Integrating Left Brain and Right Brain Thinking for Balanced Trading
Trading seems so easy on the surface. Traders, while learning a methodology, are told (and believe), "Just follow the rules of your methodology and trading plan and you are on your way to achieving your dreams. Oh, and by the way, keep your emotions in check."
This little add-on after-thought, "just keep your emotions in check", comes to haunt nearly every trader until they learn to master and learn from their emotions. Curiously the highly left brained orientation (logical problem solving skill sets) of trader educational systems blind both educators and traders to the influence that our right brain (our emotional brain) has over a trader's capacity to think...
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Learning to trade is much more than just learning a strategy and applying it. In my classes I try to emphasize how important the psychological side of trading is to your trading success. This is why we could give 10 traders a completely mechanical trading system with very specific rules, and at the end of the month, there will most likely be 10 different results. Even though everybody was given the exact same rules to follow, human nature will cause people to override the rules because of the different psychological make-ups we all have.
Here are some of the things that could impact the results of this study:
Some traders will not accept losses and move their stops or worse, not have one in the market
Some traders will place their...
I recently went to watch my 13 year old nephew, Joey, play in a baseball tournament. Every parent / grandparent / uncle is quick to brag about their son / grandson / nephew's athletic ability. I am no different. Joey is an exceptional baseball player. He is exceptional in that he is a switch hitter with power from both sides of the plate. Besides that, he has an amazing ability to draw walks because is so patient at bat. He has roughly 150 at bats with 40 walks and an on base percentage of 600. When I asked him how he was able to be so patient and draw so many walks, he said with a profound simplicity, "I don't swing at crap. It's not that hard." (I could write an entire article about that as it pertains trading).
Joey's...
Trading Psychology - Learn from Tennis Champions to Develop Mental Toughness
Occasionally, we get to 'look' inside the mind of a great performer. This year's programming for the Wimbledon Tennis Championships offered such an opportunity. What many consider the greatest tie-break in tennis history - the completion of the fourth set of the 1980 Wimbledon Men's Final between John McEnroe and Bjorn Borg - was replayed point-by-point with both McEnroe and Borg providing commentary. We got to see and hear what was going on in the minds of two great tennis champions.
Momentum Shift
McEnroe won the tie-break, 18-16, bringing the match to dead-even with one set left to play. Although the match was even, momentum had clearly shifted to...
Debra looked at the candle on the daily chart. It was yesterday's candle and it was red just like several before it; and it looked good. You see, it represented a pull-back from a high several days ago on the YM E-mini. The high was the latest in several higher highs and higher lows that stretched back a few months representing a strong upward trend. What looked attractive to her was the fact that the price action had bounced off a 10-period and a 15-period exponential moving average several times, and as well the highs pulled back off significant resistance levels several times. On this day, the price action's pull-back was hitting a significant support level, which also happened to be coinciding with an upward cross-over of the two...
In my top 3 books about trading rests Trading in the Zone by Mark Douglas. I found this book to be the most helpful trading book in my earlier days of learning to trade. I find it interesting that one of my favorite books on trading doesn't have 1 chart, indicator, setup, or any full methodology within its pages. It is almost entirely about individual trader psychology, and I have learned that this is the crux of the trader's issue. The traders mind, both friend and enemy, both roadblock and engine.
Mark Douglas, in this book, was the first to introduce me to trading in samples. I had heard about it in passing, but never paid any real attention to it as it seemed to me an obscure way to deal with trader psychology. Why not just focus...
FALLING IN LOVE WITH A TRADE
How Loss Aversion and Regret Impact Trading Performance
In his book, Blink, Malcome Gladwell describes an event where the experts from the J. Paul Getty Museum in California encouraged the museum's purchase of a marble statue purported to be from the sixth century B.C. The statue was an amazingly rare piece with an estimated value of just under $10 million dollars. There was only one problem. The experts from the Getty museum failed to detect what outside experts had suspected and then later confirmed; the statue was a fake. So why were the Getty museum's experts not able to confirm what outside experts suspected at first glance? Because the Getty museum's curators desperately wanted the statue to be...
In college, I was on the track team, and I distinctly remember a very powerful experience during a conference track meet. It was the end of a long day, the last call for the mile relay, with a slight chill in the spring air and overcast skies. In the stands, a radio played a very loud rendition of "Ain't No Stoppin' Us Now." We were neck and neck for winning the conference meet with a rival. You can imagine how motivated we were to bring our "A" game for the win.
The mile relay was the final meet event and our last chance. My teammate, Steve, and I were making our way to the starting line when the coach told us that Jim, our best quarter miler, was sick and the order of the relay would be changed. Steve, a strong competitor, was picked...
My wife and I are Olympic junkies. There are only a couple of television shows that we will watch together during the week. But when the Olympics are on, there is a lot of family TV time.
Having played hockey in my youth, I was of course glued to the TV for the men's USA vs. Canada gold medal hockey game.
The game was as spectacular as we all hoped it would be; clean checking, great play-making, fast action. What more could you ask for? Well, I suppose I could have asked for the US to score in overtime to win the game. But Canada did seem to out-play the US just a bit, so I was not terribly surprised at the outcome. Nor was I terribly surprised at the look of despondency on the US players? faces as they received their silver medals...
The Australian Open Tennis Championship is now over and there is a lot we as traders can learn about trading psychology from the men's final between Roger Federer and Andy Murray.
Federer, arguably the best player to ever have swung a tennis racquet, beat Andy Murray, the British hopeful, in three straight sets. Federer has won more grand slam titles (sixteen in total) than any other male player in the history of the sport. Despite this incredible record, Andy Murray has played Federer better than any other player on the tour. In fact, Murray has won more matches against Federer than he has lost (6-5). So, what might have contributed to this loss and what lesson can we, as traders, learn?
A Lack of Drive?
It certainly wasn't a lack...
In the 1970s, I grew up with the Bradys. Bobby, Cindy, Marsha, Jan, Greg, Peter, they were all my friends. Not only did we all spend 30 minutes together every day, but I'm more than a little embarrassed to admit that we shared quite a bit of the same fashions.
It's not difficult for me to recall an entire Brady Bunch story line after just a few seconds into a rerun. And I have to admit, I still get hooked whenever I see the Brady kids perform their songs with those unmistakable dance moves.
In my top 10 favorites is the episode where Peter Brady's voice begins to crackle under the pressures of teenage adolescence. Because of this, the Brady children wrestle with dropping Peter from their upcoming singing performance. The family is in...
Back when John Belushi and Dan Aykroyd were regulars on Saturday Night Live (SNL), a younger and wilder Steve Martin frequently joined that outrageous cast during guest-appearances. A relatively new face in comedy, Steve Martin fitted in perfectly. I remember some absolutely hilarious SNL moments from those days.
One particular skit that Steve Martin did stands out in my mind. It was called, "How to be a millionaire and not pay taxes." Standing all alone on stage wearing his trademark white suit and black tie, Steve Martin looked into the camera and carried on like a cheesy investment guru trying to rustle up clients with a ploy that went something like this:
"Yes, you too can be a millionaire and not pay taxes. How, you ask...
Many traders seem to know that a trading journal can be important to their success, but when asked why this is so, they draw a blank. Many traders do not understand how a trading journal can be a vital tool for self-development. This may be one of the reasons why many traders don't bother with one. Failure to keep a trading journal, however, is a disservice to the trader and may be an important factor in why traders continue to struggle with trading.
The Compounding Effect of Keeping a Daily Trading Journal
The trading journal is one of the best ways to improve your trading every day. If you were able to improve just a little each day, can you imagine how skilled you would be after, say, 90 days? What about a year? The effects...
A Christian Traders' Dilemma
I recently heard a story about a Texas hold'em poker player trying to reconcile the apparent contradiction between his Christian faith, which opposes gambling, and his desire to be a professional card player. With a bit of humility, he explained, When I sit down at that table, Jesus tells me, 'Son, you're on your own'.
As a Christian, my role as a steward of God's resources gives me pause about gambling. And as a trading coach, I continue to receive phone calls and emails from suffering traders who equate their trading with gambling. They ask me, Bill, do you think it's because God is against trading that I'm continually losing money? Does the Bible forbid trading?
Generally speaking, gambling is the...
Three Trading Psychology Tips to Better Handle Losses
Recently, I was asked by a trader if there was a medication available to help to keep the trader's mood up after a loss. This trader takes losses hard; he was looking for a way to not feel so bad when the inevitable losses occurred.
This is not the first time I've been asked this. As both a psychologist and a trader, I hear it more than others might. Often, the trader says it as a joke, Hey, if only there was a pill ". Yeah, if only there was a pill. I know that behind the supposed levity there is a serious request there, How can I feel good in the face of a loss" or, maybe more to the point, how can I not feel so terrible when I lose money in trading?
Medication is not a...
Trading psychology is a subject most books and so-called professionals keep separate from the mechanics and strategies of trading and investing. A reality largely misunderstood is that the underlying mechanics and strategies within trading and investing are a direct function of your psychological belief system. At any given time in the stock market, there are buy and sell invitations sent out in the form of news events, technical indicators, earnings reports, company announcements, brokerage upgrades and downgrades, and much more. These invitations are then received by the belief systems of tens of millions of traders and investors worldwide. What separates the consistently profitable market player from everyone else is a psychological...
It is time to revisit an ever important topic. I have been in the trading and trading education world for many years. This has allowed me to watch traders grow at different levels and reach different levels of success and failure. I have often wondered and speculated on the difference between those who achieve success and those who fail. For me, the answer lies in the proper definition of success when it comes to trading, or any occupation for that matter.
Let me explain a scenario that I have experienced hundreds of times with individuals going through trading education. There was a gentleman back in 1999 whom I met at a trading seminar. He walked up to me before it started and introduced himself. He had been reading my daily trading...
I was driving in my car the other night with my twin daughters when the conversation somehow turned to what they wanted to do when they grow up.
Naturally, being only nine years old, they had many ideas. There were those that I was very happy with - an astronomer, a veterinarian, a professional soccer player, or a guitarist in a rock band. And there were some suggestions that I just didn't like at all. Not that it's my decision! I'll naturally support them in whichever path they chose for their life; however let's just say a nine year old should not know what a Forensic Scientist does.
I asked if either were interested in trading, to which Caitlin replied, "But isn't trading just guessing?"
That was unexpected! I was a little taken...
At the core of any significant economic, political, scientific, social, medical, psychological or cultural theory lies a quest to understand and quantify the forces of change, action, or energy. The theories that attempt to quantify "force" that have stood the test of time, date back centuries and are extremely simple. In 1686, noted physicist Isaac Newton suggested in his laws of motion that an object will remain in motion until it is met with an equal or greater force. Noted economist Adam Smith suggested hundreds of years ago that when supply exceeds demand at a price level in a given market, price will decline. Smith and Newton didn't create or invent the laws and principles for which they are famous. Supply, demand, motion, and the...
The following situation happens quite often to many traders. Look it over and see if it has been happening to you:
You have been faithfully following your trading plan and the rules you've set for trading. By following them you are now in a trade that doesn't look so good. At the same time, by following your trading plan, you see that you've missed a beautiful move in a different market, one that could have made you a lot of money.
You are in a bad trade and you've missed out on a great trade. You become disgruntled. You think to yourself that your trading plan must not be so great. You think there must be a better methodology that you should use that will prevent this from happening. You think to yourself, "Yes! That's it, I'll...
While traders constantly search for new and improved methods on their quest for the "holy grail" trading system, they often overlook the most significant element that dictates their success. This inherent element is pacing. Proper pacing means you flow with the market. When the market is running fast out of the gate, so should you. When the market slows to a crawl, so should you.
In a nutshell, have you ever made nice profits in the first hour of the trading day only to give it all back gradually throughout the day? Uh huh.
Before I delve too far into this, let's first start off understanding why pacing is overlooked. Traders tend to believe that a method should be working in all market conditions at all times. When the method doesn't...
Three losses in a row are tough. That's about the most consecutive losses that novice traders are psychologically prepared to accept before they feel compelled to take action and 'correct' the situation.
If you're anything but a total newbie, I'm sure you'll recognize the symptoms:
Frustration - Why me? I've worked so hard. Everyone else in the forum appears to be getting good results with this strategy? Nothing ever works out for me.
Anger - That strategy developer is a liar and a crook. My broker is running my stops. Someone should be held accountable for this.
Doubt - What if the strategy doesn't work? What if I can't trade? How am I going to support my family?
Fear - I can't lose more money, what will everyone say about me when...
If we consider that the two key variables to achieving trading profitability are having a trading strategy with edge and a positive expectancy combined with the ability to consistently execute that strategy, then assuming a trader has the first one (and developing this is a primary concern) then it is the consistency of execution that becomes the key focus.
Trading Success Formula
Trading Strategy With Edge + Ability To Be Able To Execute It Consistently
/Positive Expectancy
In my work with traders I have seen many traders who do not have the first ingredient in place and this is the primary cause of their lack of trading success and also the emotional challenges that they have experienced. Of the traders...
One fascinating realization I have come across during my years as a private trading coach and instructor is how different female and male traders can approach, analyze and trade the markets. Without offering outrageous generalizations, it has been my experience that women possess a particularly logical mindset that can give them a substantial advantage in market speculating. Simply, the trading method I developed and use quantifies the supply/demand and human behavior relationship that ultimately determines price in any market. It is based on a very objective and mechanical set of criteria. In other words, the goal is to learn the method and then simply follow the rules. The female mind has a much easier time doing this than the male...
This is the second part of Jea's article entitled Trading on Borrowed Time. The first part is available here.
Most day traders are going to blow out their accounts, they just don’t know it yet. The same applies to almost every new trader entering the game. They are all on borrowed time, a disaster waiting to happen. It’s a gloomy picture, unless they take the right steps to prevent the impending disaster. The initial goal of trading is to diffuse the bomb before it explodes. It’s not about making money. This is what traders don’t realize until it’s too late.
The only way to diffuse the time bomb is by slowly building a foundation of knowledge and experience so that you will be properly equipped to handle all situations. I see newbie...
Have you heard the one about the poor guy who ends up lost in a minefield? Having no clue what to do, he prays, covers his eyes and walks a straight line. Miraculously, he survives. Brimming with confidence, he is convinced that if it happens again, he will employ the same technique to survive. Well, you can figure out the rest of the story. Boom. It’s just too obvious. That guy was simply on borrowed time.
This ‘guy’ could be any number of traders, including you, who trade in the same style. Finding themselves in that proverbial minefield with huge intra day losses. In a fit of desperation, they put on crazy Hail Mary trades with double, triple, and quadruple the normal size just looking for that miracle. You also know the ending to...
As a trader and educator, I have come across thousands of traders during the past 15 years. I can honestly say that I have never met or seen one trader be able to sit down in front of a screen each morning without a trading plan, look at a few charts, start trading, and make money consistently year after year. I am not saying it's not possible, I have just never seen it. The people you see do well have a trading plan. Of that group that does well, it is typically the people with the short, simple trading plans that do the best. The key is making sure your trading plan is yours and works for you. Make sure it ensures that almost everything that can be a rule, is a rule. These don't have to be the best rules, the fact that they are rules...
You go long and the market immediately goes down - you go short and the market immediately goes up. That's 2 consecutive losses, and you are getting a little 'anxious' so you don't take the 'next' trade. Of course, this trade is a winner. Now to make the situation worse, you then 'chase' the move, and as soon as you enter the trade it immediately reverses, thus giving you another loss - this is now 3 in a row. Ok one more "try" - this can't happen on every trade can it?
This time though, you will be real clever. You have noticed that the market is in a range, and it's the bounce from the low/retrace from the high that is causing all the problems. So this time, the next trade you take will be a range extreme fade AND the hell with your...
One day after a particularly spectacular trading debacle, my Uncle Joe took me aside and consoled me with some hard facts about how the stock market works. You see, Uncle Joe owns a very unique company and has an insider's perspective on how stock price movement is managed.
His company, Widgets & Co., is the only company in the States that distributes widgets, and it does so under license from the government. It has been buying and selling its unique widgets for many years. Now imagine also that these widgets have an intrinsic value, they never break, and that the number in circulation at any one time is the same. So, Uncle Joe, being a clever man with many years of experience managing his business, realized early on that just buying...
dis ci pline (n.) 1. Training intended to produce a specified character or pattern of behavior. 2. Controlled behavior resulting from such training. 3. A state of order based upon submission to rules and authority. WEBSTER'S CONCISE DICTIONARY.
How do you react to rules? Do you find them to be a burden, a drudgery to observe and obey? Do you look at them as something negative, a restriction to your freedom perhaps?
Or, do you instead see rules as beneficial, as a protection from possible harm? Do you find that rules are necessary in your trading?
While growing up, we were constantly confronted with rules of one type or another. We received rules in proper hygiene, how to address other people, how to respond to various signs on the...