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The Power of Focus

  
  Education
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Let’s take a break and look at some trading psychology tips. Today our ideas are coming from one of my favorite books that’s not really trading-oriented. We’re going to be looking at a few highlights from a book called “The Power Of Focus”, by Jack Canfield, Mark Hansen, and Les Hewitt. While there’s no way to do the book justice in our limited space here, hopefully you’ll take away some of the more important pieces of the book. And best of all, you’ll be able to apply them immediately.

Your habits will determine your future. This is not news to any of us, but what I found interesting was something of an aside in the book. The book contends that the results of bad habits don’t show up until well after the habit has been learned. That’s unfortunate too, as we all know that it’s incredibly difficult to unlearn something. The implication is that that you’ll be engaging in a destructive behavior, but you may not know it until it’s far too late to actually do anything about it. In fact, up to 90% of your everyday behavior is based on habits. Have you made it a habit to spend an hour a day preparing and doing trade research? Have you committed to waking up an hour earlier to plan your trading or work day? Or do you hit the snooze button a few times, and miss out on reviewing the news and charts of your positions? Habits are the key to success.

Your goals must have a number. And this doesn’t just mean the total returns on your trades, as an overall goal is still too ambiguous to actually use in making daily plans. You need to know how many trades per day, week, or month it will take to achieve your goal. Of course, you’ll also need to know what type of return you need to average on each trade to reach that goal. As the book states so accurately, “a goal without a number is just a slogan.”

Take decisive action. They say 80% of success is showing up, and that’s probably a pretty good rule of thumb. So how does one “show up” to be a trader? By taking trading action! And if you’re not taking the action you know you should be taking, you absolutely must understand and admit that you’re procrastinating. Stings, doesn’t it? But recognizing the truth is the first step to attacking any problem. The book explains six reasons for procrastination; think about which ones apply to you.
1) You’re bored.
2) You’re overwhelmed.
3) Your confidence has slipped.
4) You have low self-esteem.
5) You don’t enjoy what you do.
6) You’re easily distracted. (more…)

Trading Emotions

  
  Education
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Confidence Without confidence it is not possible to achieve much in other streams of life. In the equity markets, it is doubly true. If you lack in self-confidence, doubts may creep up in your mind. This may lead to indecision, which in turn lead to missed opportunities and losses. For day-trading and short interval trades, confidence is of utmost importance.On the other hand, on down days be careful. In many instances, you may be tempted to book small profits just to make your day balance sheet look pretty. This is not the issue. When you are faced with loss-making trades sooner or later, that same daily balance sheet will not look pretty at all.Never be far away from the correct principles of trading no matter what your mind is tempted to think. It is just too painful to reinvent the wheel.
Discipline
In order to be a successful investor/trader, you must be very disciplined. Stick to the plan of action. This means that you will stick to trading policies, trading plans and so on. Know your objective and work accordingly.
Ideas
Do not seek to implement new ideas that come all the time during markets. Remember, ideas are just ideas. If you feel there is value in them, they have to be thought about, refined, tested and then brought to the trading room. If you try to implement new ideas immediately to trading all you will do is to erode capital and confidence.
Hope
Do not allow hope to loiter anywhere close to your trading system. Hope has the potential to do maximum damage to your capital.

10 Powerful Psychological Traits of the Rich Trader

  
  Education
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Ten Powerful Psychological Traits of the Rich Trader

  1. They have the ability to admit they were wrong and get out of a trade. They know the place where price proves them wrong.
  2. They have the ability to not only close a losing trade but reverse and go in the other direction when it is called for.
  3. The rich trader is not trying to prove anything about themselves they are focused on making money.
  4. They do not fall in love with an idea, currency, commodity, or stock they will make trades based on price action.
  5. Rich traders know that the market action is their ultimate boss regardless of their opinions.
  6. No matter how sure they are about a trade they still ALWAYS manage the risk.
  7. Rich traders get more aggressive when winning and trade smaller or take a break during a losing streak.
  8. A great trader is one that can admit to anyone that they were wrong.
  9. Rich traders do not believe their own hype, they know they can not really predict the future they can only react to current reality and the probabilities.
  10. Rich traders love what they do, win or lose.

When you are trading like that, it is hard to be beaten. Time is your friend.

Trading Errors

  
  Education
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 Ignoring the downside of a trade. Most traders, when entering a trade, look only at the money they think they will make by taking the trade. They rarely consider that the trade may go against them and that they could lose. The reality is that whenever someone buys a futures contract, someone else is selling that same futures contract. The buyer is convinced that the market will go up. The seller is convinced that the market has finished going up. If you look at your trades that way, you will become a more conservative and realistic trader.

Taking too much risk. With all the warnings about risk contained in the forms with which you open your account, and with all the required warnings in books, magazines, and many other forms of literature you receive as a trader, why is it so hard to believe that trading carries with it a tremendous amount of risk? It’s as though you know on an intellectual basis that trading futures is risky, but you don’t really take it to heart and live it until you find yourself caught up in the sheer terror of a major losing trade. Greed drives traders to accept too much risk. They get into too many trades. They put their stop too far away. They trade with too little capital. We’re not advising you to avoid trading futures. What we’re saying is that you should embark on a sound, disciplined trading plan based on knowledge of the futures markets in which you trade, coupled with good common sense.

Patience, Preparation and Performance

  
  Education
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Everything is difficult before it becomes easy.

With the current volatility of the financial markets, it is extremely important that each of us resolve to be patient in our decisions and not make snap judgments. These can create future disaster.

The most successful individuals around the world have a foundation of processes that they utilize consistently, no matter whether the markets are trending with clear direction or being extremely volatile.

Each of us needs to be patient and allow the trading plans that we use to provide points of execution for trades. We need to be prepared for any and all movements in the market, yet stay committed to our plan and then perform with a self-confidence that ensures that we do not stray away from the steps of our plan.

Patience, preparation and performance surrounded by a solid trading plan along with money and risk management will produce the highest probability for profitable success.

Preparation combined with Opportunity creates a new word I would like to give to you — Prepartunity. Every day provides new opportunities for us. If we are prepared then we will receive the highest results possible.

How good is your WHY?

  
  Education
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I’ve been taking a minor natural break in trading over recent weeks, and in the meantime I’ve been pondering the power of the “WHY” I have when entering trades. You need a good why, no matter what you are doing in life, but especially when you walk into one of the toughest and most volatile markets in the world and put your money on the line.

What’s your WHY?

I can see looking back that the vast majority of my trading had a feeble why behind them; no wonder I lost cash hand over fist. Really my reason for entering was that I just wanted to enter, thats all. The second problem most likely is that even when I THOUGHT I had a good reason, the idea behind it was faulty.

So you can have no reason to enter, or you can have a wrong reason to enter.

Also I notice on the forums that the VAST MAJORITY of newbie / semi newbie traders there are trying to formulate their own personal why. Their own UNIQUE system, inventing unique indicators.

They think that the idea of the game is to outsmart everyone else in the market; to be unique. The obsession with system creation or inventing new indicators has being unique and outsmarting everyone else behind it as a hidden motivation. The thing with markets though is that its not about you, its about consensus. If you invent your own amazing oscillator and you are the only person in the world looking at it, then how good a reason is this to enter the market? How much consensus do you have behind you? Who supports your decision? Who agrees with you?

Probably nobody, except a handful by pure chance.

There’s more to say on this, but ponder your WHY when you pull the trigger. How good is that why?

Why You May Never Make Money as a Trader

  
  Education
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While there are a lot of traders out there, many of them don’t make any money. Well, it’s time for a wake-up call folks. Here are six reasons why you do not — and may not ever — make money as a trader:
Nomoney
You don’t put in the proper amount of effort. You don’t put in the full-time commitment it requires to be profitable in trading because you treat it like a hobby. Trading is not a part-time job. It’s serious business.

  1. Failure to be disciplined and consistent with your process. There’s no excuse for this. It’s all up to you.
  2. Trading like a gambler instead of a trader. You’re taking irresponsible risks rather than thinking in terms of probabilities and trading when you have an edge.
  3. Actually putting on trades without a solid game plan. What are you thinking? You must know your game plan and execute it.
  4. You over think things. Trading is a simple game — up, down, sideways. Keep it simple and make money.
  5. Not trusting yourself to do what you know you need to do. You spend too much time listening to other people. Trust yourself and execute what you know.

The good news: every one of these things is entirely in your control. All you have to do is choose to make things happen.

 

Psychological

  
  Education
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The goal of any trader is to turn profits on a regular basis, yet so few people ever really make consistent money as traders. What accounts for the small percentage of traders who are consistently successful is psychological—the consistent winners think differently from everyone else.

The defining characteristic that separates the consistent winners from everyone else is this: The winners have attained a mind-set—aunique set of attitudes—that allows them to remain disciplined, focused,and, above all, confident in spite of the adverse conditions.

Those traders who have confidence in their own trades, who trust themselves to do what needs to be done without hesitation, are the ones who become successful.They
no longer fear the erratic behavior of the market. They learn to focus on the information that helps them spot opportunities to make a profit, rather than focusing on the information that reinforces their fears.

You don’t need to know what’s going to happen next to make money; anything can happen, and every moment is unique, meaning every edge and outcome is truly a unique experience.

The trader that it’s his attitude and “state of mind” that determine his results.

Thirty Trading Rules for Traders

  
  Education
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1. Buying a weak stock is like betting on a slow horse. It is retarded.
2. Stocks are only cheap if they are going higher after you buy them.
3. Never trust a person more than the market. People lie, the market does not.
4. Controlling losers is a must; let your winners run out of control.
5. Simplicity in trading demonstrates wisdom. Complexity is the sign of inexperience.
6. Have loyalty to your family, your dog, your team. Have no loyalty to your stocks.
7. Emotional traders want to give the disciplined their money.
8. Trends have counter trends to shake the weak hands out of the market.
9. The market is usually efficient and can not be beat. Exploit inefficiencies.
10. To beat the market, you must have an edge.
11. Being wrong is a necessary part of trading profitably. Admit when you are wrong.
12. If you do what everyone is doing you will be average, so goes the definition.
13. Information is only valuable if no one knows about it.
14. Lower your risk till you sleep like a baby.
15. There is always a reason why stocks go up or down, we usually only learn the reason when it is too late.
16. Trades that make a lot of intellectual sense are likely to be losers.
17. You do not have to be right more than you are wrong to make money in the market.
18. Don’t worry about the trades that you miss, there will always be another.
19. Fear is more powerful than greed and so down trends are sharper than up trends.
20. Analyze the people, not the stock.
21. Trading is a dictators game; you can not trade by committee.
22. The best traders are the ones who do not care about the money.
23. Do not think you are smarter than the market, you are not.
24. For most traders, profits are short term loans from the market.
25. The stock market can not be predicted, we can only play the probabilities.
26. The farther price is from a linear trend, the more likely it is to correct.
27. Learn from your losses, you paid for them.
28. The market is cruel, it gives the test first and the lesson afterward.
29. Trading is simple but it is not easy.
30. The easiest time to make money is when there is a trend.

Three Essential Components

  
  Education
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Every winner needs to master three essential components of trading; a sound individual psychology, a logical trading system and good money management. These essentials are like three legs of a stool – remove one and the stool will fall, together with the person who sits on it. Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems. Your trades must be based on clearly defined rules. You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound. You have to structure your money management so that no string of losses can kick you out of the game.”

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