All Entries Tagged With: "Trading Psychology"
7 Steps to a Trading Breakthrough
June 8, 2011 at 11:00 am
Breakthrough was a TV mini-series which aired last summer, and a good one – at least I thought. It got cancelled after just a couple of episodes, before its time of course! (Archived on Hulu though, in case you want to see it.)
The premise of the show was that ordinary people face real, painful challenges. The subjects on the show wanted help to overcome them or learn to live with those issues. Obstacles stood in the way between them and living the life they’ve dreamed of, so it was inspiring to see them get out of their comfort zone and face them head-on.
Self-help guru Tony Robbins was the coach. Think Biggest Loser, only these people were looking to lose their fixation on their problems, and he was the one to guide them through that process. Along the way, he showed why his reputation is so good through the work he did.
Robbins offered 7 guidelines for “breaking through” and they’re listed in bold below. I’ve added my own thoughts as they pertain to trading, so here we go…
1. Change your environment. If you want to make a change, the best way to start is by getting away from the norm to not only evaluate your current approach, but to design a new one. Mix it up. Get away from your desk, go to the park, take a walk…do anything but stay in front of your screens. Similarly, if you’re not trading well or seeing the market clearly, stop doing the same things! Perhaps it’s a timeframe shift you need to make (day vs. swing), or the places you’re getting ideas. Something in your routine is stale and you need to take a fresh approach.
2. Confront your real issues. It’s SO easy to blame anything and anyone but yourself. But that’s what losers do, and none of us want to be losers. If you’ve got a discipline issue, then get real about it. Grow up. If you’re simply lacking skills, then improve them. But don’t place blame elsewhere (my family distracts me, this market is too erratic, I need that other trading platform, etc.), because that will only perpetuate your dissatisfaction. Be big enough to face up to the underlying problem, and only then will you overcome it.
3. Expand your limits. This is about discovering your inner strength in a new way. It’s about doing, not just telling yourself something. Take on a challenge that has nothing to do with trading. Skydive or climb a mountain or commit to losing 15 pounds or learn to waterski – something that you can do or achieve in a relatively short amount of time order to show yourself that when you put your mind to something, you can make it happen. It’s a step toward confidence, which will carry over into your trading. Doesn’t matter what it is, because your mind is directing each endeavor and you’re redefining what’s possible.
4. Change your perspective. I remember after my first 2 years of trading on my own I walked into a daytrading firm. I saw 2 guys that day (my age) who had made $40,000 for the day. That gave me a whole new perspective, needless to say. Whatever you think you know, you are still oblivious to so much more. Investigate some other avenues for your trading, and it will shift your mindset permanently – and probably for the better.
5. Own the lesson. Many of us pay the tuition, but we don’t always remember the lesson. In the bigger picture for your trading, this step is about taking responsibility in order to create a lasting change. You’re maturing in your approach, so take the parts of the past which can aid you and stamp them on your memory. You won’t be perfect going forward, but you’re now clear on what you need to avoid and that’s something you weren’t doing before step 2. Take the constructive pieces of the past and use them to your benefit.
6. Design a compelling future. Now that you’ve confronted your real issues and shown yourself what’s possible and you’re taking responsibility, it’s time to let go of the parts of your past which are holding you back and start looking forward. The beauty of trading (or one of them at least) is that the sky literally is the limit. Anything is possible, and yet too often we get caught in a rut and forget that. Getting away (step 1) is very helpful in this aspect, as it allows you to remember that you need not limit yourself in what it is you’re after. It doesn’t mean you start trying to hit homeruns instead of singles, but rather that you remember those singles can put you in the hall of fame!
7. Own your breakthrough. Anytime you grow, anytime you overcome an obstacle, anytime you confront what’s holding you back, it’s going to stay with you. Owning your breakthrough is about remembering where you’ve been in your trading, and building on it. You catapult yourself to a new level because of the growth you’ve experienced. Don’t forget where you’ve been, but place your focus on where you’re going. You won’t be free from frustration forever, but you’re on your way to a lasting breakthrough.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are You Willing to Lose, Part 2
June 2, 2011 at 10:27 am
Yesterday in Part 1, we discussed the idea that while losing is a part of trading, it still must be done the right way. We also talked about how a fear of losing can characterize our trading if we allow it, much to our detriment if left unchecked. However, as Mark Ritchie’s comment emphasized, a willingness to lose is fundamental to turning a profit.
I'm not a cat fan, but this one has guts!
The ‘food for thought’ question I left you with was along the lines of “what characterizes your trading approach: fear or confidence?“Â Hopefully that’s a question you’re willing to honestly answer, so let’s move forward.
The best traders don’t allow their fear to dictate their success. Yes, they walk the line well. They respect the market and they keep risk in consideration, but they’re confident enough to act when their signal comes along and they move with conviction. They put in the work, identify their plays, and stick to those which are suitable for them. They know what they can lose, and then they go for it.
So, how do you get to that level?
Take Good Trades
Simple enough, right? But I should explain…
To take good trades doesn’t mean take ‘winning’ trades, because of course you can’t know (unfortunately) how they’ll turn out ahead of time. A crystal ball isn’t needed. What it means is take the trades which suit you, which are within the confines of your trading plan. If you don’t have a plan, stop reading this and go make one (anything is better than nothing). You can’t throw caution to the wind or lower your standards, but if all else is in line, then hit the good trades without hesitation over losses. If you’ve defined your risk and have a safety net in place, then be willing to deploy that capital.
Change With Care
Periodically, we all desire some sort of change. Out of impatience, we too often approach those situations the wrong way, and we should be careful.
For example, the trader who casts his fear aside and is willing to lose must still approach his trading the right way. For those aiming higher, a desire to make more needs to outweigh a worry of losing more, yes, but too many approach this adjustment from the wrong standpoint.
In his book, One Good Trade, Mike Bellafiore discusses the trader who wants to learn to make $5k by first losing $5k. Going out and losing $5k doesn’t mean you’re now prepared to make $5k, so don’t prove your willingness to lose by rushing out and widening your max loss – that’s not a solution to anything but taking bigger rips to your account.
Being willing to lose is about showing up prepared to trade confidently and responsibly, not recklessly.
Watch the Right Numbers
Trading is about two sets of numbers: the prices on your screens, and your P&L. Too many traders place their primary focus on the wrong numbers (P&L), and give their leftover, secondary attention to prices.
And they pay for it, too.
Some simply hide their P&L numbers, either for their account or for open positions in order to prevent giving their attention to the wrong numbers. Your job is to stay focused on the game, not the scoreboard!
The condition of your P&L will have some influence, yes, but make sure you’re not trading solely in response to it. Doing so will lead to costly mistakes, such as trying to go bigger when you’re struggling in an attempt to make it back. Instead, focus on the price action for clues – it will tell you what you most need to know.
Here’s the bottom line:
We all know we must accept risk in the markets in order to play and profit, but how willing are you to lose? It’s a question only you can answer, and for too many, their unwillingness to lose will ironically leave them either sidelined in fear, or fully-involved as a stuck holder in a position they should have long since closed. If you’re going to play this game, get your head right and show up ready to play – win or lose.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are You Willing to Lose, Part 1
June 1, 2011 at 11:26 am
In Jack Schwager’s classic The New Market Wizards, Mark Ritchie delivers a very simple but profound statement on the subject of losing:
“…I don’t think you can make money unless you’re willing to lose it…my willingness to lose is fundamental to my ability to make money in the markets.”
Losing is a part of trading, there’s no getting around it and everyone does it…but not the same way. The best traders lose like a winner.
Too many traders fear losing, and to be honest I’m often guilty of it too. Sometimes it’s a healthy fear and at other times a limiting fear, so it’s an ongoing issue each of us face.
The wrong kind of fear keeps us on our heels. It might cause us to dart out of good trades too quickly, cutting the legs off our winning trades (get it, so they can’t run?). Or it may leave us sidelined, unwilling to participate even when we sense the presence of opportunity. Sometimes we respond to our fear by trading too small, or simply by becoming far too stressed over trades which are small enough to be insignificant.
For example, you know that when you’re trading small enough that a trade’s outcome (win or lose) will result in virtually no change in your account value, and yet you’re fretting over it, it’s a clear signal that your fear is too great and you’re in no shape to be trading until you get a handle on it. I can say that because I’m familiar with the feeling!
Your Trading, Defined
The title of this post isn’t “Do You Want to Lose?“ It’s “Are You Willing to Lose?“ There’s a big difference, so let me be clear. This isn’t an approach where we face the markets each day hoping to shrink our account. Rather, it’s a mindset whereby we play only with that which we’re able to lose, and nothing more. It’s a mentality where we trade in such a way that we evaluate our risk, do our best to contain it, and then move forward boldly. We aren’t held back by worry over what might happen.
Tomorrow we’ll wrap this up with Part 2, but until then, let me give you a question to consider:
How would you characterize your own approach…are you defined more by your confidence or by your anxiety?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Practice Winning
May 31, 2011 at 9:57 am
In my office hanging on the wall, I have a whiteboard, a plasma TV, some handwritten wisdom my grandfather penned in 1973, artwork from my 3-year old, and a Kenny Rogers poster. A bit random, yes.
Right alongside those things, however, is a large photo of Ben Hogan’s 1-iron approach to the 18th green in the final round of the 1950 U.S. Open at Merion. It set up a 2-putt par to put Hogan in a playoff the following day, which he won for his fourth major title. It’s black and white – which is classic – just like the moment it captures.
Preparation + Confidence = Performance
When I stare at the photo, I’m most impressed by Hogan’s focus. Perhaps the first thing you notice about this famous picture is the gallery lining the entire scene. Thousands had spent their day following him, and with the finish imminent, they stood silent, awaiting the outcome. And with history on the line, Hogan hit a masterful shot – just as he had practiced countless times – as if he weren’t nervous.
But he was human – and nervous indeed. He knew what was on the line. His confidence and preparation simply suppressed the effects of his nerves, so that he could perform his craft and execute with precision the same shot he’d hit many times in solitude.
It didn’t matter that he had to make par. It didn’t matter that he had to hit arguably the hardest shot in golf – fading a 1-iron against a right-to-left wind so the ball would land softer on crusty U.S. Open greens. And it didn’t matter that he was likely exhausted from walking 72 holes on legs which had been battered so badly in a near-fatal car accident just a year prior.
What mattered to Hogan was wrapping himself up in the process, ignoring the buzz around him, forgetting (if not thriving on) the pressure he faced, and relying on his preparation – both physical and mental – in order to produce a great result with controlled emotion.
Repetition is the Mother of Skill
Whether it’s sports or music or any other craft – including trading – there’s no substitute for preparation and practice. Hitting golf balls on the driving range can produce the “muscle memory” needed to groove a golf swing. Standing in the gym and shooting free throws every day will make you better. Watching the order flow, working the charts, and making trades on a regular basis will both train your eye and develop the gut feel you need as a trader. And such things must be done by those who want to get good.
But for those who want to be great, that’s not where it stops.
Both your skills and your mental game must be improved.
When it comes to skills, you have to hone your existing skills and tighten up any loose ends. Tighten your routine, and increase your discipline with what you know. But you must also build your cache of talents. Learn to operate on other timeframes. Get better at evaluating risk, managing money, and overcoming biases. Become more efficient by learning when to add to winning trades, hop on board existing trends, identify reversals, trade news, and execute with precision. Not surprisingly, these are the same skills which are taught in the Advanced Trading Course.
Beyond those things, your mental game cannot be ignored. Visualizing literally everything and mentally rehearsing situations and emotions is another key component. Hogan practiced for repetition, but he also practiced with purpose, picturing situations where he’d need to pull off a shot under pressure or with potential distractions.
You must do the same. Make the time every day to take a break and shut everything down around you. Make a list for yourself of situations you might face in your trading, whether a string of losses or wins, or monitoring multiple positions, or the urge to trade when nothing is setting up, or feeling left behind in a market move. Take them one at a time, and imagine what you will do and how you’ll respond.
Picture yourself in control, not in a way that everything does what you want, but in such a way that you’re not feeling panic or fear or distraction from your trading process. Imagine the intensity of each situation having the opposite effect by actually increasing your focus. Starting off, it may just be a couple of minutes, but as you practice and become more skilled at visualizing, you will add more time. And you’ll be amazed what follows.
As you think about your trading, are you able to approach big situations with supreme confidence? Do you need to know more or improve your techniques or get better equipment or become mentally tougher? Then what are you waiting for?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Walk the Line
May 27, 2011 at 10:41 am
Trading is all about opportunities. Every day is filled with chances to ride a rally, short a selloff, or sit on the sidelines to protect your capital.
But there’s a very fine line to walk between having a fear or respect for what the market can take from you, and having the boldness and confidence to take a risk and get paid.
There are several keys to walking that line successfully, such as:
- Having the necessary capital to participate.
- Building and maintaining sufficient skills, methodology, and a game plan that produces consistency.
- Discipline and readiness to move swiftly when it’s time to act.
- The mental restraint not to let your mind race too far ahead.
That last bullet is arguably more important than the others (although each are necessary), so let’s dig a bit deeper into it. When I say don’t let your mind race too far ahead, I’m not referring to the productive foresight of anticipating a move – that’s fine. Rather, I’m referring to thinking habits whereby you’re focused on things which are not a present-tense reality.
These are the thoughts that have you counting on a gain before you’ve actually booked it, or fearfully racing for the exit at the first sign of your trade’s hesitation. They’re destructive and damaging thought patterns, and they aren’t “on the line” we want to be walking.
In your trading, do you allow your mind to get ahead? Are you able to stay objective? It’s an issue of self-control, and it absolutely impacts your trading results.
I’d love to give you a simple 3-step process to entirely eliminate any lack of discipline in your thought process, but the truth is it takes work. It can’t be rushed. Even your thought patterns are based upon habit.
Final word: commit to making some good decisions every day – no matter how small – knowing it’ll keep you right in the sweet spot between respecting the market and confident execution.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Flip Your Fears
May 26, 2011 at 9:17 am
“Look…if you had one shot, or one opportunity … to seize everything you ever wanted in one moment…would you capture it, or just let it slip?”
Choose Your Discomfort
May 19, 2011 at 9:52 am
Trading is not easy.
There…I said it. As if you didn’t already know.
It can be simple, but that’s different. When you’re trading well, it might feel easy, but when the tough stretches arrive again (and they will), you’ll be reminded that it’s hard. As they say, “if it were easy…”
Contrary to what most traders think, the hard part of trading isn’t being right or wrong. Each of us will find ourselves in winning trades and losing trades at times – even random entries can produce (at least temporary) profits. Discomfort is the hard part.
Discomfort in trading can be tied to either profits or losses.
For example…
Our minds seem hardwired to shun (perceived) failure, so some traders struggle in a big way to close out a losing position and instead spend waste time hoping for a turnaround which may or may not ever happen. It’s uncomfortable for them to admit defeat and accept a small loss, so they usually pay big to try and avoid that.
Our minds can also have recency bias, so after a string of losses, it’s tempting to book a winner – no matter how small – just to stop the bleeding and have a taste of success again. It can be uncomfortable to let open profits ride when you’re clearly on the correct side of a trade – what if you give them back?! You need this winner, right? That often leads to booking smaller gains as compared to what you were on track to get paid, and that adds up big over the course of your month, or your year, or your career.
Discomfort can also be tied to our preferred trading timeframe.
Some can’t stand the erratic price action found on the intraday charts, and they tend to respond with late or forced entries when day trading. They get spooked out of good trades, opting instead to focus on the most recent 5-minute bar rather than the overall direction that’s taking place.
Others can’t stand to give a stock an appropriate amount of wiggle room when swing trading, so they choke off what would be a good trade in favor of a stop that’s too tight. Instead of positioning themselves smaller in order to weather the short-term shake-outs, they essentially overtrade by reacting to insignificant moves within the context of a bigger trend. Profits aren’t allowed to pile up, and their skittish approach keeps them frustrated by the big moves they were once a part of but missed out on.
Here’s my point:
Risk involves discomfort, so if you’re constantly avoiding discomfort, you’re avoiding risk – and by definition, risk must be taken in order to profit in the markets. The key is to manage that risk appropriately, which also means managing your discomfort appropriately.
There’s no getting around discomfort in trading. Everyone has it, regardless of directional bias or timeframe preference or the market being traded.
Either you’re uncomfortable with the results you’re getting (e.g. overtrading, not sticking with good trades, staying too long in poor trades), or you’re going to face some discomfort while denying yourself as you stay with a good position. That’s going to include enduring pullbacks, watching some profits evaporate, and being patient while waiting for an acceleration move to occur.
In an instant-gratification society like ours, it’s no wonder most traders fail. Have the courage to choose your discomfort ahead of time, so that by expecting it and mentally rehearsing what you’ll likely face, you’ll in turn be able to respond with good decisions.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Are you following me on Twitter yet?
