Trading Is A Journey In Self-Discovery
I know a trader, let’s call him Leon. He day trades Futures. He has been actively trading for several years. His profits are erratic and undependable, often going dramatically up and down in the same session. When Leon is making money his confidence soars and he feels like he is a power trader. On the other hand, when he loses money, which is more times than he cares to admit, he feels like a failure, a loser and stupid. For quite some time Leon has wondered why he can’t be consistently successful, and why his drawdowns tend to be much larger than his profits. He wonders this even though he has no Business Trade Plan, doesn’t consistently document his trades and despite having numerous rules, tends to violate them regularly. Leon doesn’t have a clue and wonders why he can’t get different results even though he continues with this pattern of behavior. Leon is out of control and unless he changes he is headed for a financial ice-cold shower. Are you Leon?
If you want to change your behavior, you must first change your thinking and since much of your thinking is driven by your unconscious, you must become aware of your underlying self-sabotaging beliefs that drive thinking, emotions and behavior. Trading is arguably the most difficult business venture on the planet; why? Because we are talking about money, and with every tick while in a trade you are either gaining or losing money. But, it goes beyond that. Money is not only the cornerstone of our society, it is tied up in your identity. If you are winning it, you often feel powerful, competent, intelligent or “good looking” and if you are losing you feel impotent, incompetent, stupid or “ugly.” The fact of the matter is that when you go to the market you invariably are expressing yourself; whether you want to, try to or feel a need to, it doesn’t matter, you are and will express yourself. And, when expressing yourself your behavior is tied much of the time to unconscious beliefs. Actually, when you are in the markets, every blemish, weakness and character flaw in your personality will be challenged, called out and tested. Now, that doesn’t mean that the markets are doing that to you. On the contrary, the markets have no intention for you – even though you may have often wondered how the markets knew that you just placed a long trade and how they chose that exact moment to reverse! Also, there are no rewards, punishments, pain or risk in the markets, only consequences. You provide all the rest. And, with changing yourself, you must provide all the ingredients for that as well.
You can’t change what you can’t face and you can’t face what you don’t know. Awareness is key. The more aware you are of your underlying self-sabotaging beliefs the more you can position yourself to begin to address these issues – one at a time. Now, you might be asking; how do I do that? How do I become more aware if these limiting beliefs are unconscious. Good question! You become aware by simply asking questions of yourself, and by introspection and more importantly by personal observation as you are going through market observation. By checking yourself and checking the market you’ll begin to gain an awareness of why you have no Business Trade Plan or failing to follow the one you have. Why you have no Trade Journal, or failing to document in it. Why you are continuing to do things that you say you must stop doing; and why you are failing to do those very things that you say you must do. Once you identify the underlying self-sabotaging data, you can begin to deal with them…one issue at a time.
So, trading is a journey in self-discovery, and you must begin to pull back the layers of your unconscious onion, one at a time to begin to realize and recognize what is motivating you to behavior that is producing results that you don’t want. There are essentially two kinds of data with respect to trading. Many traders miss this fact and therefore miss a very important set of variables that impact heavily upon their trading. One type of data is mechanical data, which are everything that have to do with the markets; that being, news, technical analysis, instruments, indicators, etc.. This data is external to you. The next type of data is internal data, which are everything that have to do with your thoughts, emotions and behavior; in other words the T+E+B=R equation which impacts upon every outcome that you get. You must manage this equation in order to manage your results.
Trading is a 100% mental and emotional game. Either you are preparing, analyzing, processing or executing while trading; all of which require mental and emotional tools. If you don’t have mental and emotional tools that’s like driving without a steering wheel; and you will not only lose your way but you will crash and burn without it. And, you can’t steer if you are driving blindfolded. You must become aware of what is between you and keeping commitments with consistent follow-through. In Mastering the Mental Game we teach you tools and techniques to put the steering into your trading while helping you to remove the blindfolds as well in order for your journey to be a joyful and self-fulfilling one. Remember, you can’t change what you can’t face, and you can’t face what you don’t know. For more information on Mastering the Mental Game XLT and On-location classes ask your Online Trading Academy Educational Counselor.
May all your trades be green.
A question I hear and a situation I face myself on occasion is "I had a setup to enter the market and I found it very difficult to pull the trigger, why?" I would like to address this issue and then write about simplicity in trading on your way to becoming a Master Trader.
The majority of trading success comes from the mental side of trading not the strategy like most aspiring traders assume. Just like any endeavor worth pursuing you must learn the proper way to trade first and then practice, practice, practice... In my opinion trading success breaks down like this:
Psychology = 85%
Risk Management = 10%
Strategy = 5%
Psychology is so important for a trader to be consistently profitable. For this very reason Online Trading Academy offers courses on trading psychology. After you learn the mechanics and fundamentals of trading (left brain training), the real work begins. We must understand ourselves and how we will react to certain market conditions. Traders must also train their intuitive mind (right brain training) to help them identify profitable trading patterns on a consistent basis. In class we instruct students on how to spot supply/demand levels. This takes time to train the mind what to look for on the charts. Risk management is very crucial to your success in trading, but without the proper mental state of mind even the best risk management won't help you much.
Strategy seekers are people coming into classrooms and internet websites looking for the Holy Grail of trading, like there is some magical formula or secret that everybody knows but them. I see this too often and honestly it amazes me that people really believe all this hype about trading systems that make millions of dollars for just $29.95. If trading were really that easy the unemployment rate in the United States would not be at 8%.
Recently I was reading an excellent book called "Trading from Your Gut" by Curtis Faith. Curtis was one of the original Turtle traders that Richard Dennis trained and later went on to make millions in the markets. What first sparked my interest in this book was the concept of trading from your gut and how all these Turtle traders were taught a very mechanical trading system to extract millions from the markets. Using a mechanical trading system requires extreme discipline in order to keep placing trades no matter how many losses you have in a row. For most traders this is impossible to do because our respect for money gets in the way. I mentioned earlier about systems that you can buy for $29.95, trust me this is not one of those systems. Curtis does an excellent job explaining why we have trouble pulling the trigger on trades sometimes. He starts out explaining how computers were once thought to be able to think like the human mind only faster. To a degree they can, but when it comes to finding chart patterns (supply/demand levels being one of them) the computer performed very poorly at this compared to the human mind. Computers are designed to be logical, not fuzzy. Our brain has the capability to be intuitive and logical. The right side of the brain is used for our intuitive side thinking (spotting repetitive patterns) and our left side of the brain is used for our logical thinking (structure and logic). The problem most traders have is we are left or right brain dominant. This is where the problem begins with not only trading, but in other aspects of our lives as well.
To become a Master Trader we must allow the right brain to work as a team with the left brain. If one side or the other is dominant you can expect problems in making consistently profitable decisions when it comes to trading.
Our right brain is the one who sees recurring patterns on our charts. Just like watching a movie many times we can anticipate that when we see market patterns that we know what will happen next. Where does this assumption come from? The answer is your gut. Intuition comes from here and should not be confused with emotions. There is no place for emotions in trading, but intuition comes with practice and time.
Our left brain does all the logical thinking for us. It wants a logical reason before it can allow itself to respond to a situation. For this very reason when the right brain sees a pattern that it has identified the left brain will not let you respond to the setup because it cannot see a logical reason for taking it. This is why traders have a hard time pulling the trigger because the left brain does not have a logical reason for the trade setup.
Training our left and right brains to work as a team is very important. The right brain is far more advanced than the left brain gives it credit for, but without a logical reason to react the left brain will shut down any ideas coming from the right brain.
In order to train our minds to work together we must be rule based to satisfy the left brain and able to identify patterns on charts to satisfy the right brain. If we create rules for these patterns we are identifying then when it comes time to make a decision both brains will be satisfied and an instant decision can be made.
Later in the book Curtis discusses some lessons he learned about keeping trading simple, which echo many of the lessons we teach in our courses:
Trade with an edge - whatever market strategy you decide to use look for it to have something that gives you an advantage over other traders. One way to making money in the markets is having this edge. A strategy that has a proven profitable track record and sound rules are what you are looking for.
Manage Risk - Futures markets have a lot of leverage and many traders find themselves trading with so much risk that they are capable of losing all their trading capital in just a handful of trades. Look to only risk 1-2% of your total account value on any one trade.
Be Consistent - Once you identify a strategy that gives you a winning edge you must consistently use it. If you start to pick your trades and not follow your plan you will inevitably pick the losers and let the winners go. Plan the trade and trade the plan consistently.
Keep it Simple - Learning a simple strategy to follow the markets will lead you to consistently following your plan. Make sure your rules are written down and that you have back tested your strategy. Doing this will satisfy both right and left sides of your brain. Allowing you to pull the trigger without any hesitation.
Your goal in trading should be to become a Master Trader. This is a trader who uses both sides of their brain to make confident and successful trading decisions. As I mentioned earlier this will take time to practice, but if you apply yourself you can master this challenge of trading. I received a wonderful quote from a reader in London recently and I would like to share it with you.
"Opportunities are never lost. Someone will take the ones you've missed."
Don has been trading the futures markets since 1987. His perseverance through the ups and downs of trading, openness to experience of others, balanced tolerance for risk and patience to wait for his setups are a few of his strengths as a trader.
Don obtained his series 3 license in 1990. Soon afterwards he registered as a Commodity Trading Advisor with the National Futures Association and formed his company Majestic Futures. He has been a guest speaker on Technical Analysis at Johns Hopkins University and a guest speaker on the Business of Trading Radio Show in Washington, DC.
He continues to actively trade his personal account on a daily basis when not teaching for Online Trading Academy. His teaching method has been referred to as "down to earth". He understands the student's need for a structured environment in the early stages of their trading education. He uses humor to convey information in an accessible way.
