All Entries in the "Trading Psychology" Category
Don’t Let Opinions Interfere
December 16, 2008 at 7:25 am
It’s been one hairy market out there during the past few months. Over that period, we’ve seen nail-biting selloffs and toe-curling rallies of tremendous proportions. Volatility has expanded to a degree not seen in many decades as the market has grappled with big issues like failing banks, several episodes of government intervention (bailouts), a presidential election, and the prospects of a bleak business outlook for the foreseeable future.
More recently, we’ve seen the major averages settle into trading ranges spanning more than 5 weeks with support preventing downside momentum and overhead resistance keeping rallies limited. Such conditions make for a reversal-prone market, catering nicely to those who are day trading, but requiring those who generally swing trade to remain sidelined and wait for some smoother moves to come along.
Avoid Looking For What Isn’t There
When so many cross-currents are at play, it’s easy to start including some hunches in your decision-making process. It’s an effort made to gain an edge. We all do it from time to time, but we’ve got to be very careful anytime we start including more than what we can see on a chart.
This is a bit of a touchy subject, because I do think that experienced traders should develop some gut feel over the years. It can offer some needed flexibility. That I don’t have a problem with.
The trouble comes along when those opinions (or gut feel) begin to interfere with what the charts are telling you. Having a hunch is one thing, but becoming married to that hunch is a far more dangerous topic.
What we don’t want is to let a thesis we’re operating on interfere with what a stock is actually doing. Opinions can be helpful to stick with a trade, but so long as they don’t interfere with what the chart is saying they can be a help and not a hindrance.
The idea is to stick with what the chart is telling you – make decisions based on the price action when it comes to your entries and exits, even if your overall directional bias is founded on an opinion. Keep those opinions in mind, but only act on the price action!
The Wait Will Be Worth It
Here’s the thing: right now we’re range-bound. That means we’re going nowhere fast, at least until key support or resistance gets broken – preferably, for more than a day. So as long as we’re stuck in this trading range, it’s a time to let others formulate opinions. If you’re trading right now, don’t wear out your welcome. Stop out quick and book profits more aggressively when you have them.
Once the range gets broken, we should then have plenty of technical reasons to be opinionated. Until then, they’ll simply interfere.
Trade well this week!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Conquering Crippled Confidence
November 20, 2008 at 11:19 am
(This is a follow-up post to Triumph Over the Trading Jinx.)
photo credit: Daquella manera
Anyone who has traded for virtually any length of time is familiar with the feelings losses bring. Frustration, irritability, and maybe even some despair if the streak has continued long enough. But possibly even more damaging, more crippling, is the loss of confidence.
Every trader has some risk capital to be used for their trading operations, but what many often forget about is the amount of psychological capital they have. We all begin with some amount of confidence that we can turn a profit with our trading, which of course can grow or shrink based upon our results. And while we can locate more money to trade with (if needed), it’s not as if we can locate a fresh pool of confidence! As a result, it becomes incredibly important to protect what confidence we do have.
Decisions, Decisions
If you’ve been struggling with your trading, you aren’t the first to feel that way, nor will you be the last. At times it almost feels like our timing could’nt be worse, and that’s just going to happen occasionally to those of us who trade. Markets are uncertain, so if there’s one thing we can count on it is being dead wrong at times.
Having said that, the one thing we CAN do is choose how we respond. We can decide we’ll never be a success, and we’ll be correct if that is our choice. Or, we can choose to find a way to trade profitably. There are many ways to skin the market cat, but we need only to find 1 or 2 of them to turn a profit.
Our response not only includes the attitude with which we approach trading, but also how we manage our money. When we’re trading well, we want more at-bats. When trading is bad, we want fewer at-bats and smaller trades even when we do play. Backing down your trade size while waiting for clarity is your top priority when you aren’t seeing the ball well. It’ll help to preserve your confidence and your account, making it far easier to make up lost ground in both categories once you hit your stride again.
Break the Cycle
If you’ve felt caught in a rut lately with your trading, I’d encourage you to re-assess your attitude, and base it not solely on the results you’re getting but on your entire process.
If you’re staying disciplined and taking only high-quality setups for trades, then you’re doing your part and it’s an uncooperative market (and time to back down or employ a different method).
However, if you’re pressing when you’re down and trying too hard by forcing trades to work, attempting all sorts of trades just hoping that something will hit, then you aren’t following a method that’s going to pay off or restore your confidence. Take a step back for a few days and evaluate how you trade your best and what changes you need to make right away. And then make them.
Always Be Willing to Adjust
Trading the market isn’t easy, and it requires this ongoing assessment of ourselves and our method. When what we’re doing isn’t working, it’s time to slow down, trade smaller and less frequently, and work on getting our heads clear again. Sometimes our problem lies in our method, other times it’s caused by our attitude or impatience. Once that’s done, then we go back up in size and trade frequency. But it’s far too easy to let poor performance press us into more bad mistakes in an effort to make it back quickly. And the path to good trading just isn’t found overnight.
Trade well out there!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Triumph Over the Trading Jinx
November 17, 2008 at 1:29 pm
Recently I was chatting with another trader who was pretty down in the mouth. He had suffered a handful of setbacks (read: losing trades), leaving both his confidence and his account at lower levels than previously seen. The harder he tried to recover, the more he became fixated on the recovery. He had forgotten that improvement is a process, and therefore wasn’t focused on making high-quality trades and wise decisions. Instead, he was impatient, irritated and convinced of one thing – he was jinxed.
Although I am not superstitious, I’m definitely familiar with those times when it feels like I’m more wrong than right. When it’s more than just the occasional broken trade and losing money starts to occur too frequently. It’s never fun to endure, but it is something that happens to every last one of us at some point in our trading. It’s simply part of the process as a trader to be wrong sometimes. We slip into a funk, and we want out immediately.
The losing streak is my biggest fear as a trader, so I try to stay on top of things as best I can and adjust quickly when I start to see my performance slip. Here are a few ways in which I attempt to combat those periods.
5 Ways to Overcome Tough Trading Periods:
1. Accept it – they happen! If acceptance is the first step in a popular 12-step program, then it’s fitting to put it first on this list. Seriously though, having the maturity to recognize that you’re not at your best is actually a sign of confidence – not weakness. A great trader is willing to continually improve, which sometimes means going through a few growing pains even when it doesn’t feel very convenient. Just like the best athletes in the world continually consult video footage of their performances, a great trader reviews what’s taking place in their trading and refuses to ignore those areas which need some attention. Psychologically, our ability to deal with events as they occur is largely due to our willingness to mentally prepare for their possible arrival. It doesn’t mean we think negatively that a losing streak may soon begin, but rather, we decide ahead of time how we’ll respond. Poor stretches of trading will happen, so accepting that is going to put you well ahead of those who simply deny it.
2. When you lose, lose small. As soon as you see that you’re drifting away from being at your best, shore up those positions and cut down your size on any new trades. If you aren’t seeing things clearly, there’s no reason to push it. Recognize even a small string of losses as a warning sign that it’s time to trade smaller, and then do it. And of course, don’t lose the lesson.
3. Balance out your life. Those who live and die by their trading results are in for a long road. There will inevitably be both profitable and pitiful periods, and so the key is not to let your emotions take over. Take the tough times in stride, just as you view the good times with a level head. Build your relationships outside of trading. Pursue some other interests away from the market, and you’ll be glad to have those diversions when you need them. After all, if trading is the only thing you ever do or care about, you’ll find it extremely difficult to ever get away from it – and times will come when you’re going to need a break.
4. Work on it. The best get good and then stay good. That means they never stop working to grow and improve. Seeking out ways to continually improve will give you other methods to turn to when your favorite approach finds friction, allowing you to shift slightly when conditions warrant.
5. Get up. We all fall down from time to time, but it’s how you get up that will really define your abilities. It’s never fun to lose money trading, but just because you take some hits doesn’t mean you need to stay down. Dust yourself off, and get back into the race. You’ll never recover by sitting around sulking and talking about what a ‘jinxed’ trader you are – that accomplishes absolutely nothing. So ditch the pity party and regain your focus. Traders trade, so even when you’re lacking that swagger that you have when at your best, step back into the ring and concentrate once again on finding your groove and booking some small gains. Be selective, but don’t be too shy to pull the trigger. The aim is to get your head right, not post an immediate, giant win. Nothing builds confidence like getting the bat back on the ball, so start small – but do start!
I’ll have a follow-up post to this one coming soon, so be sure to watch for it. In the meantime though, consider the ways in which you need to start making some adjustments in your attitude. Trading offers every one of us a ton of potential, but we’re only going to realize that potential if we approach it properly.
Trade well out there!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
4 Trading Goals You Can Set Right Now
October 14, 2008 at 9:20 am
The power of goals is undeniable, just as Phelps said after going 8-for-8: "That was my goal."
Goals are huge. They motivate you to get to another level, providing both incentive along the way and some satisfaction once achieved. I’ve spoken of them a few times here on the blog, but felt that a little more elaboration might be in order.
So today I want to cover 4 specific trading goals you can set that you might not already have. My purpose isn’t to tell you how high you should aim – only you can determine that, but rather to point you toward a few more concepts which could aid your trading process. Here we go…
1. Make ‘X’ Intuitive Trades Per Month.
Not everyone is systematic enough in their approach that they can automate their trading, and that’s perfectly alright. From time to time, any experienced trader (those using automation included) should allow gut feel to play a role in the decision-making process. Those of us who are purely discretionary traders aren’t strangers to acting on intuition, even if we go about it in a very methodical way.
Have you ever sensed an opportunity right in front of you, only to talk yourself out of it, thereby shutting down that gut feel which you’ve acquired through years of trading?
Well, what if you decided to make a handful of trades each month, in very small size, allowing yourself to capture a select few of those opportunities? As long as your risk remains defined, it just might help you to think outside the box a little and add some trades to your repertoire. Sticking with your game plan is a good thing, and I’m not suggesting frequent deviation from it. However, allowing a handful of ‘intuitive’ trades can add to your bottom line and enable some of that gut feel to assist in your overall profitability.
Consider making a defined number of “feel” trades next month – you might find yourself catching a few trades you may have otherwise missed out on. It’ll put your feel to the test, and provide you with yet another way to satisfy your craving for risk.
2. Set Your Max Loss Per Trade Weekly.
This is something every trader should be in the habit of doing on a regular basis. As account equity changes over time, so should the amounts that you’re risking per trade. Although you might select a constant value like R, it will still translate into different dollar amounts as your account levels change.
Making sure to update your thresholds either on the weekend or on Monday morning is the best way to stay on top of it. Doing so will ensure that you protect the downside during a tough stretch (as the R dollar-equivalent is reduced), while also maximizing profitability during good stretches of trading (as the R dollar-equivalent increases). The point is to trade smaller when doing poorly, and trade larger when doing well.
3. Consider Your ‘Options.’
Maybe you really prefer to trade stocks, which I certainly relate to, and that doesn’t have to change. In fact, owning (or short selling) the actual shares offers the most liquidity for getting into and out of trades as you seek to capture moves. But every now and then there comes along that trade which seems to offer a lot of potential, and yet inherently brings with it a lot more risk than you’re willing to take.
Whenever that’s the case, look at the options. Defining your risk through the purchase of calls or puts can limit your overall exposure, and yet still offer a ton of upside if you nail the trade. And since the options will never move to the exact same extent as the underlying shares, you’ll likely be far more able to endure some dips and rips along the way which may have otherwise spooked you out of the shares had you been holding them.
Even better, options offer a ton of flexibility when it comes to how you can use them and profit. Being long or short the shares offers you 2 directional choices, but there are many option strategies which really open the doors of possibility.
4. Trade More ETF’s.
With the explosion of ETF’s in recent years, there are now a ton of ways to participate in index-related or sector-based moves. You might be eyeing a particular group of stocks (such as Energy) and believe that a move is coming, but not be able to select 1 or 2 specific plays to make. In that case, turning to the XLE or a similar ETF would enable you to put on a single trade and participate in the movement of the overall group or sector.
Or perhaps you find yourself not long enough as a market rally begins to develop. It’s an awful feeling to feel under-exposed and not have that shopping list handy with some swing trades on it! Whenever that’s the case, consider turning to a product like index-related ETF’s. There are a ton to choose from which mimic the movement of the underlying index (such as NAZ 100, DJIA, SP 500, RUT, etc.).
Even better, there are now quite a few ‘leveraged’ ETF’s which provide you with more bang for the buck and yet require less exposure on your part, such as QLD which moves 2x the pace of the NAZ 100. Hitting the offer for some shares of these will get you quickly positioned for a continued move, knowing that you’ll participate in lock-step (or 2x lock-step!) with the index you most want exposure to.
So whatever goals you’re striving to achieve through your trading, be sure to set the bar high for yourself and work as hard as possible to reach them. Just like Phelps, you’ll be glad you did!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Anything’s Possible
August 25, 2008 at 9:49 am
On a week like this when the trading is expected to be so light in front of a major holiday (Labor Day is next Monday), it’s easy to forget something very important…
Anything is possible.
Literally anything can happen in the market at any time. Just because the big boys (funds) have been away lately doesn’t mean an appearance is out of the question this week. The recent lack of volume indicates a distinct absence of institutional trading which could easily continue this week, but stay on your toes just in case.
Good trading involves continually evaluating the environment. That also means finding the right balance between expecting more of the same and watching out for potential changes to come along. It requires our objectivity, not only with our own trading process, but also with whatever big-picture market conditions we find ourselves in.
While I’m not looking to make any big, bold bets this week, it’s still a good exercise to remember that a big move can always happen if the conditions are right. Which is part of what excites me about trading to begin with.
So regardless of whether you’re bullish, bearish, or neutral, remember this week that anything is possible. Stay sharp out there if you’re pushing buttons, because the competition is present and will pick you off your perch if you show up without your game face or aren’t paying attention!
Trade well this week,
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]
Discipline is a Habit
July 30, 2008 at 7:47 am
Discipline means being willing to wait. Wait for your setup. Wait for choppy conditions to pass. Wait to increase your trade size until your recent results warrant it. Trading requires that ability from us, and if we don’t have it… well, the market will teach it to us!
As traders, we have to let conditions emerge which are most favorable for our trading. Our failure to do that can result in numerous outcomes, none of which are good!
Discipline means we close out a trade when our line in the sand is crossed, but it also means we stick with a winning trade while waiting for the move to develop. It means we don’t get bored out of trades – we stick with our game plan and avoid micro-managing positions.
But there’s one thing about discipline which few stop to recognize: it’s a habit.
Decisions, Decisions
That word, habit, has several connotations. There are good habits, such as trading responsibly or brushing your teeth before bedtime 😉 . And there are also bad habits, like losing control of your trading or biting your nails. So while “good” and “bad” might be relative phrases, it’s important to note that both of them are cultivated over time to become second-nature.
If given the choice, who would take bad habits over good when it comes to your trading? Nobody, right? Well here’s the thing: you do have a choice. You’re reinforcing some kind of habits every day – but which kind?
Look Both Ways Before Crossing ‘The Street’
This market has been a little wild lately, and while some traders love the chaos, others may not find it ideal. Whichever group you fall into, be honest about it with yourself. If you fall into the latter category (not lovin’ it), this is for you!
Many of us want to push buttons all the time and live up to our “active trader” reputation, but that’s not always good. If you’re struggling to find your way in this tape, be willing to take a wait-and-see approach…there’s nothing wrong with that. It’s far better than just making trades to see what happens, that is for sure.
The Road to Recovery
Making discipline a habit means a willingness to do the hard thing when you need to because you know it’s right. In your personal life that may mean diet, exercise, and just taking care of things which need doing even though they are no fun!
And while those kinds of things may be purely personal (not trading), you’d better believe they will carry over into other areas of your life – like trading. Remember, discipline is a habit. So start making it a habit in all that you do.
Begin with a little discipline and keep building on it. There’s momentum there. As habits start to take hold, you’ll find that your discipline improves in your trading, allowing you to better follow your intended game plan without having that internal struggle as often as you used to.
Staying disciplined might not ever become easy, but that just reiterates the fact that it’s worthwhile. Making the choice to be disciplined in every aspect of our lives will definitely carry over into trading, making you a better protector of your capital when you’re wrong and a more profitable trader when you’re right.
Now that’s one habit with some appeal!
Trade well today,
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
How Do Great Traders Control Emotion?
July 25, 2008 at 2:27 pm
Great traders are often thought of as talented anticipators of direction or momentum, or as exceptionally skilled risk managers, which many are. But an oft-overlooked trait which should always be mentioned is the successful trader’s ability to control emotions.
Use Your Head!
I definitely think every trader struggles with controlling our emotions from time to time, and it is one hurdle which trips up many would-be traders that never choose to get beyond it. And it is a choice – either you control your emotions, or your emotions control you.
I’ve traded in the same office with guys who broke keyboards over a $500 loss, and I’ve seen guys who can literally take a nap when up 6 figures on the day they are so cool, calm and relaxed – just total control. The difference between them wasn’t their account size either – it was in their minds.
Mapping a Path to Profits
I suppose the simplest approach for getting to where you want to be is that you seek to build that control over time. There’s a natural tendency to treat trading like watching a horse race and get excited or upset, depending upon the outcome.
However, the best traders have found the boundaries of their comfort zone, and they stay right on the edge of them. They know before they put on a trade what the worst-case scenario entails, and they proceed with the trade with that in mind, able to accept it if it happens. They stay within their risk limits by doing so. Further, they know that if they put on too much risk, they’ll not only lose more than they should, but they’ll likely make some poor choices along the way by focusing on the loss rather than making the best decision at any point along the way.
A great trader is able to think clearly from start to finish, and while there may be some mild irritation (enduring pullbacks), minor impatience (if the position stagnates), or slight satisfaction (as the trade begins to work), they avoid letting those emotions drive their behavior. They truly do stick with their plan, making modifications to it not on a whim, but only when absolutely necessary.
A Simple Solution
The best way to achieve that state of control is to chose to trade small enough that the outcome of any one trade doesn’t carry huge meaning. That will help to formulate a good habit of focusing on the trade, not the P&L (which is where emotions come from usually).
As you gain more control, you incrementally add more risk over time as you are comfortable, gradually increasing that comfort zone but not trying to achieve it overnight.
Develop good habits with small trades, and then slooooowly build your trade size along the way. If you strike the right balance between growth over time and clarity right now, you’ll be well on your way.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
