All Entries Tagged With: "Trading Psychology"
The Importance of Off-the-Screen Goals
December 17, 2009 at 7:54 am
Ah, the end of the year! A time for pigging out, hanging with relatives, and reflecting on the previous 12 months.
For some, it’s a rewarding time. Looking back on achievements and areas of growth brings some satisfaction and motivation for the year to come. But for others, disappointment and disgust dominate their thoughts as they wonder how they could have set such lofty expectations just 1 year ago.
Goals can be great. They can drive us to achieve more, reach higher, and to get clear on what it is we really want.
But goals can also hinder us when we find ourselves in a rut. They can be a psychological burden, annoying us – no, pressuring us when we stop to think how far away from them we are. In those times, we need no additional motivation – our own frustration is plenty. And in the trading realm, there are times when that is definitely the case.
I’ve realized over time something of great value:Â I really need off-the-screen goals.
The reason why is so that trading isn’t everything. I don’t want it to be everything. I do love it, but it isn’t my life.
When trading is going well, it’s great. But when it isn’t, I’ve found that mentally I get a huge boost to be achieving in other areas of my life. It’s just part of my personality that I need to be achieving somewhere in my life, so if I rely solely on trading to provide that, I’m setting myself up for some disappointment during those challenging stretches. I don’t want that – life is too short!
Let me encourage you to first make the time to set some goals for 2010, but furthermore, to include some off-the-screen goals to strive for. Maybe they pertain to relationships, health, travel or a hobby. What matters is that you’ll have them, because trading isn’t always fun – at times you’ll need those diversions away from the screens.
Remember, trading isn’t everything, so don’t treat it like it is. Give it your very best day in and day out, and be passionate about it, but don’t let it dictate your happiness. Bring some balance into your life, and it’ll help your trading in 2010.
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
Other Goals-Related Posts:
How to Lose Like a Winner
December 15, 2009 at 1:48 pm
I recently heard that in relationships, you can be happier if you choose to accept the whole person. The idea is that instead of trying to weigh everything you like vs. everything you dislike, accepting them as generally positive is a better decision. Thankfully, my wife does that for me, looking beyond my numerous flaws and allowing my positives to overshadow them.
If you stop to think about it, this is a pretty good way to measure everything and everyone in our lives. Staying objective about ‘it’ lets you recognize that overall it’s a positive thing.
The successful trader is no different. He looks at his overall trading operations for a given timeframe, and if the profits are there, then the mission was accomplished.
That’s not always an easy thing to do. In fact, I’d suggest that your inability to view your trading in that general light could put you in the popular camp of those who can’t cut it in this game. It’s much more natural to allow specific trades to stand out and influence our line of thinking. It can result in a directional bias, a pet stock, or a slew of other closed-minded patterns of thinking – all of which can lead to the destruction of one’s account.
What we want to do is to win. And if winning is defined as overall profitability, then winning will involve some losses along the way. You and I have to be able to lose like winners!
Here are 4 ways you can do that:
1. Allow no single trade to define your trading. Dwell on it for a short time if you must, but then move past it whether it was a big win or a disappointing loss. You might have put a lot of preparation, concentration, and capital into that one great idea, but it’s over now. Either pat yourself on the back for a trade well done, or brush yourself off and get back on your feet. Think about how you can use it to your advantage. Maybe you fattened your account with the profits from it, or expanded your comfort zone because of it. Great. Get back on your horse.
2. Win the war, not every battle. Put on individual trades which have sensible risk/reward, but place emphasis on your overall operations rather than each individual effort. Basically, see the forest and not just the trees! Accept that there will be some some losing trades, perhaps frequently, depending on your timeframe, and aim to overcome them with larger or more frequent winners. The point of taking this step is not to go to battle with every trade due to the mindset of having to be correct. Accept it when you are wrong, and no single ‘battle’ will ever sink your ship.
3. Cast fear aside. Fear is arguably our biggest enemy in trading. It can cripple you if you allow it. This is manifested in ways like trading so small that a win or loss has virtually no impact, or maintaining stops so tight that the stock isn’t able to fluctuate naturally without shaking you out. Those who spiral down the drain of losing are often times gripped by fear. Don’t allow that to be you. Maintain a healthy respect for the market, but don’t be afraid of it.
4. Learn from every loss. You’ve paid the tuition, so you might as well get the lesson! This makes a loss something you can still gain from, and every winner does it. Always seek out ways to increase your trading knowledge, whether through specific education like a stock trading course or simply picking up on subtle behaviors in price action that are starting to surface. Is the market starting to change, or are you refusing to avoid methods which aren’t paying off? Keep an open mind, always look for the lesson, and let the long-term losers be the stubborn ones.
Lose like a winner this week, and you’ll have more to show for it.
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
Oversold Bounce or Higher Low?
October 29, 2009 at 9:51 pm
Following an impressive surge higher from early October, the market has finally taken a breather. The pullback of the past week has offered at least a short-term change of character that has my attention – and yours as well, I’m sure.
Downside follow through has been notably absent for some time now…until this week. Four consecutive declines began with last Friday’s reversal from the highs in the NAZ (2190), and ended with Wednesday’s punishing selloff. Thursday’s bounce was headlined by a near-200-point jump on the DJIA, but under the surface we saw the NAZ post an inside day. The S&P 500 erased Wednesday’s losses, but on declining volume. Mixed signals, to say the least.
Looking at the daily charts of the indexes, a case can be made for more than one scenario here. We are in well-defined uptrends, and the dip of the past week could again get bought and prove to be yet another higher relative low within the trend. But by the same token, the bounce we saw on Thursday could merely prove to be a relief rally after the harsh selling which put the market short-term oversold. It’s hard to place my entire weight on either scenario just yet, as more technical evidence needs to be seen to support one or the other.
So at this point, I’m making zero predictions. This isn’t a spot to buy blindly and bank on another rally straight back up to new highs. The selling intensity we just saw wasn’t like the modest pullbacks which preceded it. It was a little more vicious and a little more ominous. It could be the start of a change of character. And this isn’t a time to call for a market top and start shorting the daylights out of every name out there. The intermediate trend is still up, and that should be respected.
I’m expecting the next few days to carry some significance. Either the bulls prove themselves yet again, or the bears build on their newfound confidence and we see another leg down begin to develop. Personally, I don’t care which side wins out – I have no bias.
My approach is to stay very short-term for the next couple of sessions, day trading for quick moves in this increased volatility, and see what happens. Many stocks broke down hard and have the potential to construct bear flags and rising wedges if the rebound loses momentum and volume continues to sag. I’ll be watching those bounces intently. Other stocks still aren’t far from their highs, so I’ll observe them closely for signs of real strength returning – not simply a relief bounce of one day.
Both the bulls and bears have something to prove these next few sessions, so it could wind up being a pretty good battle. No matter what, volatility is picking up, and that’s a great thing for us as traders.
So stay objective out there, anything is possible. Expect surprises in both directions. We’re getting into the best season for trading in the next several months, and I’m excited about it!
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
The Power of Focus
September 21, 2009 at 9:23 am
Just last weekend, Tiger Woods collected another trophy. It was an impressive win by a wide margin, his 10th career win by 8 shots or more. And while he’s posted 6 wins this year alone, there’s one in particular I’d like to discuss today. Surprisingly, examining it offers some real value for us as traders.
On July 5th, Tiger held a 1 stroke lead heading into the 72nd hole of the tournament he hosts, the AT&T National. Needing only a par to win, he rifled a 3-wood down the fairway. Holding a 9 iron as he stepped to hit his approach shot, his focus was as intense as it had been all day. He chose a specific target, mentally rehearsed the shot, and executed it perfectly with a shot to about 12 feet. Enough for an easy 2-putt for the win.
The highlight reels didn’t mention how he played the 18th, and some would say it was downright boring and uneventful compared to other shots he hit that day. However, his focus did not waver with that all-important par at the last. He was ready for it, and he added yet another victory to his resume because of it.
So how does all this relate to trading?
Well, for each of us who have ever faced our screens with fear or trepidation, the study of a great performance by a top athlete will always offer applicable lessons. Observing someone else who’s producing great results under pressure gives us an opportunity to grow and improve, so it’s always an exercise worth doing.
Let’s learn a few things from Tiger…
Preparation = Confidence
When it’s time to get ready to play, nobody outworks Tiger. He’s willing to put in the necessary time to get the results he wants. Are you? When it comes to your trading, if you were to rate your level of effort with regards to preparation, how would you fare? The very best traders aren’t lazy. They thoroughly prepare for a variety of scenarios, and it enables them to respond in the heat of the moment with confidence. If you’re not confident, you’re probably not preparing adequately.
Confidence = Chances to Win
We’ve all heard the phrase ‘confidence breeds confidence.’ It’s true. Showing up with a winning mindset is at least half the battle, whether it’s sports or trading. It’s a positive outlook rooted in the fact that you’re ready for whatever comes your way. You’re patient yet aggressive, and you know that you won’t fall prey to hesitation or indecision. That mental sharpness elevates your performance, and it increases the chances that you’ll be at your best. As a result, winning becomes more likely.
Frequent Chances to Win = Success
Giving yourself the best chance to perform well day in and day out will repeatedly open the door for success to happen. It’s aided by good preparation and a thorough routine, and it results in better focus and even a more relaxed state when it’s all on the line. What each of us want is to have opportunities to create big performance breakthroughs regularly, because we know we’ll capitalize on some of those. Tiger wants to have a chance to win going into the back 9 on Sunday, to him that’s what it’s all about. Prepare in such a way that your odds for success naturally increase. Anticipate multiple scenarios, visualize how you’ll respond, and set fear aside as opportunities come your way. The confidence you’ll derive from that will go a very long way toward helping you convert a decent day or month into one you’re really proud of.
Whenever you have the opportunity to observe the best when they’re at work, do it. Regardless of the endeavor, you’ll see the power of focus at work and pull some qualities from that experience to apply to your trading.
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
Scale Out of Winning Trades with Partial Exits
August 4, 2009 at 12:55 pm
It’s common among traders to think that you either have to be all-in with a stock or all-out of a stock, but that sure isn’t the case.
Many of us do our buying in one piece, entering a full position at one time as an important level gets crossed. This is my personal preference, as I continually seek out trading opportunities where a ceiling is shattered or a floor implodes, enabling price to make a nice move through it.
And when I am wrong (yes, when, not if ), I’ll exit in one piece. As events occur or conditions emerge to show me that the stock is clearly moving in the opposite direction of what I had expected, I’m going to bail out of the trade and protect capital.
So, I’m getting into trades in one piece, and I’ll stop out of trades in one piece. But rarely will I exit a winning trade in just one piece. Instead, I’ll scale out.
Advantages of Incremental Profit-Taking
Over the years in dealing with traders from literally around the globe, I’ve found that very few of them will get out of favorable trades in pieces. Adopting this method of booking profits can be an excellent way to trade, and particularly in a momentum-based market like the one we currently find ourselves in.
Taking partial profits and peeling off a portion of your position on the way up carries with it several advantages. Let’s look at a few…
1. You can lighten your exposure into favorable moves. As your trade makes its move, it’s a great idea to start reducing your position size. The idea is that as a move progresses, it naturally becomes more difficult to capture similar returns to the initial move. Typically stocks surge early, so this is a way to take advantage of that early momentum.
2. Make room for new opportunities. This isn’t just for those who may be trading with a smaller account and need to raise cash to put toward a new play. In fact, even traders with larger accounts may find it difficult to manage a lot of positions in terms of the attention they can devote to each trade. Catching the move you initially were seeking can remind you that it may be time to shed some shares and seek out another stock to put your money and/or attention into.
3. Let slippage work in your favor. Posting offers on the way up means you’re capturing the bid/ask spread – not paying it. I use market orders for entries and for stopping out, because when I need to be in or out of a trade I don’t want to haggle over a few cents. But when it comes to booking profits, limit orders resting at higher levels mean you’re out there offering out some inventory, letting someone else pay up for it.
4. Satisfy the urge to take cash off the table, yet still stand to gain from a continued move. This is a big confidence booster as well as a way to manage money wisely. Turning some of those paper gains into real profits not only pads your account, but it also reinforces that you’re on the right track. Gaining some momentum in your trading is a great thing, both for your account and for your psyche. And by adjusting the stop for remaining shares, keeping even a portion or a core position allows you to benefit from a major move, should it occur.
Trade Like a Surfer
Just as a surfer catches one wave after another, a good trader maintains the same mentality. Ride the best moves you can find, but don’t be shy about easing out of a trade once you’ve caught a nice move. Paddling back out to locate the next one will require your availability, so when you start smiling about a trade, it’s probably time to start scaling out.
The fear of missing out on a giant run keeps many traders from selling at all, but scaling out carries with it the best of both worlds.
Consider making partial sales in your next winning trade, and see what it does for your bottom line. It just might be the best adjustment you make this year.
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
Psychology of Overbought, Oversold, and Market Extremes
July 28, 2009 at 8:26 am
Ever seen something get just a little overdone?
Perhaps it was that weekend barbecue, or the tattoo collection on that dude you saw the other day.
No doubt, we all run across the occasional extremes, and they’re usually worth a story or two.
It happens in the market too. Bounces get a bit stretched and before you know it, you’re staring at overbought conditions. And sometimes selloffs spark a little more damage than usual, creating oversold conditions.
We don’t see ‘overbought’ and ‘oversold’ every week, but it happens regularly. Emotions are a primary driver of the price action, so it’s no surprise that at times they challenge the boundaries of ‘normal’ and produce market moves with an unsustainable pace.
Every now and then, we’ll see true extremes in the market. Sometimes it’s when the upside momentum runs so hot that it produces a parabolic uptrend. Some of the fastest money on the long side can be made during such times, but high risks are there right along with those rewards. It’s somewhat of a party atmosphere though. Feels like it might not ever end.
And of course at times we do see selloffs become all-out panics, when capitulation prompts everyone and their dog to sell. When it happens, it can be rather spooky to see. Feels like it might not ever end.
What’s the Difference?
There are definitely various degrees of strength and weakness in the market, so let’s take a little deeper look and see what we can pick up and apply going forward.
The fact of the matter is that whether we’re discussing overbought or oversold conditions, or parabolic uptrends or all-out capitulation, the moves in price are happening at an unsustainable pace.
That means it might continue for a little longer, but not forever. Eventually, some kind of recoil or pullback or reversal is going to arrive, ending the move. Another might follow in the same direction, but the point here is that price doesn’t move in a straight line forever.
With that said, the biggest factor in determining exactly which condition we’re seeing is going to be the timeframe being referenced.
For example, on an intraday 5-minute chart, a parabolic uptrend can occur. That same move may leave the daily chart of the same stock hardly even overbought. So looking under the microscope won’t often correspond to the big picture view.
Faces in the Crowd
As we examine these conditions, it’s crucial that we take notice of all parties involved: the buyers, the sellers, and those who are short. Knowing who’s involved and being able to continually evaluate their likely motivations can give us a big edge as traders. It means we’ll be better prepared for knowing if the move might persist, or if instead we need to be on watch for a sudden shift. Let’s look at a few situations and the roles which matter most…
First though, a brief description of how I’m using these terms:
Buyer – a bull with cash on hand who wants in.
Seller – a bull with inventory (shares) on hand who wants out.
Short Seller – a bear wanting to get in and profit from a decline.
Overbought:
Buyers – they’ll be greedy and eager to buy the first dip. In an overbought market, the bulls are correct and anxious to add to their positions. They view it like they’re defending turf, so give them some respect until they show signs of tiring out.
Short Sellers – they’re using strength to initiate reversal plays, but walking the tightrope. Understanding that they’re putting on short sales at the near-term highs means they’ll likely be quick to cover if more strength arrives.
Oversold:
Sellers – they’ve quasi-panicked and dumped when they shouldn’t have, adding some fuel to the fire. Once they see a bounce or some stability, they’ll likely get long again. If the bounce fails, they’ve just compounded their mistake, perpetuating the cycle.
Buyers – they’re trying to ‘buy low’ but struggling, because with each new low in price they get spooked and jump ship again. If a little more pain can be inflicted, they’ll give up. At that point, they’re vulnerable to getting caught very off guard.
Parabolic Uptrend:
Buyers -this is all-out greed. They’re making money hand over fist, and see no end in sight. The upside pace has increased, as has their desire for more, and they have no idea that the edge of the cliff is fast approaching. Once it arrives, they’re in for a shock and they’ll rush for a chair as the music stops.
Short Sellers – early = wrong. They’ve recognized the unsustainable pace of the advance, and they know they stand to benefit big if they can simply time their entry well. Unfortunately, their confidence is battered at this point, as is their account. They’re wounded but staying attentive for an opportunity which will quickly increase their boldness.
Capitulation:
Sellers -regrets, regrets, regrets. Repetitive questions of “why didn’t I sell back at $__” plague this crowd, and they’re absolutely sick of getting beaten up. They’re throwing in the towel, and planning to buy a small used boat with what’s leftover. It’s been a long road for them, but the pain isn’t over because as the low gets established and price rebounds without them, their ego takes one last significant hit.
Buyers – what began as a bold get-in-front-of-the-freight-train move has chipped quickly away at their equity as time after time new lows stop them out. But with some dry powder still available, they sense a chance to pick up some bargains with potential. If they can only endure the foul smell of a sick market and go completely against the crowd, it’ll pay off big so they hang around and keep trying until their ship comes in.
The Biggest Question
Are you in the habit of evaluating not only the conditions you’re trading in, but also the participants at any given point in time?  Understanding what the flip side is thinking will help keep you grounded and more aware of whether it’s time to hold ’em or fold ’em!
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
Halftime Honesty
July 1, 2009 at 8:23 am
The year is halfway over, and I hope you’re exceeding your expectations for 2009 thus far.
With an extended holiday weekend approaching, it’s the perfect time to pause and reflect on not only your performance, but also your process.
So let’s head to the proverbial locker room and examine how the first half has played out. Doing so will enable us to properly prepare for the 2nd half and finish strong the way every winner should.
First 6: Something for Everyone
2009 has been an interesting year already. January began with some real promise as the market sprinted higher for a whopping 3 days before turning south and stomping on the gas. We headed lower into mid-March, when a meaningful upside reversal brought about significant gains – and virtually in a straight line for some 9 weeks before pausing. Since then, we’ve climbed incrementally higher, and currently stand somewhat range-bound with traders waiting for momentum to return.
That means that to date, we’ve had several kinds of price action with the market throwing the kitchen sink at traders. Downtrends, reversals, rip-roaring rallies, and even a few trading ranges have been seen.
The way I see it, that’s a little something for everyone. Including you. So if I were to ask you how you’d grade your performance during your favorite stretch, what would you say?
And more importantly, where do you see room for improvement?
Right now’s the time when brutal honesty can bring big benefits – if you’re brave enough to bear it. Sure it’s more fun to reminisce about the best trades we’ve made, but the failed trades and the missed opportunities hold within them perhaps the greatest promise – the chance to learn and apply, and with it, the chance to rise above our previous best.
I don’t know about you, but that fires me up.
I’m always looking to gain an edge, and I love working toward continual improvement. Growth and sharpened skills do much more than pay the bills – they motivate and reward me. The thought of getting better gives me some momentum, particularly in my mindset. Trading is such a mind game that having an edge there means more to the bottom line – which is nice, because I do not like to lose.
New Year’s is Coming
Here in Texas right now, we’re seeing triple digit temps daily and it’s quickly becoming the Great Yard Bake of 2009 with the heat wave we’re in. Summer is in full swing, but you know what? Winter will come.
When you stop to think about December 31st, it probably seems forever away. But put yourself there mentally for a moment, and think about how you want your 2009 to finish.
Will the halftime checkup prove to be a turning point for you, or will you have squandered an opportunity to grow in the 2nd half?
My hope is that the former will be true for you. Right now, you might be fed up with the current trading ranges and lack of momentum. You might hate the summer doldrums and just want a break from it all. And truthfully, now’s not a bad time for that if so (I just spent 10 days in the Caribbean).
But if you’re driven to grow and improve and make this the year you actually make some real strides – both in your account and in your mindset, then right now is the perfect opportunity to pause and pay attention to your process.
Spend some time crunching the numbers. Put in a few hours to review – truly review – your trades from the first half, and be honest and see what you learn. Some of them you nailed…congrats! But others you knew you should have taken and didn’t. Find out why. Some of them you bailed out of too quickly, micromanaging them by undermining your original plan. Figure out what happened. And yes, a few of them you got blindsided by. It happens, but really do your best to determine whether the fault was your own and something you can avoid in the future.
The Moment of Truth
Here’s the thing… the future arrives daily, and either you’re prepared for it or you aren’t. Either you want success bad enough to find it, or you’re satisfied enough with mediocrity to keep enduring it.
Get honest with yourself, and before you head out for the 2nd half, decide how you want to feel the next time you walk off the field. The first half is over, and only you can determine what happens in the 2nd half. Get clear on what you want.
I want to win.
Trade Like a Bandit!
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]
