Posts Tagged ‘trading strategy’
Here are the last 4 items from the series.
11. Give up your excuses. This relates back to point 3. Excuses are another way of placing the power of your decisions onto to someone or something else. Who’s making these decisions? Is someone one going to take the credit for a trade gone well? Beginning to understand your trading results starts with an honest evaluation of our decisions. These are hard decisions. If it were easy, we would have a higher success rate then 10%. Stop making excuses for your results. Use your results as information to make better decisions. They aren’t good or bad. Just information.
12. Give up the past.
13. Give up your expectations. These two concepts need to be presented together, because they are two sides of the same coin. Trading is about the present. The here and now. What happened in with the past trade is over and done. Your results are your results. They are neither good nor bad. The next trade hasn’t happened and therefore has no bearing on the present. You might reach that target and then again you might not. All that matters is what you are seeing, right now and what you are going to do about it, right now. The more focused you can be about what is happening in the present, the happier you will be with your results. This leads me to the most important give up.
14. Give up your attachment to results. Trading is not about the money. Let me repeat that: Trading is not about the money. Money is the result of our trading decisions. Money is an indicator of where we need to make improvements in our trading decisions process. If we are losing money, where are we losing? What adjustments do we need to make to loose less? If we’re profitable, what can we do to consistently be profitable? What adjustments do we need to make to enter the market at the right time? To exit at the right moment? What changes do we need to make to our perceptions, expectations, cognitive process to be happier with our decisions?
The challenge in trading is an inner challenge. That’s both good and bad news. We have the ultimate responsibility. How we handle that responsibility has more to do with our success or failure than anything else.
Followers of my blog will know that I’m a big believer that trading has more to do with the decision process than any indicators of the market. Ultimately, we need to be happy with the decisions we are making regardless of the financial outcome. So to help traders be happier with their trading results, I came across an article from the Finerminds Team that inspired me to come up with my own list of 15 things we should give up to be happier traders.
Trading is one of the most challenging and stressful activities know to man. Yet there are those among us that are drawn to it like moths to a flame. The decisions we make in the market are of our own making and hence our responsibility. Being conscious about our choices and reasons for trading are some of the things we can do individually to become better traders. To foster conscious choices, here are 15 things to eliminate from our trading routine for happier trades.
1. Give up the need to be right. Being ‘right’ is a well know human attribute. Unfortunately, the market doesn’t care if we are right. The market is only concerned with what the market does. How many times have we hung onto a trade well past the point of common sense only so that we can be proved ‘right?’ This is not the rationale mind talking buy rather our egos. A number of well know traders have said, “do you want to be right or do you want to be profitable?” Getting out of our own way is often the first decision to more profitable trades. Which leads me to the next point.
2. Give up your need to control. There are only 2 things we have control over as a trader; 1) how much money we’re placing on a trade and 2) our expectations of the results. After the trade has been placed, we are at the mercy of the market. The best of trading plans can be laid asunder by the capricious nature of the market. Control is something that we have very little of as we engage with the market.
3. Give up on blame. I speak to a lot of traders that are very quick to blame something else for their results. An indicator, a platform, an advisory service, a broker are just a few of the areas of that take the responsibility for trading results. Own the results you are getting. The beginning of improved performance starts with taking charge of the decisions we are making, acknowledging the flaws in those decisions and putting a strategy in place to address those flaws.
4. Give up your defeating self-talk. What is your state of mind when you sit in front of your computer to trade? What is the chatter that is going on in your head as you execute trades? Are you defeating yourself before you even get started? Our minds are incredibly powerful tools, if we use them for correctly.
5. Give up your limiting beliefs. What we believe has a great deal to do with our success as a trader. Limiting beliefs often show themselves in words like can’t, would have, should have, could have. Being aware of this talk is a first step in the awareness of our responsibility of the decisions we’re making.
“A belief is not an idea held by the mind, it an idea that holds the mind.” Elly Roselle
More to come.
This interesting article came to my attention from one of my clients . There must be something in the air because this topic has come up in a couple of different places. I want to thank Stephen Crane for sharing this article with me.
The topic is the subject of many conversations I have with my clients. The conversations usually begins something like ‘trading is not about the money, its about the trade.’ That sparks a lot of conversation around the purpose of money and how do we use it in our trading. Money is a way of measuring our trading results but shouldn’t be a goal of our trading. If we focus on making better trading decisions, the money will follow. But focus on making money, what ever the motivation, is a recipe for losing money in the market.
My previous posting on money management is a different way of looking at how we should look at managing the money of a trade. So this article is yet another reason to have a new way of thinking about the money in our trades.
Here is the article, Forget About the Money, Focus on the Price Action. I hope you enjoy. I look forward to your thoughts.
In today’s market, with the advent of high frequency trading platforms, it is even more important to clarify the reasons for entering the market. Super computer trading platforms are designed to take advantage of market movement in fractions of a second. The idea is to make $.01 on a stock trade 40,000,000 times. If you think about it, what clearer value could there be for a trading strategy. Tiny profits many times over and over again.
To get a better idea of this, 60 Minutes’ Steve Kroft hosted a segment on the secretive world of high frequency trading. It’s a small peek into who might be on the other side of our trades.
Most marketers of trading methods spend a lot of time telling you how to get in the market. (They also spend a lot of time telling you how great their methods are but that’s a discussion for another posting.) Volumes are written regarding the perfect setup, the perfect entry, the perfect execution of a trade. These approaches treat trading methods like on/off switches. The setup conditions exist means on, if not, off. If you don’t have a setup you don’t place a trade. Although the absence of a setup is a common sense answer to avoid trading, it is not the only reason to stand aside. Once you have a tradable opportunity, now you need to determine if it is a good opportunity.
Since all decisions require an emotional commitment, the need to feel good about a trading decision is very important. There are two ways of accessing a trade’s viability; internally and externally. An internal point of view looks at the trader and their state of mind. I’ll talk more about this in the next installment. Risk assessment addresses the external considerations for qualifying if a trade setup is a good one.
Not all opportunities are created equal. If that were true, the act of trading would be much easier. Hence, in my coaching practice I’ve had hundreds of conversations that sound something like, “I followed the rules, but the trade went against me. The strategy said this was a setup. What did I do wrong? Where did I miss read the rules? Can you explain the trading rules to me again?” Bright, intelligent, well-educated, successful individuals become completely befuddled following a simple set of rules. This is akin to being able to fly an airplane but can’t follow instructions to scramble eggs. It’s no wonder that frustration levels are very high.
Assessing the risk of a trade is vital to your success as a trader. Traders need to be very selective about which trades are worthwhile. This is due to the fact that methods are designed to take advantage of specific market conditions. If the market doesn’t cooperate, then the method is going to fail. The responsibility falls on the trader to determine if this is the right market to trade.
So here are some questions to consider just before you enter the market:
- Is this trade worthy of my money?
- Are there any upcoming news announcements that could affect my trade?
- Does the stop placement and target seem reasonable?
- Are there any historic price levels I need to consider that could effect my trade (i.e. support/resistance, trend lines, price patterns?)
- What is the relationship between my price target (or my expectations for the trade) and historic price action?
At the end of the day, this is your money. The trading method you spent money on or the advisory service you pay a monthly fee isn’t going to reimburse you for bad trades (if one exists, please let me know.) Trading should be about choices in line with your values. The clearer you can be about your choices, the happier we will be with our trading results, regardless of the financial outcome. Better decisions will lead to better results over time, and keep you trading longer.
In the previous posting in this series, we talking about how feelings can help reveal a hidden value that might be in conflict with your trading decisions. Let’s now add to that discussion and talk about determining the higher value.
So what is the greater value in our trading? What is the standard by which we are going to make our decisions? These standards can be for almost anything that we do in our trading decisions. What type of method we are employing, the amount of money we’re putting at risk, determining whether the trade is worthy of our investment, and the way I feel about the trade and the decision. All of these can be guided by a higher value that is more important to us than just pulling the trigger and entering the market.
So here is an example of determining guiding values for a methodology. For the sake of this discussion, I’m going to use my self and my trading methods as the example. I’m not advocating my methodology or the methods of anyone else.
As a technical trader, I have literately thousands of indicators to choose from. And, if you believe the statistics that 90% of all traders fail, there apparently isn’t any one indicator that stands head and shoulders above the rest. So the decision of what I’m going to use as an indicator is very personal and needs to be guided by what ‘feels’ right for my style of trading and my perception of the trading world.
To decide what feels right starts with understanding what type of trader you want to be. I like trading trends. I determined this after many loosing trades trying to fight the trend or picking the tops and the bottoms. I also like trading smaller, intraday, charts. I like the sense of getting in, making what ever the market will allow, and being done for the day. There was a time when I would spend the entire day and part of the evening sitting in front of a computer screen. This obsessive behavior lead to an understanding that there is more to life than trading. Also, I value my coaching practice and working with clients. Trading the entire day would not allow me to work with others and their trading plans.
So now that I know I like trends and short time frames, I began building a method accordingly. (For more on building a trading method, click here.) I experimented with Bollinger Bands, Keltner Channels, various different moving averages, MACD, RSI, ADX with DI, a brief stint with Heken Ashi charts, candle stick patterns and formations, and market profiles.
After many incarnations , I’ve settled on what I currently use. It looks something like this:
That’s the other thing that I would like to emphasize. Our view of the world will change as we develop new skills and perceptions about the market. I often talk about trading as an art form. As the market changes, so must we change to adapt. What I’m looking at today, may not be what I’m looking at next year. The only constant in this venture is that the market is changing. That, too, can be a value we use to make better trading decisions.
In case you’ve missed it, I’ve been talking about trading strategies and the various different components of a strategy. The first of these was on trading methods or how do you find tradable opportunities. I talk about how all trading methods eventually fail because a method takes advantage particular market conditions. When the conditions exist, then the method should easily find tradable opportunities. When the market doesn’t cooperate is when methods typically fail.
Now this doesn’t mean that the method is flawed (I’m assuming that the method has been thoroughly tested and is proven viable). It just means that the market isn’t right for the method. The simple way of handling this is to wait for the market to change so that the method will work. It’s the simple answer but the execution is anything but simple.
When I propose this solution to a client, I’m often met with the rebuttal, “well I just need a method for this particular market.” As if more methods will lead to more opportunities and therefore, by extraction, more money. We come by this philosophy quite naturally in the industrialized world of the 21st century. I’m here to say that more isn’t more.
I wrote about this last month. What I’d like to share with you is a entertaining and informative talk sponsored by TEDGlobal 2005 by psychologist Barry Schwartz on The Paradox of Choice. When you listen to Barry speak, replace his obsession of blue jeans with trading methods and you’ll get the point. Enjoy.