.
2. Clear limiting thoughts and emotions
Did anything happen yesterday or on previous trading days that is bothering you? Anything happening in your personal life that may be affecting your state of mind? Any recurring thoughts or feelings that come up during the trading day?
3. Brain power
Make sure that you have exercised and eaten properly so that your mind is clear and fresh. Have the right snacks at hand so that you can keep your blood sugar balanced, so that you mind stays fresh and optimally focused.
Timing
4. Know when you are going to trade
You may say “How do I know when I am going to trade ahead of time?”. In response I’d say, “if your trading system doesn’t tell you when you are going to be trading ahead of time, then you are missing out on a huge advantage”. As you’ll see from the various posts on cycle trading I am convinced that time is as important a factor in determining entries as price. This is why I use a combination of cycles and harmonics in addition to regular technical analysis to determine entries.
Adopting this trading methodology was the single biggest contributing factor for me in becoming a consistently profitable trader, because I can calmly prepare for the times that I am going to trade and I can relax my focus during the times when I know I should be on the sidelines.
1. What’s your game plan if it goes against you and threatens your survival?
2. Will you be able to get out? Did you take that into account in your workout?
3. More typically, what will you do if it goes way against you and then meanders back to give you a breakeven? Or if it immediately goes for you or aginst you?
4. Would you be willing to take a ½% profit if you get it in the first 10 minutes?
5. Did you test whether taking small opportunistic profits turns a winning system into a bad one?
6. How will unexpected cardinal events affect you like the “regrettably,” or the pre-annnouncement of something you expected for the next open? And what happens if you’re trading an individual stock and the market goes up or down a few percent during the day, or what’s the impact of a related move in oil or interest rates?
7. Are you sure that you have to monitor the trade during the day? If you’re using stops, then you probably don’t have to but then your position size would have to be reduced so much that your chances of a reasonable profit taking account of vig are close to zero. If you’re using 10% of your capital on a trade, they you’ll have to monitor it for survival. But, but, but. Are you sure you won’t be called away by phone calls, or the others?
8. Are you at equilibrium in your personal life? You’re not as talented as Tiger Woods, and you probably won’t be able to handle distressed calls for money or leaks on the home front. Are you sure that if you’re losing you won’t get hit on the head with a 7-iron, or berated until you have to give up at the worst possible time?
9. After the trade did you learn anything from the trade?
10. Are you organized sufficiently to have a record of all your trades for your accounting and learning?
11. Should you modify your existing systems based on it?
12. How does recency and frequency and value affect your future?
13. Did you fit your after activities to your mojo?
14. If you made a good profit, did you take some capital out of the fray for a rainy day?
15. Have you learned to say “fair” whenevever anyone asks you how you’re doing and are you sure that you don’t spend a fortune after a good trade, and dissipate your profits with non-economic activities?
16. Is there a better use for your time than monitoring the ticks or the market every minute of the day if you do, and if you don’t, do those who do so and have much faster and better equipment than you have an insurmountable advantage against you?
“Don’t think that trading is fun. The trading game should be boring the vast majority of the time, just like the real-life job you have right now.”
Don’t try to get even. This isn’t a game of catch-up. Every action you make has to stand on its own merits. Take your losses with detachment and make your next trade with absolute discipline.
Don’t ignore the warning signs. Big losses rarely come without warning. Don’t wait for a lifeboat before you abandon a sinking ship.
Don’t ignore your intuition. Listen to that calm little voice that tells you what to do and what to avoid. That’s the voice of the winner trying to get into your thick head.
Don’t project your personal life onto your trading. Trading gives you the perfect opportunity to find out just how messed up your life really is. Get your own house in order before you play the financial markets.
I am sure most of the questions on the eve of the third round of the British Open revolve around Tiger Woods absence. “What’s wrong with Tiger?” “Is he losing his mental edge?” “Is he hurt?” “Has something gone wrong in his personal life?” “Why so many mistakes?”
Here is my question: Why can we not celebrate the fact that Tiger Woods is human? He is human isn’t he? I know he is as mortal as we all are. That is what we all have in common. Why do we insist on him winning every tournament he enters? He won the last tournament he entered.
I think someone who always wins dies a slow death. You know, the Alexander the Great syndrome. “He [Alexander] wept with sorrow,” Plutarch said, “Because there were no more worlds to conquer.” (more…)
Learning to accept losses as part of the game and cutting them short is the single most important step towards becoming consistently profitable. It sounds simple, but in reality is extremely difficult for everybody. Why? Because we’ve been taught that giving up is for losers and we should fight till last breath. I certainly agree that you should not give up quickly, but only if you can influence the end result. Let me be clear, the stock doesn’t know that you own it and it doesn’t care that you cannot afford to lose the money. The market will strip your last cloth if you don’t know how to manage risk. You have to understand and accept your power. You cannot move the market. You cannot tell him where to go and how fast. This is why so many people, who are successful as entrepreneurs and engineers, have troubles breaking even in the capital markets. It takes a special kind of person. Someone, who can forget his ego and concentrate on what actually works. Very few people are able to reach that level and to distinguish their trading life from their personal life.
Trading or investing is a skill that can be learned. There are two ways to learn a new skill in general. Through the school of hard knocks and through the mentorship of others that have the gift of teaching. To become a successful trader, you need to somehow implement both approaches. Nothing can replace personal experience. You can hire the best mentors in the world to teach you and purchase the most expensive equipment and trading software, but this is not going to help you to build a new skill. Skill building is subdued to eternal physical laws. There are a hundred billion neurons in your brain. For every skill that you possess (speaking a language or driving a car), there is a certain combination of connections between some of your neurons. To build a new skill, you need to build a new net of connections. This is why every beginning is hard, this is why big changes do not happen overnight. You have to establish new connections, which takes hard work via repetition and visualization. (more…)
Lesson 1:
A man is getting into the shower just as his wife is finishing up her shower, when the doorbell rings.
The wife quickly wraps herself in a towel and runs downstairs.
When she opens the door, there stands Bob, the next-door neighbor.
Before she says a word, Bob says, ‘I’ll give you $800 to drop that towel.’
After thinking for a moment, the woman drops her towel and stands naked in front of Bob, after a few seconds, Bob hands her $800 and leaves.
The woman wraps back up in the towel and goes back upstairs.
When she gets to the bathroom , her husband asks, ‘Who was that?’
‘It was Bob the next door neighbor,’ she replies.
‘Great,’ the husband says, ‘did he say anything about the $800 he owes me?’
Moral of the story:
If you share critical information pertaining to credit and risk with your shareholders in time, you may be in a position to prevent avoidable exposure. (more…)
According to Mark Douglas…
In any particular trade you never really know how far prices will travel from any given point. If you never really know where the market may stop, it is very easy to believe there are no limits to how much you can make on any given trade. From a psychological perspective this characteristic will allow you to indulge yourself in the illusion that each trade has the potential of fulfilling your wildest dream of financial independence. Based on the consistency of market participants and their potential to act as a force great enough to move prices in your direction, the possibility of having your dreams fulfilled may not even remotely exist. However, if you believe it does, then you will have the tendency to gather only the kind of market information that will confirm and reinforce your belief, all the while denying vital information that may be telling you the best opportunity may be in the opposite direction.
There are several psychological factors that go into being able to assess accurately the market’s potential for movement in any given direction. One of them is releasing yourself from the notion that each trade has the potential to fulfill all your dreams. At the very least this illusion will be a major obstacle keeping you from learning how to perceive market action from an objective perspective. Otherwise, if you continually filter market information in such a way as to confirm this belief, learning to be objective won’t be a concern because you probably won’t have any money left to trade with (italics mine).
From Chapter Four of THE DISCIPLINED TRADER
