All Entries Tagged With: "Trading Psychology"

Conquering Crippled Confidence

November 20, 2008 at 11:19 am

(This is a follow-up post to Triumph Over the Trading Jinx.)

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]