As traders, we soon come to realise and appreciate how difficult it can be to take money consistently from the markets. We learn that to have a chance of doing so requires us to make a lot more effort than we may have imagined. We need to have extensive knowledge of the markets and instruments we intend to trade, a sound grasp of technical analysis, a thorough macro-economic overview and also to have secured for ourselves an appropriate amount of "risk" capital. However, most importantly, and the issue this article seeks to address, is the effort that is required to study ourselves when we trade and specifically to understand how the patterns of behaviour we come to observe in ourselves whilst trading, once identified, can be...
Articles
There are too many items to keep track of in the market. The trader must understand that he cannot "know it all". If you could, you would be the ultimate trading machine. This being said, we realize that we are imperfect. We have only 100% of our mental energy to use in any given time frame. Some of it is used in maintaining our bodies - breathing, walking, talking, etc. Some is used in keeping track of our lives - what time is it, did I turn off the coffee pot, and did I pay the phone bill? Most of it is used in trying to understand the complexity of our world - the sensory input from our senses and their identification and categorization. In using this last energy, we tend to trap ourselves into sorting out signals and identifying...
Have you gone out of your way NOT to take care of your Trading results? Why would some traders deliberately hamper their success - make trading decisions that are doomed to fail?
A video tutorial with chart examples of real trades is illustrated in this tutorial, where traders sabotage their success;
http://www.4x4u.net/review/sabotage/sabotage.html
Self Sabotage behaviour is when there is no logical or rational explanation of your action. It is making the same mistake over and over gain. Self sabotage is not following your rules, or in many cases not having a trading plan.
How do you break free from self-sabotage behavior?
Just think where you could take yourself if you were able to manifest your goals, you are able to take care of...
If you buy a stock for $50 and it reaches an all time high of $100, but you sell at $75, why do you feel that you've made a loss?
Minds and Markets
In most people's minds finance and economics are the domains of clear, quantitative thinking. Economists merely uncover financial truth one after another as they develop new mathematical tools for modeling capital and how wealth is created. Markets, likewise, are ethereal natural forces tapped into rather than created. In truth, the assumptions that underly the pricing models used for the past three decades are based on two basic principles:
Meanwhile, down the hall on university campuses, researchers in cognitive science have uncovered evidence that humans are not quite the rational...
Over the years, traders have pointedly asked why they should spend so much money for Neuro-Linguistic (NLP) counseling to solve their trading problems. A fair number of these traders have gone through traditional therapy, taking months or years, of weekly and bi-weekly sessions that are relatively inexpensive per session. If these same traders have not achieved the results they wanted through such an extended therapy, how can I justify asking for a major financial commitment for two days of work? An excellent question, I will begin my answer by telling one of my favorite stories:
$1.00 for tapping
$999.00 for knowing where to tap
Psychological Changes Happen Instantly
Just as it is important to know where to tap to get machinery...
Wise trade selection can be a key good trading. So how do you start to select those all important trades?
Your trading week can bear witness to the fulfillment of a lot of long range planning, and the big payoffs that such planning brings to those who are wise and patient-those who want the best of the best. Many times it really pays to be patiently waiting for a trade to burst forth and make some nice gains.
A number of the spreads we do are the result of patient waiting for the two sides to come into proper alignment. We plan these trades days or even weeks in advance.When a major entry signal such as the breakout of a Ross hook are being made, every effort within reason should be made to be aboard, even if only for a couple of...
Stick With The Plan
This may seem like a common sense statement, but the reality of market timing is that the majority of timers "think" they can stick to a timing strategy, however when the market moves against them, as it always does as some point, they are swayed by financial news stories, the desire to be "with" the crowd, and their own emotions, often exiting the strategy at exactly the wrong time.
Think about it. Let's use a fictional market timer named Mark for this example.
Mark has a strategy he knows has, over many years, outperformed the stock market. Mark knows going in there will be times when the strategy will lose. He sees this in the historical trades. He accepts this or at least he thinks he does.
But then, the...
Our neurological system is comfortable with our habitual behavior patterns and will support us with that status quo. So if you are losing, winning or leveled out with consistent profits but not growing, you are very likely to stay in that situation unless you are willing to do what is necessary to stretch. Most people who want to increase their performance are willing to read a book or go to a seminar, but not willing to consistently follow through on what they have learned over the long haul. The question is, what does it take to stretch, and are you seriously willing to make that commitment? If you are not, then expect the same results. If you are, then get ready to take a ride on a trip to the next level of success where, in six...
Does your ego get in the way of your trading? After a couple of wins do you think you can't fail and go on to lose all your days gains? Here we look at ego and how to control it when trading.
Imagine a stage populated by the main characters that comprise your inner "trading decision making committee". It's a short odds bet that the loudest shout for leading man / woman will come from the ego. Brushing aside rationality and requests for inclusion alike, the ego will pronounce his / her pre-eminence and sieze control.
Trading is a magnet for ego. It is full of promise and challenge and all egos relish a good scrap,especially when the odds are stacked against them and they have a sniff of heroism in the sweetened air. Statistics that...
Jack is a trader, but not the cool, calm, collected sort of trader you would think. Yet he stills manages to be profitable by tailoring a trading strategy to suit his mindset. So how does he do it?
Our Jack is a trader. Not that you'd employ him because he is not the cool, calm, non-emotional, confident and steady-under-fire character of the job description. A highly emotional chap is our Jack. He is always scared stiff and sure every trade is going to go wrong. He hates losing and any loss wounds him deeply and stays with him for weeks. He is as greedy as hell and absolutely hates giving money back and watching his profit deteriorate. On top of all that, he's frozen fingered and can always be relied upon to come up with some reason...
Are we actually now in the bear market? And was the fall we saw in May only a prelude of what is to come? Here we take a look at the current market situation.
The markets spent most of the week preceding the Labor Day weekend hesitating right at key Short-Term resistance, as marked in our last article. This led to some pretty miserable trading conditions, as Wednesday and Thursday yielded a painfully tight 4 point range in the S&P. This is just about as tight I have seen the markets. By Friday, the market managed to break through and sustain above our 1303 mark in the S&P500, and this puts a new multi-year high into play over the short-term for the S&P500. For the DOW, a new all-time high comes into play over the Short-Term with...
There are times when all traders question their logic for entering a particular trade. Here Dr Doug examines how to maintain your objectivity when trading.
Perhaps one of the most challenging skills in becoming a successful trader is Maintaining Objectivity in trades. While there are a variety of factors which contribute to you losing objectivity in a given situation, there is a clear and defined path you can follow to re-gaining it. In simple terms, it is called Thinking Backwards.
The Issue
More times than not, losing objectivity occurs when you micro-manage a situation. It may be in the form of watching the tape or over-thinking a position but in essence, you lose sight of the MACRO picture or WHY you were in the trade in the first...
Trading is a stressful business, none of us would deny this. This article looks at ways of reducing stress levels to ultimately make us more relaxed and profitable traders.
The Health & Safety Executive defines stress as "The adverse reaction people have to excessive pressure or other types of demand placed on them".
Trading is precisely the kind of profession that provides plenty of "the excessive pressure" that causes stress. And unless managed properly, stress can have an extremely negative effect on your ability to trade effectively.
Stress can make you excitable, anxious, jumpy and irritable - not exactly the ideal attributes conducive to profitable trading. Stress can interfere with your ability to formulate judgments and...
What sort of trader are you? A Trigger Happy Terry or a Fatalistic Fred. In this article the author looks how most traders fall into certain trading 'types'.
?Know thyself? exhorted the ancient Greeks. Pursue intelligent, disciplined self enquiry and you will come to understand the treasures of the self. This timeless Delphic dictate could, I believe, serve well as a focus for effort for those who today would profit from trading the financial markets. Know your own strengths and weaknesses, physically, mentally, emotionally and spiritually. Accept and understand them and learn how they relate to and feature in the market environment and you give yourself some valuable edges.
You gain clarity of purpose. You have the conviction to...
An initial article giving a brief opening look at the psychology around trading.
After many long hours, you have completed a system that you have incorporated into your trader's business plan. Your money management strategy is within the bounds of your comfort range and you start to trade following your system's rules. Despite the fact that you have completed all of this work, you find that you are still losing money while your system is showing that you should be making money. This is when you discover the importance of the Psychology of Trading. Or do you?
At this point, most traders maintain the status quo and refuse to admit that a psychological issue might be holding them back from following their rules. Those traders who are...
Trader education has become a hot topic in recent years. Everywhere you look there is someone offering some course, seminar, training program, or whatever. Many are very pricey, and we can certainly debate the real value of quite a few. The proliferation of the products and such can't help but bring up some of the commonly debated topics related to whether traders can be taught or just have some innate talent which allows them to succeed. This article makes its own contribution to that discussion.
In the interest of openness, my personal view is that anyone can learn to trade effectively. By that, I mean we are all capable of trading toward a reasonable and rational set of goals and/or objectives determined by our own personal...
So you want to be a day trader huh?, really???, hmmm, well isn’t that special!!!! Think you have what it takes to make a living trading the Markets??? Do ya Bunkie???? I wouldn’t quit my day job pal. In fact unless you’ve done your homework first and foremost, don’t do this until you’ve at least tried it on a part time basis. Otherwise if you try to dive into the abyss without a net, you're doomed right from the get go! Doing it on a part time basis just for the feel of it is fine. Never would work otherwise.
Oh and pardon me for asking, but what makes YOU think you're smart enough, stable enough, and mechanical enough to do this? You read about it in a book right? Seemed kinda easy to ya? Did it? You figured heck this doesn’t seem so...
With everything said and written on the subject of stops, it should be given that everyone is conditioned to keep them religiously even before they start trading. No matter what source a newer trader turns to, utter importance of stops will be underlined and emphasized up to the degree that keeping them is heralded as the ultimate key to success. We all heard adages like “Take care of your losses, profits will take care of themselves”.
Do all the stern warnings work? Not really.
Time and again traders blow their stops, widen them in a course of a trade, hold losing position in false hope it will make them whole. If this destructive behavior continues despite all the warnings, there must be deeply rooted reasons for this. As with most...
A large number of traders that I work with express the feeling that they are somehow sabotaging themselves: repeating the same mistakes day after day, giving back valuable profits in a fraction of the time it took to earn them. Their intuition is that there is some kind of pattern to what they're doing; they're repeating the same mistakes again and again. They realize that they're not mentally ill and don't have a history of out-of-control behavior, so they are understandably confused as to why they can't stop shooting themselves in the foot.
In this article, I will summarize a few ideas central to brief therapy, a discipline which uses very active techniques to accelerate change processes that might otherwise take months or years...
Those who haven't worked in the industry may not be aware that nowadays most investment bank traders will only trade one particular sector or cross rate or country. This has not necessarily always been the case. When I first started in the industry as an 18 year old trading Japanese warrants in 1989 all the banks involved in that market divided their trading books into alphabetical order. For example, I traded all warrants whose company names were from S to Z such as Sumitomo Chemical and Toyota. While this arrangement had seemed to work during the bull market years, it was only when the market got tougher during the crash years that banks realised that it would be far better to divide the trading books by sector as there was no...
A chess player analyzing the board for the next move; fighter pilots maneuvering their planes to get a lock on enemy aircraft; a baseball player tracking the release of the ball from the pitcher's arm; ballet dancers executing their leaps; an oncologist diagnosing a rare form of cancer; a bodybuilder sculpting a small muscle group to achieve symmetry: all of these are examples of performance activities. They are also examples of fields that have been widely researched in the past two decades, uncovering important clues as to the factors that create successful performance.
This research raises fascinating questions: What makes expert performers different from less successful ones? Is expert performance a function of inherited...
For many years I was a futures market reporter with the FWN wire service (now called OsterDowJones). I spent time working right on the futures trading floors in Chicago and New York. Most of the time my daily reporting "beat" involved interviewing traders and analysts and then writing three daily market reports. For months at a time I would cover the same markets, day in and day out. It was a fantastic learning experience and an opportunity that very few get.
One thing I eventually discovered from covering the same markets day after day, month after month, was that the vast majority of the time the vast majority of the markets' overall fundamental and technical situations did not change on a day-to-day basis. Yet, as a market reporter...
Perhaps the greatest luxury I have in this business is the ability to observe the experiences of many traders with different personalities, life schedules and risk capital, each trading in a variety of markets. What most astute brokers realize is that, over time, as some individuals prematurely exit winners while others desperately cling to losers, it becomes quite possible to match different "blood types" of those traders with their correct "trading diets." Clearly, we're not talking the medical blood type here, but in the figurative sense it makes the right point. With practice, it's not too hard to determine blood types (type of trading best suited to the individual) based on the personality of the trader, and then prescribe a diet...
In 1969, when I made my first futures trade, thinking was fashionable. The 1960s and 1970s were good times for thinkers, free thinkers, thought-provoking issues, civil disobedience, and analytical traders. Thinkers thought great thoughts about the future of our nation, about our presence and purpose (if any) in Viet Nam, about domestic and international racial issues, about freedom and equality, about the poor and the homeless. Thinking prompted radical action by various political interest groups. There violent numerous anti-war protests, a variety civil disobedience events, draft card burnings, sit-ins and student protests. The stock and futures markets were studied closely. They were analyzed, scrutinized and theorized...
In my last article, I covered some of the pitfalls of trading journals. In this piece I'd like to cover some of the features of trading journals that I have found helpful in my work with new and experienced professional traders. My goal as a trading psychologist is to do all that I can to accelerate traders' learning curves. Sometimes this means helping traders with emotional problems, but just as often such problems are the result of trading difficulties and not their cause. A journal, properly constructed, is a powerful tool for learning - and relearning - markets and cultivating exemplary trading behaviors. Here are some of the principals that have guided my journal-based work with traders:
Make journals a part of the daily...
Numerous discussions of paper trading, and its value as a learning tool, usually see participants divided into two camps. One claims total uselessness of paper trading, another vows never to start without it. The scoffing camp points out the obvious limitations of paper trading:
It doesn't allow you to estimate slippage during your execution.
It leaves unanswered the question of whether your order has a chance to be executed at all.
It keeps you in a relatively relaxed state of mind as there is no pressure of endangering real money.
It also doesn't allow you to master your order routing tools in full.
Finally, it's very easy to cheat oneself, changing one's decision after the fact and booking corrected results.
Is this all true...
The markets offer an endless stream of opportunities to trade. Each trade or series of trades provides the chance to wipe the financial slate of the past clean, find trading redemption, and claim the lucrative future. Each trade has the potential to announce that your dues are paid, that you are maturing as a trader, and that finally you are poised to enter the elusive circle of consistent winners. The lure and promise of financial freedom through the clicks of a mouse offers a sense of adventure, challenge, and stimulation rarely matched in other activities or professions.
Only a very select few are able to ascend and remain atop this Darwinist ladder and garner consistent profits. The majority of traders find themselves nursing a...
One of the most common pieces of advice trading mentors give to their students is the keeping of a trading journal. By documenting your trading, the common wisdom holds, you can learn what you're doing right and wrong and speed your learning curve. I happen to be quite a fan of trading journals; indeed, I made journals a mandatory part of the training program at a Chicago-based proprietary trading firm. All too many times, however, I found that the journals did not accomplish their purpose. They became rote exercises that did not get to the heart of either trading problems or solutions. So I thought in this article I'd outline the five most frequent shortcomings with journals and how these can be addressed.
The journal lacks...
Have you ever thought about pulling the plug on your trading operation? I think a lot of folks have, including me. It's easy to quit but it takes perseverance to ride the storm out and stick with the game. Trading is no different than other endeavors you need a plan, some luck but most of all dedication to hard work and research.
This all sounds good on paper. Imagine some guy telling you how to handle your trading business. It's easy to read and then dismiss the ideas or you can really take them to heart but the reality is that until you come up with a rock solid approach you may be spinning your wheels
Drawdowns
I've seen a lot of friends and clients call it quits and 9 times out of 10 it's all related to drawdowns. People tend to...
There are some common mistakes I've seen traders make in the area of money management. First, let's understand what money management is all about.
Money management overlaps with risk, trade, business, and personal management, yet it has many aspects that make it unique, distinctly different from all of the other areas of management. In this article we want to examine some areas of money management that seem to involve mental quirks leading to costly mistakes.
Listening to Opinion
Kim has entered a short position in crude oil after carefully studying as many factors as she could reasonably include while making her decision to trade. She has entered the trade because her study of the underlying fundamentals has her convinced that...