Tag Archives: self discipline

Some new observations about psychology and so on

It seems my post title’s need work since I may as well call this one ‘blah, blah, blah, blah, blah.’ but let’s go with it anyway… I’ve long stopped being concerned about turning this blog into a ‘thing’ since I write here to help clarify my own thoughts rather than add more noise to the signal.

As an aside I went through ‘wordpress’ list of ‘blogs I follow and ended up deleting 60% of the entriest since most people who were active 1-2 years ago seem to have stopped writing.

My own post frequency has died on it’s arse since I’m focusing on doing rather than writing about stuff and then NOT doing anything. It seems every time I come back to WordPress they’ve also changed the UI… shows you how big these gaps are becoming.

However I felt beholden to recommend the following book (not a trading book) and make an additional observation since it might help someone out there. Off we go…

Struggling with placing trades

So here’s the thing… I’m sure I’ve written about this whole topic before. I have a few persistent behaviors I get into when looking at placing trades. Some or all of these may occur: –

  1. I look for confirmation of my idea by other traders
  2. Manage to talk myself out of placing the trade at all
  3. Get scared off by the big red/green candle and don’t do anything

Issue number 1 is simple to fix. Don’t canvas other people’s opinions or spend too much time worrying about everyone else. Since it really has to come down to me in the end the opinions or others are essentially meaningless.

Issue numbers 2 and 3 are allied to that basic human emotion of fear. That part of your brain which has been programmed since time immemorial to stop you taking risks. Since science-fiction like reprogramming options aren’t available it means the only option is to re-frame the conscious decision making process around the circumstances of placing the trade.

So on to the serendipitous solution where I ran smack into The Obstacle is the Way by Ryan Holiday. Which can be summarised as follows…

The one thing you must do is, by definition, outside of your comfort zone. Avoiding or hoping for the perfect circumstances before proceeding is foolish and delusional. The obstacle lies in the path which must be taken since victory doesn’t come from fleeing from the battlefield.

The book describes how seeking comfort or ‘ease’ is actually robbing us of our capacity to evolve and experience new things. Taking on the experiences that scare us knowing that these are the exact things we must become familiar with is immensely powerful psychologically. I’ll prove this point with my own experiences later on.

Struggling with change in general

I am not happy with certain aspects of my life. There are characteristics, habits and behaviors I have which I don’t actually like very much.

  1. I eat chocolate when I’m stressed at work and don’t sleep for long enough
  2. I don’t eat particularly healthily anyway which compromises my time in the gym
  3. I waste a lot of time consuming media (films/games) instead of creating (I love to write) or spending time learning new skills
  4. The list goes on…
  5. and more…

While this intersects with some of the ‘avoidance’ behavior of my lizard brain not wanting to expose itself to change/risk/the unknown I heard something the other day which literally scared the crap out of me.

There is no future version of yourself. The person you are now is the person you will be in the future.

I had recently spent some time getting my head around the fact that if I actually did want to have a different life then the person I’d have to be would have to be significantly different… and then… nothing happened. Once I heard this phrase the reason became very clear.

I hadn’t been making the effort to change my habits in the present because some ‘amazing future version of me’ would have it all nailed down and it would happen ‘in the future’. In the meantime what I had was an amazing way of excusing myself for my lack of effort, focus and will-power.

All of my less than optimal habits associated with how I use my time, pursuing my goals around trading, diet and fitness have been deferred to this amazing future me.

The ‘future version of me’ will never ever appear unless I focus on changing the only version of me that actually exists. The person I am now – in this moment

So I am in the process of continually reminding myself the ‘future me’ (who I have dearly loved and cherished for many years)  has to die. I’ve never been one for reminiscing about the past – as anyone who has encountered my shocking memory will know – but I’ve previously held on very tightly to ‘someday’.

It appears this is not a profitable belief so it’s going to get crushed.

Ah yes, taking on experiences that ‘scare’ us

There’s a lot more behind this which I’ll go through in another post but by accepting the obstacle as part of the path I’ve actually had these results +22 | +2 | -2 | +0 | +24

I know 5 trades don’t make a track record (at all) but these are the ones I’ve taken within this new mental framework. Way less mental pressure and actual emotional distance from the whole experience. I might even say ‘fun’ 😀

Thanks for reading

Rob

Blog update for November

Well that’s just super… WordPress ate my blog so this is a re-type… hence it’s going to seem curt, short and to the point. I can’t remember the jokes from the first version either but take it from me they were hilarious 😉

It’s been two months since my last post and I’ve pretty much taken my brain out of the whole ‘trading’ subject. Ok, that’s a lie. What I’ve been doing is attempting to re-frame how I think about the sharp end of this topic which is placing and managing trades. This has resulted in me realising a few things about the contents of my own brain which I’ll go into.

Developing non-attachment

Really what this comes down to is that I’m too attached to the outcome associated with an action.

This is supremely ironic because in my day job (project manager) I’m very much at home with making decisions and proposing a course of action. Where I think this falls over in trading is that I’m way too attached to the outcome…

‘Attachment is the origin, the root of suffering; hence it is the cause of suffering.’

In my meditation practice being attached to the outcome of a situation means that you fail to see it clearly. That filter of attachment introduces fear, doubt and uncertainty which makes for sh**y trading decisions. Getting in too early and then getting out too early are big ones for me.

So I’ve spent a lot of time re-framing how I perceive myself when trading. In fact what I’m attempting to do is develop what’s called ‘witnessing consciousness’ which is the dispassionate observation of the ‘chatter’ in your own mind. This isn’t trading without emotion, this is avoiding being triggered by emotions that do arise – think of this as being able to look at yourself doing something from the outside.

This leaves room for intuition/fear/emotion etc. but it means that you’re looking to create a ‘gap’ between feeling and action which is based on trading experience and reason. It’s an attempt to short circuit your screaming monkey brain which is trying to throw pooh at the monitor 😉

Being here now…

I have consistently attempted to push my life forwards and then gotten incredibly frustrated when it’s failed to move at the speed I’d like. I’ve recently realised what a waste of energy this is and my disappearance two months ago was really the result of me throwing my toys out of the pram to go and sulk…

There is no good time to start anything new. Waiting for the perfect moment or opportunity to start doing something is preventing you from starting. The trick is simply to start because inevitably you’ll get there a lot sooner because whatever it is that you want to do will probably take you longer than you think anyway… so just start.

If I’d have waited till I knew everything about exercise and nutrition before starting to go to the gym I’d be in even worse shape now if I’d never have started. As it is – seven years later – I’m in the best shape I’ve ever been and I still don’t really know as much as I’d like about what works or doesn’t work for me. A couple of things I’ve tried recently have paid off but again, this is seven years after I began by puking up trying to run round the local park.

Probably because it’s more cerebral and not physical I’ve delayed really starting to get my head around trading till fairly recently – I have been waiting for perfection when it’s clear that may only be reachable in a few more years. The learning isn’t in the learning, it’s in the doing.

So there needs to be a lot more doing.

Forget about the future

I have literally no idea what my life will look like with respect to trading two years from now. What I do know is that thinking/planning/worrying or being concerned about it now is a complete and utter waste of time and effort.

The thing to focus on is the trade I will place tomorrow, then the one after that, then the next one.

In a number of years (as with going to the gym) I will be able to think back to this point and think ‘Aha! look how far I’ve come’. Being overly concerned with the end goal now is a total waste of time and inhibits my freedom of action/movement.

These three things are the same thing

Fear. Fear of making a mistake whether it is with regards to trading or any other topic. Having some idea that I’m able to get to a point of understanding or ‘completion’ in trading/life is essentially an illusion. As with all things you have to engage in experiences and then learn along the way as part of an iterative process. Had I had less fear/concern about the future I’d have got laid a whole lot more by now too…

In my work life I’ve pretty much had enough of these that I know what works. In going to the gym all this time I’m finally getting there where I know what works for me nutritionally. In trading this comes down to knowing way more theory than learning from real experiences.

So the way forwards is to practice non-attachment, to be unconcerned with the distant future and place one foot in front of the other. Then one day I’ll look up and find I’m at the top of the mountain.

Thanks for all the comments / encouragement over the last few weeks. There will be a number of blogs coming out in the next week with stuff I’ve stumbled over as well as some decent trades too so stay tuned and thanks for your patience.

Major changes – part 1 of 2

So approximately 18 months into what was supposed to be a two year project I’ve reached a very interesting point in my journey that I’d like to share…

If you’re looking to become profitable and consistent in this endeavour I seriously suggest you pay attention.

In part 1 I’m going to argue that as much as we’d all like to deny it the following is true. Learning other people’s specific setups and copying their trading methods does not work.

In part 2 I’m going to try to explain what this means as far as learning to trade goes and some of the things I’m doing about it. Part 2 will take me a couple of days to put together so lets kick off part 1 first.

So 18 months in and having extended my timeframe for becoming profitable on a consistent basis I have been very much on the point of giving up. Well, not quite, but the most ‘giving up-est’ I’ve been so far.

This prompted me to look around for what the profitable traders I’ve ran into have said about their own path to success and whether there were any common points. Here are some very lose observations: –

  1. The average timespan seems to be 3-6yrs to get really good
  2. If you dig a little deeper it’s mostly nearer 6yrs
  3. Those that seem to be consistent threw out the rulebook and developed their own trading methodology from scratch based on personal observations
  4. The majority of these individuals use ‘price action’ rather than charts with loads of indicators and wavy lines
  5. Some only trade one or a very few number of markets with very simple setups/rules
  6. Most of these rules are entirely dependent on experience which reinforces their discretionary approach
  7. Anyone who is very heavily promoting or selling themselves/their approach probably isn’t actually trading at all

So what does this tell me – other than I’m possibly screwed?

It’s been written over and over and over (which I’ve also completely ignored) that you can’t really trade someone else’s system/approach.

Acknowledging this truth would mean that I’m going to have to do a lot of hard work so I’ve ignored this up till now and not understood the point being made.

This statement removes the possibility of all short-cuts and frankly that’s a bit of a bugger.

However I now know this to be true from the following experience.

In October last year I signed up with Jimmy Young and went through his excellent and extensive training. There’s absolutely nothing wrong with Jimmy’s approach and he is a completely genuine, honest and straight-forward guy with 20+ years of trading experience. The amount of effort he puts into educating his students is frankly un-paralleled. He’s got some extremely talented students and I can’t find any fault at all in how he conducts himself.

He genuinely wants everyone he’s teaching to succeed

When snow storms took out his local power/internet in the US Jimmy decamped himself to a motel for 3 days so his students could still get the information he provides every day. No really – Jimmy’s sending out a 10-15 minute webinar every day going though the previous day’s trades and what would have been the best approach as well as providing a huge amount of insight to the next day.

I know his approach completely works but I just am not able to enter the market and trade like he does. My personality with regards to trading just doesn’t work like his. Sad but true.

In order to not get emotionally steamrollered every time I look at what’s happening in the market I need to do what so many (now) successful traders have done and break everything down to something I can understand. Only then will this connect my personality, my unique view of the world and my psychology with how I trade.

Not only can I not trade like Jimmy, I can’t trade like @Trader_Dante, @FTSEDay, @50pips, @FT71 or any of the other great/supportive people I’ve run into on this mad arsed pursuit. To quote Monty Python…

Yes, we are all individuals!

So exactly where does this leave me, you or anyone else out there looking to become a consistently profitable trader?

You need to pull the market apart for yourself and see how it works with your own psychology/approach/creativity in mind. Then you can put it back together for yourself and objectively test what works. I’ve now come to the conclusion that this is the long, boring, slow and un-exciting process of becoming a trader. Just like working out and eating right is the long, painful, slow process of getting into really good shape.

There are so many people selling shortcuts, there’s the considerable challenge of self delusion and on top of that the impossibility of trying to change your personality to match someone else’s trading style… On this basis I’m un-surprised that few actually get there.

At this point you might think that I really should give up.

So why am I really excited now about moving forwards?

Well, think about it for a moment. What if the thing that’s holding you back isn’t that you’re not a good trader? What if it’s got a lot to do with the fact that you don’t take good trades like person ‘x’ because (surprisingly) you don’t see what they see ’cause you’re not them? Logically this makes complete sense to me. What a relief it is to put that burden down!

Perceptually the world I see isn’t what you or anyone else sees. You can get 100 different interpretations from the same chart. What follows from this is that you need to trade your own personality in the market.

How do you get to a point where this can happen? Well, you’ll have to wait for part 2 in order to find out and you’ll discover why I went all the way to Florida to really move things forward…

There’s always an answer

I firmly believe there’s always an answer available to any problem that you might face. However the challenge lies in actually asking the right question or being able to see the problem correctly. You can spend an awful lot of time pursuing what you think is the answer to a problem only to find out the question which first arose was the wrong one. That’s slightly opaque so I’ll try to use a (short) real world example to illustrate what this post is about.

I’ve recently found huge problems going to the gym during the week.

Frankly the last thing I want to do at 7-8pm is drag my ass to the gym. I’m just too knackered and the whole experience wakes me right up so my body doesn’t calm down till midnight by which time I’m a corpse 8 hours later when I should have already been up at 7 a.m. to go to work… Ugh…

I’ve spent two months beating myself up for only going to the gym once or twice on the weekends and given what I’m trying to achieve physically that’s not enough. What happens is you go in on the weekends and destroy yourself (too much weight) and are a wreck the rest of the week… it’s no fun.

I thought this failure was related to self-discipline/laziness and so on but taking a bit of a step back from the problem recently I figured out that if I joined a gym close to work I could spend 40 minutes in there each lunchtime, save money (on Costa lunches) and be more productive in the afternoons also. Bonus!

The problem wasn’t ‘not going to the gym in the evenings’ but actually I should have been asking ‘How can I train every day?’ If you ask the right question then the answer seems easy.

With respect to trading (yes we got on topic eventually) I’ve been looking at the problem which is that since I’m working full time it’s very challenging to gain trading experience that is useful and which I can learn from.

What I mean by this is to learn a new skill you need to be able to repeat it over and over under the same/similar conditions before you can internalize it, before it becomes truly ‘yours’. However if your exposure to the market is haphazard/piecemeal and under pressure that’s nothing like how you should be trading. Also given the fact I miss opportunities to learn/set-ups intra-day the actual number of potential learning experiences I’m exposed to is actually very small…

Now I began approaching this problem by looking at radically changing my work life (not currently possible) then at the hours/markets I could trade (yes, to a certain extent) or simply mothballing the whole topic till I’ve gotten myself into a position where I can trade full time. This last sentence is hugely ironic and contradicts all my reasons for learning to trade.

It hit me that, since there are no shortcuts, what I’m looking for is chart time. The right question to ask is actually ‘How do I get more experience in front of the market?’

Happily I stumbled across this program which allows you to ‘trade’ from historical (live recorded) data at an accelerated pace. Since I’m not back testing a robot but learning to trade ‘price action’ in a discretionary way (that suits my psychology) I can now do this evenings and weekends to improve my competence in a structured way. The alternative being attempting to ‘read’ the market and place a trade having glanced at a chart in between doing actual work…

You can hopefully see how what I was doing before simply led to frustration, losses and a very haphazard learning experience!

Back way off topic again but to wrap up properly… If there’s an issue you see in your life then you need to check yourself.

  1. Are you trying to solve the right problem?
  2. Are you asking the right question about what you’re trying to fix?
  3. Are you simply scared of making the change you know you need to?

So my friends, onwards and upwards!

2011 summary 2012 heads up and ‘secret weapon’ insight :D

So I’ve managed to procrastinate at olympic levels on writing this post but feel the need to draw a line under 2011 before moving into 2012. This kinda comes under the same category as tidying up, sending un-used clothes to the charity shop and filing paperwork but lets go for it 😉

First off – I’m continually surprised by how much I actually got out of blogging both as a way of kicking my own ass but also the comments, feedback and great people I ran into during the last 12 months. This ‘ere humble record received 6480 views last year and more astonishingly I gained >160 followers on the twitter. I have no idea what to do with the twitter side of things btw but thanks for the interest!

I’m entirely amazed by this and would like to say ‘Thank You’ as well as wish everyone an awesomely successful 2012.

I’m painfully aware that this ‘media’ (?) success is completely un-reflected in my trading results however and since this whole blog thingumy is entirely peripheral to the main point I’m not going to say much more other than bits of the site here need bringing up to date (esp. books) which I’ll do as and when. (honest)

So I’ll break 2011 down into quarters to give the whole thing some structure and take it apart from there…

Q1, Q2, Q3 Jan-Sept

I guess looking back this is really the ‘no freaking idea phase’ where not only did I not know but essentially everything (including myself) could have killed me. The bit where the caveman walks out of the cave in the belief that velociraptors are actually cuddly, kind creatures that are simply miss-understood.

On the plus side (possibly out of desperation) at the end of June I began to learn vipassana meditation which I’ve not mentioned anywhere in this blog previously. Now, I’m sure some people will take the piss 😉 and if you’d have told me in the beginning of 2011 that I’d now be doing this every day I’d have laughed my ass off too. No really. I’ve done stand up comedy about Jesus beating someone to death for driving in the centre lane of the motorway so don’t start on this, ok? K 🙂

The reason I mentioning this now is to say doing this has had a ridiculously positive impact on my life outside of trading which has fed back into how I view what I’m doing on this particular (trading) area…

So vipassana is ‘looking at things as they really are’ which, if you know any psychology at all or understand perceptual bias is very worthwhile getting your head around with regards to trading. Now hopefully you’ll follow me on this…

People (the majority of retail traders) look at trading (imho) because they are un-happy with their existing situation and being a trader will ‘solve all their problems’… doesn’t look hopeful eh?

This means that when trading they are extremely attached to the outcome and that will inevitable cause them to NOT see what’s actually going on in the market – they will be too anxious, too scared, too fearful and too everything. They will do everything wrong. Take profits too early, trade emotionally (revenge trade) and also pass up opportunities to actually do things properly.

Their trade will represent how they see themselves in the market. Overconfidence on one side (possibly) without the required actual knowledge versus fear on the other side also compounded by lack of knowledge.

Now to come back briefly to this – I’m writing this blog to prove to all the retail traders out there that have got sucked into the FX hype that it can be done and it would be pointless to pitch up out of the blue running around shouting ‘I did it – I’m consistent’ without being able to contribute to the rather sketchy (i.e. shit) path worn in the road by the travellers before. I’m talking about lack of ‘proper’ methodology about how to master this skill but I’m also digressing a whole hell of a lot. Sorry!

Anyway the psychology will kill you if you’re looking for success in the market to ‘fix’ an issue you have out there in the real world. One of the ironies here for me is that if I wasn’t going after this goal then I’d likely never started meditating in the first place and I’d not have seen what a powerful tool this has been at every level.

Here’s a hint at what’s happened outside of the trading arena.

  • No longer dealing with people that just sap my energy
  • Now getting on better with friends/colleagues in a job role that (while stressful) I really enjoy
  • Have resumed running in addition to the usual gym stuff I do
  • Haven’t had a cold or any sort of illness for the last 6 months
  • Eating better and sleeping better
  • More ‘level’ emotionally

Now, is my life suddenly perfect? Hell No 😉 but I’ve realised that all the solutions are actually locked away in my head and that they will absolutely NOT come from getting really good at trading in order to solve problems by being able to throw money at them…

So what does this mean for trading? Like a dog with a bone I still want to become very proficient at this skill. However, all the reasons for doing so are now subtly different because they’re no longer keying in to all the negative emotional and psychological debris that massively gets in the way of any kind of decision making. The emotional ‘tie’ between me as an individual and my position in the market isn’t going to screw me over (as much – lol) whenever I’m looking at what’s going on.

Now, am I suddenly a ‘super trader’? No because I still have some un-helpful character traits that I need to sort out.

1) I’m way too impatient. By this I mean I close good trades far, far too early. This is just going to take some new ‘rules’ and self discipline for me to stick to them

2) I’ve been trying to trade 5min intra-day bars when my work commitments make this virtually impossible. Putting myself under this kind of pressure has had a negative effect in the last few months. I actually like this timeframe a lot but it’s not workable in my current circumstances

3) Still crap at record keeping. Which essentially points to laziness on my part and currently have one and a half days before the end of tomorrow to write a proper trading plan for 2012. We’ll see how much coffee I can consume tomorrow eh?

Before I get into Q4 here’s another observation… The ‘goal’ of becoming a consistently profitable trader isn’t the actual goal at all. A goal is nothing more than an end point and when you’re at the foot of the mountain it’s entirely the wrong thing to concentrate on!

The goal is to master the process of executing good trades and managing them well. Concentrating on the ‘goal’ is simply going to be the most massively frustrating thing you’ve ever tried and you will more than likely give up. It’s the process that is 100% more important than the goal. Some obvious examples

Trading
goal – money etc. you’ve seen the spam too so I won’t elaborate 😉
process – simply learn to execute good trades one after the other

Diet
goal – lose 12kg
process – keep in mind what you eat, track it, don’t over-eat, exercise

Learn a language
goal – chat up anyone (LOL)
process – learn the grammar, structure, vocabulary and practice, practice, practice.

So you see, it’s the goal that’s sexy in the beginning but the PROCESS is way more important. This is why (to a certain extent) all the ‘positive thinking/affirmation’ crap gets on my nerves. Be mindful of the process and forget the goal 😉

Q4 Oct – Dec

Here I think things actually improved. I got some proper tuition and possibly found the humility to listen and focus on the process of becoming proficient at a skill using my own eyes/brain rather than expecting coin to fall from the sky like some sort of manna from heaven… Yes, it’s taken my 9 months (well more like 12+) of bashing my head on the wall before I realised I didn’t know anything about what I was really trying to learn…

People I’m learning from…

  • Jimmy Young – absolute 1st rate tuition/value for money/pull out all the stops so you ‘get it’ however intra-day (5 minute) so kinda challenging for me and the j.o.b.
  • Chris Lori – price action, price action, price action (1hr-4hr-Daily)
  • Nial Fuller – as above with a different slant

On this basis I’ve been making a fair fist of trying to trade during the day while working and let me be clear about this – it absolutely doesn’t work 😉 The amount of ‘mental’ required to get into the flow of what the market is doing on a daily basis isn’t compatible with staying employed. So I’ll be moving up to 1hr/Daily charts while keeping on with Jimmy’s excellent course as we progress through 2012.

So there we have it. I’m gonna head out to get a coffee and write a trading plan framework

Thanks again for all the comments, support, suggestions and especially criticisms

All the best to everyone for 2012

Namaste

Rob 😀

Finally 2012 can’t really start properly without some of the following because we must all be a bit ‘loco’ 🙂 Kickit! INsane in the BRain 😀

Eating the elephant logically

Question: How do you eat an elephant?
Answer: One bite at a time…

I’ve been taking apart the problem of learning to trade because it finally hit me that my trading practice has totally lacked any sort of structure. All the books etc. talk about finding your own trading ‘style’.

BUT if you just launch into trading it will take you a LONG time to find this because you’re hoping to get lucky and find what works for you by accident

I’m not explaining this very well… OK, let’s try again. As a newbie trader you look at a chart. If you’ve got half a clue you’re also attempting to figure out what the market is doing and why. For FX you might look at other pairs to see which currency might be stronger/weaker versus the dollar. You place a trade based on a setup (1) and it may/may not work… What did you learn? Possibly precisely nothing.

You look at another chart/timeframe and decide you’re seeing another setup (2) that could be a low risk idea. You enter the trade, it does/doesn’t work and go on to use setup (3) but hey you’re trading so this means you’re focussed very much on the result (cash) and not the process of learning anything… By now you’ve forgotten about your experience with setup number 1 or any lessons learned from it. Probably.

Another challenge I have with teaching myself (which is effectively what I’m doing) is that I cannot sit in front of a price chart all day. Why? I’m actually employed full time. So… what is the plan?

Eat the elephant a bite at a time and do 20(+) trades based purely on bounces off support and resistance.

No, it’s not going to be exciting or ‘svexeh’ (see, I’m down with the youff)  but it will mean I will learn all there is (you know what I mean) about one way of entering a trade. When that’s fully internalised I will pick another setup.

I KNOW someone out there will think ‘BORING’ and yes, we’re back at the stage where pre-conceived ideas of what trading is are getting killed. Good. All pre-conceived ideas of what trading is/traders are are wrong anyway… That’s another post title in the making right there.

So here we go… breakdown as follows for learning to trade Setup 1

1. Set an alert for price breaking up/down to a previous level (free SMS price alerts on IG!)
2. IF get an alert go look at the chart.
3. Check that the spike isn’t completely parabolic due to some freak news event i.e. Germany has bought Greece or France has decided to leave the euro 😉 There was at least one of those last week, remember?
4. Enter with a sensible stop (and take a screenshot)
5. THE MOST IMPORTANT BIT… wait at least 25 minutes (my own rule) and manage the trade out
6. Concentrate on picking up as much information from trades that go right as ones that don’t
7. Repeat 20 times – record them all then review how I traded these.
8. Make improvements – do another 20 trades JUST ON THIS etc. etc. etc.

Now, I’m not going to be taking a lot of trades based on this but I sure am going to learn a lot about how price moves in these areas AND how to manage myself in relation to these circumstances.

Some pretty pictures to illustrate what I mean.

I appreciate this probably isn’t a revelation to anyone who’s currently trading profitably and consistently. However it should mean that this high probability, low (?) risk setup becomes properly part of how I trade. Forty of these later without getting distracted and learning from each one, being able to compare them and what happened in/around these trades seems like a logical approach.

Didn’t do this today though due to NFP 😉

Fear and acceptance

I’m going to point out in advance that the following post is possibly a bit long and is an amalgam of a few references. However I hope it will help any newbie traders who’ve hit this point.

There’s a bruise on my forehead from this one kids so pay attention… 😉

Anyone who starts trading and actually wants to succeed has the odds stacked against them on two levels. Number one… They have no idea what they’re doing. Number two… They don’t have the psychology in place that will help them trade successfully. It’s possible that number three is ‘unrealistic expectations’ but I’m not going to go there ’cause I’ll end up on a 20 minute rant about training companies (calm down dear)

So, this week has seen the coming together of some information from a number of diverse sources…

  1. Reading ‘The Disciplined Trader’ by Mark Douglas as recommended by Jimmy Young during his excellent two day FX course
  2. Free online training from Mike (@FtseDay on Twitter who writes an excellent blog here) who basically spent 100+ minutes talking about trading psychology
  3. Japans very own ‘Gone with the Wind’ called Musashi which is a ridiculously long book about the Samurai ideal and the pursuit of perfection among other themes
  4. As mentioned before – 21 weeks of getting my arse handed to me on a plate by the market

The problem I’ve been trying to deal with is basically fear associated with pulling the trigger on trades. It’s clear from the previous post that not having a clue what I was doing (problem number one) has created a certain reticence with entering a position.

But… when I thought about this it didn’t seem ‘enough’ somehow. This issue I’ve been struggling with couldn’t really be held by this one idea as the feeling I was experiencing was too large. So let’s work on the basis that I now have a certain idea about what I’m doing. I’ve spent enough time on the mechanics of how to drive the car but I’m still scared to pull out of the driveway into the traffic… Seems a bit dumb, right?

Mark Douglas’s book has some great insights into trading especially with respect to the relationship between the trader and the market. It also contains some pointers to overcoming issues with trading. He tells it straight and is (imho) more accessible than Brett N. Steenbarger. Anyway I picked up a lot of tips but it wasn’t quite fitting together…

Then listening to Mike (@FtseDay) talking about how he went through the process of learning to trade he said something that stuck in my head which clearly hadn’t penetrated my thick skull before.

It takes a trader to take a loss

Now what that doesn’t mean is that you trade like a moron. What it does mean (to me) is that when you place a trade you accept that it could be a losing trade (obviously don’t expect it to lose) but the key point it that you’re not afraid of it failing to meet your expectations. Or if you happen to be a Samurai you’re not afraid of the other guy cutting you into tiny little pieces – lol

The samurai ideal was crystallized in the legend of Musashi who sought to become the greatest living swordsman by eradicating his fear of death so that he was able to fully commit to every action/movement in each battle to defeat his opponent. In the story he gets to a point where he realises every conflict is actually a battle with himself and the enemy acts as nothing more than a mirror.

Also this isn’t about abandoning hope but a complete acceptance of the reality that the trade will go your way (profit) or not (loss) without you being attached to the former or fearful of the later outcome. It should go without saying that you’re only going to place trades that meet your other criteria for a ‘high probability of success’ trade!

What’s pointed out in Mark Douglas’s book is that fear very much restricts the brains ability to gather, weigh, and process all the information available. Being afraid is not a state of mind that allows you to calmly consider all the options. Tunnel vision isn’t a good state to trade in! If you’re afraid then you’ll miss vital information. Calm is the order of the day.

What I resolved to do and actually did on Friday was put a trade on, accept the outcome of the trade in advance and then leave it to play out. All the usual OMFG nonsense about putting the trade on, watching it going (for/against) and then putting the stop too close or closing it out for a loss only to watch it reverse… none of these things happened to any great degree internally. Overall my emotional state was detached, un-afraid and interested.

I managed the trade without my lizard brain freaking out in the background… Much better!!

I put my stop in a logical place, I had a take profit target and I was able to calmly think. In fact I realised that my reason for entering the trade wasn’t actually playing out and was totally invalidated by the time I got out.

I closed the trade for a tiny loss by patiently waiting rather than panicking out for a 20+ point loss. Funny that my lack of trading experience defeated me on this occasion rather than crappy psychology!

  • Bad trade + bad psychology = massive / possibly irrecoverable loss
  • Good trade + bad psychology = still possible lose / possible small win(luck?)
  • Bad trade + good psychology = possible loss / possible small win(luck?)
  • Good trade + good psychology = possible win / very good win

Now, you can see that new, inexperienced traders or anyone with bad psychology with respect to trading is more than likely going to lose. Yes, you might get lucky a couple of times in the middle there but luck isn’t the basis for any sort of long term success. Relying on luck is called gambling 😉

Being realistic it may well be that only by being in the last category (good trades+good psychology) does a retail trader even begin to have a chance to be successful… and then they’ve still got to get everything else about trading right too! You can place a good trade and have good psychology but STILL lose due to some un-foreseen news etc.

Anyway, next step will be to practice the mental/emotional approach I took on Friday till it becomes automatic.

  • Examine the trade setup and other factors – reasons to enter
  • Confidence to place the trade with stop/take profit and without fear
  • Accept the outcome and detach from the result emotionally
  • Monitor in relation to my reasons to place the trade (reasons still valid?) not emotions
  • Close the trade at an appropriate point
  • Rinse and repeat for the next few decades 😉

I suspect this won’t be as simple as writing about it but I feel very happy to have made this breakthrough. To quote the great sage “Do or do not, there is no try!’