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  1. A little book I picked up recently for a casual read presented me with a potential nugget for any aspiring trader. It mentions a 4 key principles for life, as put by a 17th Century Japanese Samurai. The Samurai is (I gathered) Miyamoto Musashi. The principles are:- No Fear No Surprise No Hesitation No Doubt With all the psycho-analysis of traders these days, I thought that these principles are excellent and far more apt to the trading than much else out there. Of course it has to be taken with the context of ability, but I believe this is a great way in which to practise trading.
  2. If you heard or read any financial news over the past few days, you inevitably found the talking heads rambling about the various implications of a potential U.S. government shutdown. As usual, the media is once again playing on the powerful human emotion of Fear, one of the 4 Most Dangerous Emotions For Traders. This newly-created investor fear over a potential government shutdown has caused the S&P 500 futures to slide about -0.8% lower as of this writing (pre-market on September 30). Understandably, several concerned subscribers to our nightly swing trading newsletter have just e-mailed us to hear our thoughts on how we would handle such news. Similarly, many traders wanted to hear our thoughts when the U.S. was on the brink of attacking Syria three weeks ago (click here to read our thoughts on that potential news at the time). So, if our fearless leaders fail to come to some agreement by midnight tonight, and the U.S. government partially shuts down for the first time in 17 years, you may be wondering… How Will We Handle The News? The answer is pretty simple; we ignore it. Yes, ignore it. During most bull markets, there is typically a “wall of worry” to climb. The details are different in every bull market, but there are usually one or two major “risk factors” that investors worry about when stock markets are trending steadily higher. At such times, traders and investors who focus on doomsday headlines from mainstream financial media sites are more than likely to be shaken out of their long positions…especially those who lack conviction in their trading system. Conversely, we intentionally distance ourselves from Wall Street chatter by focusing on individual price and volume action of leading stocks and ETFs (the only time we pay attention to news is during quarterly earnings reports). Holding through a stock market pullback is never easy, but it is NOT our job to decide when a stock market rally is over. If we approach trading with a clear and objective mindset, the stock market will always tell us what to do, based on the price and volume action of the leading stocks we are holding. If our swing trades are holding up and showing relative strength, great! We will continue seeking the best stocks to buy, while riding the gains of our existing winning positions (just as we are doing now). If, on the other hand, our ETF and stock positions sell off to trigger our protective stops, we will simply be forced into cash. The beauty of such a rule-based market timing system is that it removes all the human emotion and guesswork from trading. This increases our long-term trading profits, while also providing the added benefit of enabling us to be more calm and stress-free, regardless of what’s happening in the stock market. The #1 Habit New Traders Should Pick Up If you are new to momentum swing trading, or have had little success in the past, it is a great idea to get in the habit of planning your trades and trading your plan. You must continually attempt to identify all potential outcomes before taking on a trade. If you do, there should be no surprises once the trade is on because you realize that anything is possible, and you have already accounted for it. The idea is to worry before the trade, so that you can simply focus on executing the plan when you are in the trade. Above all, focus on the price and volume action, rather than the amount of profit or loss a trade is showing. Put another way, trade what you see, not what you think! If you make a habit of always doing the right thing, consistent trading profits will eventually and inevitably follow.
  3. Many traders, particularly newbies, are on a continual quest to find the holy grail of trading. “If I could just find that one perfect trading system, the one that works every time, I’d be rich!” “Stock trading is too hard for me, but I know I will definitely make it big time if I start trading FOREX.” “FOREX is not working for me either, but I am certain I’ll make the big bucks once I switch to trading futures.” These and similar statements are signs that a trader is living in a fantasy world. Although Indiana Jones indeed found his holy grail (and a lion’s head), remember it was pure Hollywood fiction (albeit a fantastic work of art). I’ll talk more about the non-existent holy grail of trading later, but let’s get into the actual inspiration for this thought in the first place… A Sudden Flip Flop In Our Stock Market Bias After a few days of tight-ranged trading, stocks broke out to the upside on higher volume Wednesday (November 13), then built on those gains in the following session. The S&P 500, Dow Jones Industrials, and S&P Midcap 400 indices have all once again rallied to fresh all-time highs. The NASDAQ Composite has also broken out once more, and is trading at its highest level since the year 2000 “dot com” bubble. Although last week’s ugly selling action in leadership stocks and the main stock market indexes forced our timing model into "Neutral" mode on the close of November 6, the November 13 price and volume action in the stock market was convincingly bullish. While a few of the best leadership stocks were indeed hit hard last week, we have seen enough bullish price action this week to suggest that the market may still be able to push higher from here. The Trend Is Always Our Friend Because of the reasons above, we have placed our stock market timing model back into "Buy" mode. This does not mean the stock market will go higher from here, as the possibility for false breakouts in the major averages still exists. Nevertheless, with most leadership stocks still holding up well, we do not mind taking a few new shots on the long side. If new stock and ETF swing trade setups in our momentum swing trading newsletter trigger for buy entry and extend higher, then we will look to add more long exposure as new setups develop. If, however, our setups trigger for entry and quickly fall apart, we will simply be stopped out and forced back into cash. MTG Market Timing Model – Simple And Effective The core of our model for timing the stock marke (a key component of our Wagner Daily newsletter) is primarily based on the three elements below: * Accumulation/distribution patterns in the S&P 500 and NASDAQ Composite * The trend of all major averages – Are the S&P, NASDAQ, and Dow making ‘higher highs” and “higher lows” on the daily charts? Are they trading above their 50-day moving averages? * Price and volume action of leading stocks – This component is the heaviest weighting in determining our overall market bias * As you may have surmised, the composition of our market timing system is not fancy, but is quite effective and has a solid track record for accuracy. Still, determining the proper bias for the timing model requires a bit of elbow grease (scanning through tons of charts every night), as well as some discretion. Although many traders are on a quest to find the “holy grail” of trading systems, it simply does not exist. For example, absolutely no system in the world for timing the market works 100% of the time. Once a trader learns to accept that no trading strategy is perfect, and begins to understand that one only needs to slightly skew the mathematical probabilities in one’s favor to be a consistently profitable trader, only then can true progress be made.
  4. After suffering a nasty, two-day decline on October 8 and 9, the stock market ripped higher on October 10, closing the day with massive gains of more than 2% across the board. Feeling a bit of whiplash lately? While the big gains with bullish closing action on October 10 were a positive sign for the market, that powerful and sudden reversal immediately put traders who just stopped out of stock trades into regret mode, one of the Four Most Dangerous Emotions For Traders. Driving A Car While Staring In The Rear-View Mirror Is Hazardous To Your Health Regardless of whether or not you sold your stocks at lower prices and are now feeling regret, let’s get one thing straight… This is not the time to be worrying about what happened in the past because you must be focused on what is happening NOW! Whenever traders mentally struggle over whether or not they made a correct trading decision, such as if they bought or sold at the right time, they will often be wrong…but that’s completely okay! What is not okay is to STAY wrong! If you’re wrong, simply move along. During the whipsaw action of October 8-10, you may have found yourself stopped out of a stock position that subsequently made an abrupt u-turn and once again looks to be in good shape. If this happened to you, the correct thing to do is to calmly and objectively jump back into the trade (even if you need to reduce your share size a bit to make that happen). The current daily chart of Michael Kors ($KORS) is a good example of a stock that can be re-entered, even if the trader was recently forced to sell: When $KORS sliced through key support of its 50-day moving average on October 8, it undoubtedly triggered many sell stops (which was the correct thing to do). However, just two days later, $KORS jumped back above support of 20 and 50-day moving averages, and back into its prior range. As long as $KORS holds the newly reclaimed support levels, it is valid to re-enter the stock (regardless of one’s previous outcome in the trade). Remember that each new trade entry is completely independent of itself. Furthermore, we have learned over the years that trade re-entries (after stopping out because we bought too early) are often the most profitable trades because the “shakeout” absorbs overhead supply that would have otherwise created additional resistance on the way back up. Just one note of caution, though, with regard to re-entering trades: Don’t confuse re-entering a bullish stock with “revenge trading,” which occurs when a trader re-enters a stock that fell apart, but still has not shown a valid technical reason to get back in (ego, be damned). Now What? Yesterday’s strong gap up was certainly a bullish sign, and we could see a solid, broad-based rally develop if the recent lows in the major averages hold up. Unfortunately, yesterday’s volume was lighter in both exchanges, meaning the rally was not led by banks, mutual funds, hedge funds, and other institutions. Nevertheless, with so many stocks changing hands the past few days, it’s quite apparent that buyers were stepping in to accumulate leading stocks off the lows. Just check out the charts of $LNKD, $KORS, and $TSLA to see what we mean. Although we reduced our long exposure on October 8, our remaining stock positions are still in pretty good shape. U.S. Silica Holdings ($SLCA), for example, has shown incredible relative strength over the past few days, as the stock basically ignored the October 8 sell-off. Below is an annotated chart of $SLCA that we recently posted on our new Google+ page: When a stock breaks out with strong price and volume action, it is always a very bullish sign. In fact, price and volume are the two most important and powerful technical indicators at a trader’s disposal. We all have the urge to lock in profits at times, but to make the big money in trading, one’s focus must simply be on consistently doing the right thing. If a trader does so, the large profits will eventually follow. Overall, we feel that $LNKD, $KORS, $YELP, and $TSLA are the top dogs in this market right now, and are “must own” stocks for institutions. As of now, we view the recent shakeout action as a buying opportunity (with stops placed beneath that week’s lows). Either the lows of October 8 and 9 hold up, or the market will end up going much lower over the next few months. As always, remember to trade what you see, not what you think!
  5. Trading is a microcosm of life. It often exposes our biggest weaknesses and then slaps us silly with a rather large halibut just to really rub it in. But for those who are willing to listen it doesn't have to all be bad. Traders who are able to accept their own mortal failings and adapt, not only become better off financially for it but usually become better people too. If you deal with things quickly, maturely and comprehensively by planning and self-awareness, you stand a much better chance of mastering your weaknesses and adapting to future (not futures) markets. If you don't, making the same mistake over and over can be pretty darn costly not only to your account but to your emotions too. :doh: :crap: :puke: :bang head: :thumbs down: :coffee: :sleep: is how the emotional roller-coaster goes if you don't address your weaknesses and that ain't great at the best of times. Personally, I know I used to over trade. Not that I was necessarily trading too much, but too long. If I didn't make money early on, I would trade and trade through chop and nothing markets. But I was so engrossed in the markets that I never stopped to think what I was doing. What it did to me was drain me and leave me in a mesmerized state so that when the move did happen, I was usually late to get on it. Ultimately I just stopped trading when it was slow. I'm not sure what clicked exactly on that one though, but it did teach me that there's a time for everything and not to get too obsessed with trading when conditions aren't right. If only I'd known then what I know now, right? I wouldn't have wasted so much time. But to know how to fix a problem you have to what you're doing of course. What does that come back to? Journalling. I didn't do this at that time, so it took me a while to really figure it out. I realise that it probably sounds like I should have noticed, but when you get locked into the market to try to make money (especially make money back), events become blurred in retrospect. Anyway, I'd like anyone to share any of their personal failings so others might see something which helps them too. Kind of a trading AA maybe. If some of the TL vets want to pitch in I'm absolutely positive that seeing that all traders have weaknesses would be a great help to newer traders (and those who are still disinclined to journal).
  6. For the second day in a row, the American broad market sold off across the board on higher volume. Although the percent losses were not as bad as Wednesday, the S&P 500 followed through to the downside for the first time in 2013. With turnover increasing on the both the Nasdaq and NYSE, the S&P 500 and Nasdaq have posted back to back distribution days. Whenever distribution begins to cluster, we take notice. Although we never care whether or not stocks are “overbought,” the increasing presence of institutional selling is indeed one of the most important factors we use when assessing the health of a rally. Given the sudden reversal in market sentiment over the past two days, this is the perfect time to share with momentum swing traders our top 2 tips for managing your trading account in a stock market that may be forming a top: Be sure you know and are on aggressive mental defense against these 4 most dangerous psychological emotions for stock traders (greed, fear, hope, and regret). In particular, given the sharp losses of the past two days, traders absolutely must be on alert for the natural human emotion of paralyzing fear that may prevent you from simply cutting your losses on any losing trades that have already hit your stop prices. To ignore your predetermined stop losses is always tantamount to playing Russian roulette with your trading account. But this is even more so the case right now, as the recent rally is beginning to show valid technical signals of a potential top. In case you missed most or all of the rally of the past two months, perhaps because you didn’t believe in it for whatever reason, you are now probably feeling the pain of regret. If this is the case, you must be very careful to avoid being a “late to the party Charlie” (LTPC) right now (explanation of that term here). While the stock market’s current pullback may indeed turn out to be a low-risk buying opportunity, it is dangerous and way too early to make that determination right now. Continue reading to learn why… As far as the charts of the major averages go, the S&P 500, small-cap Russell 2000, and S&P Midcap 400 appear to be in decent shape. The same can not be said of the Nasdaq Composite, which has taken a beating the past two sessions, and is already closing in on intermediate-term support of its 50-day moving average. The Nasdaq 100 Index, which basically did not budge during the entire rally in the rest of the broad market, is already trading below key support of its 50-day MA. Looking at the daily chart of the S&P 500 below, it appears the price may be headed for an “undercut” of the prior swing low, around the 1,494 area: If and when the S&P attempts to bounce from its current level, the subsequent price and volume action that immediately follows any recovery attempt will be extremely important at determining whether stocks are merely take a breather, or if the rally is dead. Next week’s price action in the S&P is important because there is a cluster of technical price resistance around the 1,515 to 1,520 area (annotated by the black rectangle on the chart above). Four sessions of stalling action last week created overhead supply around 1,520, while the 1,515 level represents resistance of a 50% Fibonacci retracement (based on the range from the February 20 high down to the February 21 low). If the S&P 500 generates another distribution day that follows just a feeble, light volume bounce off the current lows, that could be the nail in the coffin for the current rally. Still, unless leadership stocks suddenly begin breaking down en masse, a pullback to the 50-day moving average of the S&P 500 would be considered normal within the context of the strong rally of the past two months. As we closely monitor price and volume action of the broad market over the next week, we will gain a much better idea as to the likely direction of the stock market’s next major move, which will automatically cause our rule-based stock market timing system (details here) to be adjusted accordingly. But in the meantime, be sure to read the two articles mentioned above so that you will be on guard against the most dangerous emotions that could seriously harm your trading account right now, while also avoiding becoming a member of the “late to the party Charlie” club.
  7. Hello all, I have been trading and Investing for 15+ years, and I still only have IMHO 40% of what I would like to have, as far as trading mastery. I am consistently profitable at my stage, yes. But I am not a pro. To me, anyone who is not paying all their bills and living off of trading cannot call themselves a pro no matter what the stats show on their system or methods. Anthony Robbins says that "The way we learn is by our mistakes. And the most successful people are the ones who have failed the most." But the fastest way to learn he says is by other peoples mistakes. Now that's what I'm talking about! So let us see if by looking at other peoples answers, and them looking at ours, if we can learn trading faster. This will be a lot of fun to look at all the crazy answers we see here anyway. And another thing, many people feel because they are new,they don't have much to contribute. But often a beginner(under 1 yr of trading) gives us new or reminds us of old perspectives we once had. So don't worry, just join in! I would like to make this just polls, but I do not think they will let me do this on Traders Laboratory. If anyone knows of another Forum that would let me make as many polls as I want, please PM me and let me know. I'd love that! So if I cant do it hear, please just answer my questions manually, but keep comments to one sentence or zero. Those that do not follow these rules will be banned without warning. I want to keep this thread moving, for all of our enjoyment. Thank You.
  8. When a stock market is in runaway uptrend mode and refuses to pull back substantially, most investors and traders think, “I am not buying stocks at this level; I’ll just wait for a pullback.” Eventually that pullback will come, but often only after a multi-month advance has passed. This is why, in strongly uptrending markets, we find it much easier and more profitable to focus on the price action and technical patterns of individual leadership stocks and ETFs, rather than paying much attention to whether or not the charts of the S&P, Nasdaq, and Dow are “overbought” (we hate that useless term). As long as there remains institutional rotation among leading stocks, with new breakouts continually emerging, the broad market will continue to push higher (although the major averages must also avoid significant distribution). That’s why “overbought” markets often become even more “overbought” than traders would expect before eventually entering into a substantial correction. We are trend traders, so we simply follow the dominant trend as long as it remains intact. When the trend eventually reverses, our rule-based stock market timing system will prompt us to exit long positions and/or start selling short…and that’s just fine by us. We are equally content trading on either side of the market because being objective and as emotionless as possible is a key element of successful swing trading. The majority of ETF positions presently in the Model ETF Portfolio of our end-of-day trading newsletter are international ETFs because they continue to show the most relative strength (compared to other ETFs in the domestic market). One of our open positions, Global X FTSE Colombia 20 ($GXG), has not yet moved much from our original buy entry point, but we like the current price action: Since undergoing a false breakout on January 15, $GXG has pulled back to and held support of the 20-day exponential moving average (beige line on the chart above). In the process, it also formed a higher “swing low,” which is bullish. Notice that the price has also tightened up nicely since mid-December of 2012. All of this means $GXG could finally be ready to break out above the $22.60 area. If it does, we plan to add to our existing position in The Wagner Daily swing trade newsletter. Regular subscribers should note our exact buy trigger and adjusted stop price for the additional shares of $GXG in the ETF Watchlist section of today’s report. While on the theme of international ETFs, let’s take an updated look at the technical chart pattern of the diversified iShares MSCI Emerging Markets Index ($EEM), which we initially mentioned last week as a potential buy setup if it made a higher “swing low” and held support of its 20-day exponential moving average: Although the price of $EEM did not hold above the 20-day EMA, a quick dip (“undercut”) below that moving average, followed by a quick recovery back above it, would keep this bullish setup intact. Therefore, if $EEM can rally above the short-term downtrend line annotated on the chart above, and subsequently put in a “higher low,” we might be able to grab a low-risk buy entry point as early as next week. As always, we will keep subscribers updated if any action is taken on $EEM, or any other ETF with a buyable chart pattern that crosses our radar screen while doing our extensive nightly stock scanning.
  9. To be a profitable trader, you don't have to master every technique in existence. There are many different strategies and styles of trading and there are many different financial instruments you can trade. We trade futures, among which you can trade equities (the S&P mini's, the Dow mini's or the Nasdaq mini's), you can trade currencies or debt (bonds & notes), or you can trade commodities such as oil, corn, and natural gas. Each style of trading can be different and each futures product trades in its own way. The key point is that you need to find a trading strategy and a specific product that you are comfortable with and that fits your personality. I have read extensively, and several authors have said that the best traders they know only trade one or two products using one or two strategies over and over. Those traders have come to know that specific type of contract so well in every market condition, that they experience almost a Zen-like awareness of what that market is likely to do next. Author and renowned trader, Larry Williams, said he only has a few strategies (around 5 if I remember correctly) in his bag of tricks that he uses to profit from over and over. Therefore, using your time at TopstepTrader should be considered a search for a strategy and a product that works for you. It is true that there are lessons in common that all traders need to learn, but you only need one strategy with one product that works consistently for you to have a profitable career. Finding that strategy and product and then producing consistent results will take time and effort, but is ultimately what you should be working to accomplish. Most traders I've talked to took at least a year to learn it, so don’t think it will come quick and easy. Some trader-authors even say it took them several years to become consistently profitable. We are smart enough to recognize what professional traders and experts say; therefore we need to understand that it can be accomplished if we are willing to put in the work. Trading doesn’t have to be a solitary thing. We need to be open to learning, listening and communicating with others as this serves to help us better understand ourselves as well as the dynamic of the market and how to achieve long term success. This is the essence of the TopstepTrader community. Use this to your advantage and the rewards will certainly come. Many Profitable Returns, Trader Gregg Mr. Killpack has been studying the markets since 1988. He has read over 40,000 pages about trading and investing strategies, fundamental and technical analysis, and related topics. He began day trading in 2001.
  10. Some traders, possibly the ones who need to address what I’m saying the most, will flat ignore this. People often seem to be much more interested in exciting new systems and charting techniques than in addressing the critical aspect of themselves and their ability to apply said techniques. Any system in the wrong hands will always fail. It’s my argument that if you are a discretionary trader, it’s the trader that makes or loses money. Not the market. Not the system. THE TRADER. Realistically of course, market behaviour and chosen strategy have bearing on performance but unless you take every ‘signal’ or have programmed the strategy, it is the trader who selects what and when to trade. I sort of view it like sports. Take your favourite football team. You might watch a game and see some really exciting things happen. But to get to the position where a player or team can do that takes a great deal of unexciting training. I can virtually guarantee that if you put someone into the team who hadn’t done that level of training, the results wouldn’t be good at all and probably would be quite embarrassing. Like sports, trading might seem glamorous to some yet it requires a great deal of effort to get to a desirable end result. If you’re a new trader still searching for a strategy that will work, don’t think this doesn’t apply to you. It especially applies to you and will help you avoid a wild goose chase in pursuit of that perfect system. By building a foundation of yourself, you will ultimately enjoy consistent (although not guaranteed good ) results and be in a position to improve on them day by day. These are the basics for performance which imho you should address:- Motivation If you aren’t thoroughly motivated, it’s almost not worth the bother. It’ll waste your time and almost certainly your money. Making sure you put the work in come rain or shine is a must irrespective of whether or not you have a boss breathing down your neck. Half-arsed effort in trading is not like slacking off in other jobs. It will cost you financially and emotionally. Emotional Balance Trading when you’re tired, upset, unsettled, angry or whatever else is just nuts. In my own experience, it’s a sure-fire way to line the pockets of guys who are focused and mentally fit to trade. It’s not always easy to hold back from trading when you’re in an emotional state. But it’s important you do. It’s also important you try to balance yourself and your life to limit the frequency and impact of emotional triggers. Regular physical exercise and meditation are things I find useful personally. Preparation Failure to prepare in trading is imho the route of all evil. It is where the chaos starts. It’s where emotional self-deprecation begins and it often puts you in the hole before you really ‘begin’ to trade. Yet it’s just not hard. If you’re too lazy to prepare you shouldn’t trade and quite frankly you don’t deserve to make money. Actually, if you do trade and make money when you haven’t prepared, it could be damaging in the long run. Lucky outcomes to poor trading practise can be a real set back to trader development. If you haven’t got the time to prepare for some reason, you must have the discipline to not trade. Plain and simple. Focus and Attention To execute any plan it is of critical importance to remain focused at all times when you are trading. The very worst trades often happen when you just sit down or glance back at your screen after doing something else, you see something you were interested in and take a trade without even thinking. There’s something to be said about trading without ‘thinking’, but in this case it’s not a positive thing to do. You’re not thinking, but also here you haven’t been watching the market as it develops. This is just one example of why focus is important. It’s also important to focus in the ‘right’ way. Becoming so focused that you are blinkered to the broader reality of a situation is for example, a dangerous thing. When you’re ‘on it’ so to speak, trading almost seems too easy at times. Review You must review your strategy and your trading. Whether you do back-testing or journaling or you simply do a mental replay of your trades for the day, doing so will allow you to assess your and your system’s efficacy and build upon it. Without doing any reviews, your development as a trader might be no better than trying to play darts drunk, blindfolded and with your weak hand! Seriously. I’m not writing this as if it’s ‘gospel’ and truly believe that even the best of traders can always learn something from themselves, the markets and other traders willing to share. So I encourage anyone who has fundamental underlying principles for trading which they have found effective for them, to post them here.
  11. One thing that really gets me is when people say that a trader should spend the majority of their time working on themself and their own psychology. However, the common ambiguity of such a statement leaves those who are new or fairly new to trading not knowing where to start. It's equivalent to saying you should spend your time on technical analysis. How though?!?!? What in particular is a useful way to go about "spending your time concentrating on yourself"? I’d like us to explore specifics of how someone might work on their psychology.
  12. Fear, fear, fear is what I hear when traders are talking about their psychological problems with trading. Sure, fear is a problem when you have a crappy trade on and whilst it needs to be dealt with appropriately, but it is NOT the underlying problem. Fear is created in situations of unknown risk. It is our evolutionary mechanism for telling us that there could be big trouble ahead. The way we act subsequent to feeling fear is of course something which needs to be scrutinised as it's clearly all to often in a way which is detrimental to our accounts. But as a trader I know this. Although there are indeed uncertain situations which markets do throw up from time to time, the vast majority of fear and uncertainty is created by lack of preparation, biased views, inconsistent monitoring of markets and indecision. In other words, YOU BECOME FEARFUL IN A TRADE BECAUSE YOU KNOW YOU'VE MESSED UP AND HAVEN'T A CLUE WHAT IS REALLY GOING ON. Or you just can't help but take impulsive trades where you know you shouldn't. If you don't have rigid enough risk mechanisms in place to exit the trade and the fear builds even more as the market prints against you. This explanation also covers those who are fearful of pulling the trigger to enter a trade. If haven't assessed the market, indentified trades and assigned proper risk parameters to them, there's every reason to be fearful as if you do take a trade, you know you'll be floating in a sea of chaos very quickly. I hope I'm being clear here. Whilst it's important to manage fear when it appears, it's imperative that you manage day-to-day trading objectives properly and thus evade potentially fearful situations in the first place.
  13. This post is an excerpt from my book, Awaking the Mindful Trader: Mastering the Inner Game of Trading. In this series on the Eight Roadblocks to Successful Trading, we are exploring the role of fear in trading. In particular, the way your fears shape your perception and create the results of your trading. What ever you fear, owns you. If you are acting from fear, you will always create self limitation in your trading. As long as you are mindless of your fears or believe that you can ignore your fears while trading, these very beliefs will betray you in your trading. In the example below, a trader has built a large-and-in-charge attitude to mask the face of his fear. He deceives himself (for a while), but not his trading account. Have you ever experienced the fear of missing out and traded impulsively? How much has it cost you? The Fear of Missing Out Getting Control of Impulse Trading “Just a little bit more, just a little bit more – I can milk this one!” whispered Mitchell under his breath. He could feel his excitement build as the trade kept trending upward. “Move your exit point higher – this one’s a homerun,” a thought inside his mind encouraged him. And why not, this one had all the signs of a big one. Mitchell did not like letting the big one, the ones with potential beyond what his trading plan called for, to get away. Instead of taking smaller profits on any of his positions after the first ping, he decided to move his exit and let this one ride. “Another one like this might not come along again in quite awhile,” Mitchell silently reminded himself. The trend continued and he was ready to grab all the profit that it seemed to be offering. He felt energized, his confidence grew – and that confidence began to blind him. Pushing aside his risk management rules because he did not want to miss out on this great opportunity, his trading plan parameters got pushed out of his awareness. The exhilaration of hooking and riding a big one blinded him to the down side of managing risk. In the clutches of greed, he did not notice the historical trend in this trade – it would drop like a brick suddenly. Having abandoned his stops to ride this trade, the deception in his mind caused him to fall hard. Another draw down. Later that day, as he was reviewing his trades, Mitchell was puzzled. Stroking his chin he was chagrined. He pondered, “What happened? I know better than this. I have no idea why I behaved this way. I started out with the intention of trading my plan, and, somewhere along the way, I got sidetracked and forgot about everything I know. It’s like I fell into a trance and my evil twin started trading.” He chuckled to himself because he had no other explanation. It was confounding to him. He was smart enough, skilled enough, and confident enough to trade well. But there he was, getting into trades that were not the right set ups and then his good sense disappeared like dust in the wind. What Happened to Reason? The fear of missing out urges you to push aside risk management tools that keep a trade within acceptable low risk parameters. The temptation is real. Instead of hitting a safe single or double on a trade, the allure of hitting a homerun or hitting the jack pot (with just a little luck) sweeps good sense off the psychological playing field and leaves the enticement of greed whispering in your ear. Real time temptation. Why not swing for the fences? It feels great when you take all the money on the table. And you get to feel powerful. You get to feel like the hero in a movie. Occasionally when you move your stops and exits, you do win. You also move your trading into the arena of gambling – not risk management. Actuarially a casino knows the odds much better than the gambler – and they are sticking to their trading plan for the gambler. On a few occasions the gambler does win and experiences the thrill of winning the jackpot like a drug. Then he is hooked, much like our friend Mitchell is in the vignette above. What the casino knows is that the gambler will ride his euphoria and never see that the odds are stacked against him. He, like the trader, becomes entranced by the chance of hitting it big. As the greed kicks in, it takes over reason. Once under the ether, the trader becomes mindless and sees only through the eyes of greed. This is what happened to Mitchell. And he wins some – at least on paper. He starts out with the intention of trading to plan. But he is seduced by the allure of greed. Soon, any semblance of an impartial, disciplined state of mind is eroded. Gambler and trader have already lost at this point. Psychological management is really this important. Ultimately he gives back his earnings (and then some) to the house. The casino is playing by the rules of risk management while the gambler sacrifices his sensibility to greed – the house wins consistently and the gambler, though he has a couple of great thrills, loses consistently. Trading in a market can be done from a position of impartial and disciplined risk management (which is what the house is doing) and a trader can win consistently. Or a trader can be sucked in by his fear of missing out of big money and get corrupted by his greed – which is what the gambler does. The only difference is that the casino wins consistently and predictably over time, while the gambler wins sometimes (in the short term). But he gives back his gains and loses capital over time. Greed and fear of missing out, from an evolutionary survival perspective, is a very useful emotion. It pushed our ancestors to consume more than they needed NOW so that they would have the resources to survive in leaner times. Acquiring food on a regular basis could not be depended on. Nor was there an assurance of other supplies needed to survive. So, over countless generations, the capacity for greed was bred into the human genome. At some moment in our biological history, humans developed a psychological self – and this is where greed and fear of missing out got disconnected from their biological roots. Suddenly humans were not only putting on fat for the winter and putting away supplies for leaner times (survival motivations), they were putting away money for a rainy day. Eventually the power to survive and prevail became associated with money. By accumulating money we find external validation for our sense of power, our mattering, our importance, and for our power In trading, if this fear is not recognized and managed, it will blow up your trades and trading account. You have to build the psychological strength and discipline to resist it. In the case presented above, Mitchell does go on to develop the internal strengths to resist the temptations of striking it rich quickly and the euphoric rush that takes over the mind of a trader sucked into a mindset controlled by greed. He had to work on it and re-organize the way he understood success to accomplish this victory. By doing so, he actually achieved the success in the longer term that his greed promised in the short term. This is a classic internal war where a biologically based emotion outlives its usefulness when it takes over psychologically the state of mind of the trader. Untethering Your Sense of Identity from Your Historical Dialog What you are afraid of, owns you. Your fears cloud your thinking and color your perception of circumstance. No where is this more important than in trading. Your historical internal dialog (all those thoughts running around in your head) exposes these very fears – the fears that limit your capacity to trade at a higher level. Go back to the vignette with Mitchell and see if you can spot his internal dialog. It is easy to see how his thinking, so dominated by his greed, set him up for failure. This kind of thinking is not a given. It was his mindlessness of his internal dialog that blinded him to its impact on his trading. This was far more than idle chatter or internal noise in his mind – it was a set up for failure. Without discipline and knowledge of these unseen forces at work in his mind, he is led to slaughter. It is his lack of awareness of the power of the internal dialog that set him up. Unlike your capacity to hide from your insecurities in most of the other domains of your life, trading cuts to the very core of your being – there is no place to hide. Trading exposes the internal dialog that comes forth from your fears. Becoming Mindful of your internal dialog during trading will show you the very fears that you must conquer to become a consistently profitable trader. When you are able to separate your thoughts from your sense of identity, becoming an observer to your interior conversations takes on a different nature. You move from avoiding acknowledging the existence of hidden parts of yourself to becoming a detective solving the mystery of your capacity to trade. You become the author of the story of trading in which you are a participant. And you realize that the character who has been trading is flawed, and you (and only you) are going to have to redevelop the character as a peak performance trader. In developing the capacity to slow the body and mind down so that you can become mindful of the composition of your Internal Dialog, you learn to use the internal dialog to become aware of what you have been hiding from yourself. It is through this practice of mindful introspection that you develop yourself as a trader. You will discover that there is far more to develop within your mind that you ever expected. The tiny discomfort you experience when you begin to be honest with yourself and confronting self limiting beliefs gives way to something new. That something new is the re-invention of the self. There is so much empowerment to be discovered and developed. The historical dialog has blinded you to possibility. Now, with the blinders of fear removed, you are now going to explore how to bring forth the empowered self in your trading. In the next chapter you will be exploring instinctual potentials living within you that have been held hostage by your fears. Now you will learn how to name these elements of self that will empower you to zone into peak performance trading. Rande Howell
  14. I actually attended an Options Animal Seminar last week (Dont hit the back button yet - LOL) and the presenter made an interesting point. Most of the training that's out there, especially paid training) focuses on ways to get into a trade.: Technical Indicators Chart Patterns Price Action Trading Setups/Strategies Yet, they tend to not address what to do while in a trade. We all know that emotions can cause us to do things that destroy our trades. Exiting trades too soon or Holding on to losers way to long. So, I wanted to ask the forum what strategies you use to manage a trade For me, I control emotions by clearly identifying my risk / reward before entering the trade. I manage my expectations. I know we are supposed to be unbiased, but when you put on a trade, you do have an expectation. In addition, I ask the following question to try and identify why the criteria that I set and followed to enter the trade may have changed: What has changed about the trade? Is it fundamental? - The company has been cooking the books Is it Technical? We broke a key price level Is it Sentimental - typically fast move in one direction and then returns Is it Macro Economics - Economic Calendar Events
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