All Entries in the "Trading Psychology" Category
7 Trading Lessons from the Masters
April 13, 2009 at 1:58 pm
As a trader who loves my job, I find it difficult to witness any big event without looking for some parallels to trading. The sports arena is one of those places, and it doesn’t take much of a stretch of the imagination to recognize frequent lessons that are applicable to trading.
Just about anytime someone’s talent or emotions are being tested, you’re likely to also gain some insights which can help your trading.
This past weekend in watching the Masters tournament, I couldn’t help but notice a few things about some of the players. Here are some of the things which caught my attention and the corresponding lessons…
1. Some days you don’t have your best game, but grind it out anyway. Tiger was a little off all week. He verbally discussed it, but it was also easy to see if you’ve watched him at all when he’s at his best. But in spite of not having his “A” game, he chose to grind on every shot and concentrate as much as possible. He came up a little short, but he had a chance on the back 9 on Sunday – which he admits is all he ever wants. What if you’ve done the same all week with your trading by the time Friday afternoon rolls around – do you think you’d be satisfied?
2. Stick with your style and be confident in your approach. Jim Furyk isn’t a long hitter compared to the guys he’s competing against, so he of all people is not going to overpower Augusta National. He had to lay up on some of the par 5’s, but he kept to his strategy and it put him into the mix with a chance to win come Sunday. Waiting for your setups to come along as a trader means not attempting unfamiliar approaches or those which don’t work for you. Trust your method!
3. When you’re hot, ride it – and enjoy the moment. Anthony Kim at age 23 is just one year older than Nick Adenhart, the Angels pitcher who died tragically last week. Recognizing the similarities of not only their ages but careers as professional athletes, Kim was touched by Adenhart’s death. Thinking of how brief life can be, Kim decided to enjoy himself and put life into perspective. After reading about Adenhart on Friday, Kim went out to set a Masters record by making 11 birdies in a round. He got out of his own way and allowed his talent to take over. When you’re reading the market well and your trading is on track, trade a little bigger and see what happens. It’s only trading.
4. Take your lumps with maturity. During the second round on the 15th green, Padraig Harrington addressed a short birdie putt when a gust of wind moved the ball. In accordance with the rules, he replaced the ball to its original position with a 1-stroke penalty, and made his par putt. Having won the previous 2 major championships and having been in good shape on the leaderboard Friday, Harrington would have had plenty of reason to be upset or shaken. But he went on about his business, not allowing a bad break to rattle him. When a good trade suddenly reverses on you or unexpected news costs you money, accept it like a mature trader. Keep plugging away with unflappable confidence.
5. Embrace opportunities with confidence. Kenny Perry has been close before in a major, having been beaten in ’96 in a playoff during the PGA at Valhalla in his home state. He’s won a number of times on the PGA Tour, and worked himself into the lead during the Masters. Success would have meant he’d become the oldest winner of a major championship, as well as his first major win. Facing the opportunity which Sunday brought along, Perry knew he’d either succeed or fail. And he relished the chance to walk that fine line. Trading afraid or scared won’t bring the success you crave. View every chance as an opportunity to build greatness, and face it head-on.
6. A little bit of nerves are good. Chad Campbell found himself right in the mix all week as he searched for his first major victory. When asked by the press about his nerves being on such a big stage and facing such a huge opportunity, he openly admitted that he had been and would be nervous. He also noted that having some nerves are a good thing, that they show you’re intense enough to care. When you find yourself nervous over trades, is it because it matters to you or is it because you’re afraid?
7. Don’t let a poor start steer your day. Angel Cabrera struggled early on Sunday as he found himself playing in the final group. At 1-over par through 5 holes, he was playing worse than everyone else on the leaderboard, losing ground and clearly uncomfortable. But he settled himself down and played solid for the remainder of the day, finishing with 3 birdies in his last 6 holes to get into a playoff – which he eventually won. Allowing your first few trades of the day or the week to define you isn’t the best course of action. Even if your year is off to a poor start, you can still salvage success. Stick with your game plan and trust that your experience and effort will pay off. Your attitude is a weapon – either you hurt yourself with it or you use it to your advantage.
I hope your trading week is a great one!
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]
The Importance of Losing Small
April 7, 2009 at 2:05 pm
Losses are inevitable, but small losses are easily overcome.
I put that first because if you don’t read anything else here, I want you to be sure and see that.
In fact, that one statement could be considered the key to my trading. I remind myself of it often, and when I’m staying disciplined, I am able to see it in action.
Take Monday for example. I took several trades…7 to be exact. I made money on only 2 of them (no, it wasn’t a great day), and yet my net P&L was only slightly red. Just a little bit negative – that’s all. It was a down day for me, and yet it was about as painless as they come. A minor loss. All because I was able to recognize quickly when I was wrong, and immediately focus on damage control.
The trading landscape has changed dramatically just in the past year. The market is moving differently, the stocks which are in focus are a different group, and there are even some new fees and rules making their way into the fray. Nonetheless, there is still one constant: the trader who is able to lose small is able to stay in the game. He’s able to survive, which means he’s able to profit. And that of course means he’s able to thrive.
Two Big Benefits
Keeping those inevitable losses at a minimum carries with it a pair of huge benefits…
First, when you’re wrong, the damage is far from devastating. Falling off a pony compared to falling off a Clydesdale sure makes it easier to get up and get back on that horse. And trading is all about getting back up. It’s an attitude thing. It’s important to stay in the game, and that means an occasional bump or bruise is far easier to overcome than the occasional amputation. The point is this – protecting the downside offers you a safety net to fall into. Why not use it?
Second, confidence stays high, and that’s a major factor for a successful trader. Confidence should be protected just as vigilantly as one’s capital, for it can be considered your psychological capital. Just as money isn’t easily replaced, confidence isn’t quickly replenished once it’s wrecked. Looking out for yourself by way of small and limited losses means you’re taking no big hits to your trading account or your psyche.
So on those days when you’re just not feeling it and you feel a step or two behind, be quick to recognize it and live to fight another day. Keep the damage minimized, and you’ll be able to return tomorrow fully prepared to erase that small deficit quickly.
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]
Focus on the Process Now, Results Later (Part 2)
March 27, 2009 at 11:21 am
In recently looking through some archived posts, one that caught my eye was Dave Mabe’s from last summer. In that post, Dave covered some very important aspects to sticking with your trading plan.
Then in catching up on some reading, I saw where David from Trade-Ideas was just discussing this yesterday over on the Trade-Ideas blog. He brings forth some very good points, and I’d encourage you to check it out.
All of this got me thinking about where should our focus be as traders?
I’ve discussed this subject before (in Part 1), but it’s certainly worth revisiting and expanding on.
The Game vs. The Score
One of the ideas that I’m continually reminding myself of is that how you play the game is absolutely crucial to success. It’s about the process. Today’s trading platforms tell us the “score” at any point in time as measured by our P&L, and while that’s pretty nifty, it isn’t always beneficial. I feel it’s generally more important to focus on the process rather than purely the results. Here’s why.
“There’ll be time enough for countin’
When the dealin’s done.”
With those lyrics, Kenny Rogers said it about as good as it can be stated, but I’m still going to try to build on it! I’ve had a Kenny poster on my office wall for several years, and while he may have been talking cards (or life), the same lesson applies to trading!
I’m sure you’d agree that the trader who is focused more on his method than on his P&L has a distinct advantage over the trader who lives and dies by the red and green numbers flickering in his position window. If you can get to the point as a trader where you’re confident enough in your approach to stick with it for even a single session without relapse, you’ll be in a great position to build on that as a habit. And good habits pay off.
Driven By Numbers
The market dishes out regular lessons on this topic to me, so it’s something I’m continually working to improve on. It’s not uncommon to start reacting to the P&L as the day progresses, backing off when mental thresholds for a “good” or “bad” day are approached. That can be a 2-way street though. It can allow you to retain profits or prevent additional losses, but how can you add to your bottom line if you’re in a constant dilemma of whether or not to take that next signal?
You’ve got to play in order to win.
Anytime I get too focused on the results (P&L) during the process (in the middle of trading), my decisions tend to be adversely affected, which in turn has led to a plethora of mistakes. It happens when my attention is fixated on my P&L – when it begins to cloud my thinking and skew my view.
Sometimes striving to achieve some set level of profits for the day can result in overstaying my welcome in trades. At other times, that desire to secure a good day has caused me to exit prematurely from good trades which were giving no reason to bail. Both are cases in which my P&L was the driving force behind my decisions. But the tape should serve that purpose.
Maybe you’ve been there too.
The Buzzer
Flexibility and a willingness to adjust your plan when conditions deem it necessary doesn’t have to mean going into shut-down mode. If there’s clearly a reason to call it a day or a week, then don’t force the issue. Whether that means a lack of setups to play or just poor risk/reward conditions, submit to it. And if you’ve hit a drawdown level that tells you it’s time to stop losing, then do it.
But barring that max-loss situation, when it comes to trading vs. not trading, the deciding factor shouldn’t solely be your P&L. Commit to deciding on a per-trade basis, and see where it gets you. Take the good entries which come your way if you know they are suitable for your method and the overall conditions are in favor for your approach. Otherwise, pass and continue waiting.
At the end of the day, add it all up. Some days will be mediocre, some will be excellent, and some you’ll be eager to forget about. But as long as you keep doing the things which you know will deliver success over time, there’s no reason to let the scoreboard distract you. That’s just one of many ways to get beaten.
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]
Thanksgiving in March (For Some of Us)
March 10, 2009 at 7:50 am
The market was only down a few points Monday, and yet to many that probably feels like a gain. That marks the 13th session of the past 16 in which the S&P 500 lost ground. Can you say hammered?
With every benchmark index having undercut important milestones (read: 52-week lows) and the habitual selling pressure of late, the mood has been sour to say the least. And bold claims are being made by some about just how low this market might go. Dow 4000, Dow 1000.
Give me a break. I’m not saying those levels won’t be seen – they might. But the predictions are pointless and there just is no magic formula to determine where this decline will ultimately carry. What is important is that the trend is down, and it must be respected.
The conditions right now epitomize the old adage that “bear markets don’t scare you out – they wear you out.”
No Pain, No Gain?
Although the real spooky capitulation kind of fear has yet to be seen, disgust and disinterest are the dominating emotions right now. Stocks are in the dumps and investors have found it beyond difficult to locate a good place to put cash – if they still have any.
It’s at times like this, among others, that it’s sure nice to be a trader. Stocks are on the move daily, and we as traders have the flexibility to go either direction in search of profits.
The one-dimensional mindset of buy-and-hold simply doesn’t afford the advantages which traders enjoy, especially during times like this. So while it may not be real thrilling to go home in cash every night as we’ve been doing for such a long time now, the alternative is to be “invested” and feel the pain of a bear market day after day.
A Sigh of Relief
The day will come when stocks move higher once again (for more than just a bounce), but right now it’s imperative that you and I protect our capital while the Street weathers the storm. Patience pays in this game, and right now there’s just no technical reason to be making big bold bets for anything beyond the near term. The uncertainty gauge is pegged, and that means we’ve got to stay cautious and selective for now.
So I’m very thankful to be a trader right now. Hopefully you are too.
And if you’re of the longer-term mindset and you have some cash on hand, you might be thankful for the fire sale prices you now have access to. But just don’t fall in love – there is not yet a technical reason to trust that the correction is over.
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]
Always Be Prepared
February 12, 2009 at 8:50 am
Over the holidays, I encountered a door to door salesman while visiting family. He was 23 years old and his name was Mike. He was selling a cleaning product, and I mean he sold it!
Every single rebuttal thrown at Mike was overcome with ease. Sometimes those replies were educational, sometimes they were entertaining, but Mike was ready for anything. With it being the holidays and therefore plenty of time to spare, it became sort of a fun challenge to banter with him and watch his skill. He knew his product inside and out, and he proved it with confidence.
I was most impressed by Mike’s preparation. Anything we threw at him, he had a solution for it. He was great at his job, because he had made it his craft.
How Do You Treat Your Trading?
That encounter with Mike proved to be a valuable reminder to me that I’ve got to be prepared each and every day for whatever the market delivers. You do too if you have plans to pull any money out of the market on a given day.
The prepared trader doesn’t know what he will face each day, but he doesn’t have to. He can handle it. Mike didn’t know which rebuttals his customers would offer, but he still knew how to work through the situation. Hard work, persistence, and a refusal to quit when the road gets tough…these are all the ingredients for honing a skill that will pay you over and over.
Those frustrating losses, the weeks when you keep fighting and adapting – sometimes just to break even – that’s what strengthens you and becomes a tremendous source of confidence that you’ll feed on in the future. It’s the long days when you grind it out, win or lose, and you still stay after the bell to review your results and keep searching for ways to improve.
Look In the Mirror
Success in this world does not come easy, and anyone who tells you otherwise is misleading you. Whether it’s a great salesman, a world-class athlete, or a top trader, they all have one thing in common – they work for it. Even if they’re naturally talented.
So as you reflect on your trading of late, have you been adapting? Have you made an effort to determine what’s working best and what’s proving to be costly? Are you hoping that success will find you, or are you preparing in a way that enables you to go get it?
The thing about day trading the markets is that every day is gut-check time. We find out quickly whether or not we ‘have it’ on a given day or if instead we’re funding someone else’s efforts. The latter is a huge motivating factor to show up with our best as often as possible.
The first 6 weeks of the year are coming to a close, and I hope you’re making great progress. But if you aren’t, then sacrifice a little extra time to get back on top of your trading. It’ll be worth it. Put in the effort to get prepared, and commit to doing it day in and day out. That alone will make the difference.
And in case you’re wondering, yes, I bought from Mike.
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]
Trading Attitude Goes a Long Way
January 27, 2009 at 12:39 pm
Recently I spoke with a trader who was really struggling. Not only were his results not up to his standards, but more importantly, his attitude was pitiful.
One comment he made really stood out to me about how he was approaching his trading – and how he could alter it for better results. After taking a couple of small hits in failed trades, he remarked:
Accuracy is important to me. It means everything to how i look at the market the next day and how i look at myself in the mirror at night.
I think we all deal with that to a degree as traders, and especially us guys tend to equate recent trading results with how we think of ourselves. Not deep down inside – I don’t mean that, because many of us have values rooted elsewhere – but our day-to-day mood is often impacted by our trading results.
That’s common across many professions, but full-time traders probably have it even worse since we can keep score every second of the day and know where we are and where we want to be, and often times there’s that discrepancy which causes some frustration.
That’s where huge mistakes can creep in if we let them, as we increase size or trade frequency based on our desire for quick gains rather than when the charts necessitate it.
Two Solutions
I think zooming out on the timeframe of self-evaluation is key. Instead of responding to every tick with an “I’m a genius” or “I’m an idiot” mentality (which can be so exhausting), why not look at your results from a week to week or month to month basis? The daily swings, particularly in this market, can just be too much of a roller coaster sometimes – both in an account and emotionally.
Another way to keep your attitude in check is to accept that you’ll be wrong, sometimes often. That’s not to say that you need to expect failure at all. However, as a trader, your job is to manage risk effectively first and foremost, and that means when you find yourself on the wrong side of a trade, it’s often wise to return to the sidelines to reevaluate it. Getting back in is fast and inexpensive – if you deem it necessary. Taking a string of small losses might reduce your accuracy percentage, yes, but the goal of trading is to be profitable. Too many traders tend to quickly forget that.
Check It
The aforementioned trader has already come a very long way from when we first met, ridding himself of his former style of operating primarily on hunches. Moving toward a more methodical approach has already shown him a huge improvement in his results, and it’s been fun to watch. But as with most Type-A personalities, he’s in a hurry to reach lofty goals – and I can’t blame him. He’ll get there if he will stay on track.
What’s most important at this juncture for him is that he checks his attitude on a regular basis. Just as he defers to the charts when making decisions and periodically monitors his P&L, he’s got to get into the habit of objectively gauging his mentality. When he’s patient and prepared, he’ll be far less-likely to allow his short-term results to dictate his mood. But if he falls back into the mindset of living and dying by every trade he makes, the road will get a lot longer and much more difficult.
As with so many other things, in trading it’s your attitude which can make the biggest difference between success and failure. When your attitude is in the right place is when you’re going to see the most growth – both personally and in your account.
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]
Know Your Method
January 20, 2009 at 11:29 am
For nearly a year and a half, I’ve been blessed to be a dad. It’s been an awesome experience, and I have really learned a lot (though I still have a long way to go).
During the same time, I’ve been able to observe my wife in her role as a mother, and it’s really amazing how quickly a mother knows what their child needs! I had heard of a mother’s intuition, but witnessing it first hand really puts it into perspective.
I think mothers start out with an innate ability, a talent, to determine their child’s needs. And yet there are still the elements of practice and experience which enhance the natural talent that was there to begin with. It takes work, but the combination of talent and effort produces quite a skill.
Similarities Abound
Trading isn’t any different in that regard.
As traders, each of us start out with some kind of talent. It may be that we take quickly to reading the tape and gauging momentum, or it might be that we realize very quickly just where the boundaries of our comfort zones are when it comes to risk tolerance. Whatever it happens to be, generally it isn’t long before we start to build a method around our needs.
And what’s so nice about trading is that’s entirely possible in the market – since there are so many ways to seek out profits. We truly can custom-build a method which is fully-suited to us.
Once we get to that point, and if we want to trade responsibly, then one of our biggest obligations is to understand our method backwards and forwards. We don’t have to know everything about the market or be able to predict what’s going to happen next. Anyone who tells you otherwise just hasn’t traded much. All we need to do is keep our eye on the ball and continue to monitor and adjust the way we’re trading in order to achieve better results.
Worthwhile Effort
Just like a mother’s watchful eye on her child, our ongoing effort to remain aware of everything that’s taking place can lead to a great understanding of our method. As a result, we quickly learn when to adjust and how to go about modifying our approach whenever necessary.
What would it mean to you if you understood your method well enough that you could make small adjustments on the fly and right away improve your results? It would be huge, wouldn’t it?
As the newness of the year begins to fade and early resolutions fall by the wayside, take a stand for your trading. Make a commitment – a goal – right now to become sharp enough that you pick up on subtle changes in the trading landscape which warrant your attention.
Learn to detect when the environment is not ideal for your trading, so that you will know when to adapt or back down. And then when you see opportunities to do so, make those small adjustments so that you can stay on top rather than falling behind.
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]
