Tag Archives: trade management

Trading and getting out of your own way…

I may well be jumping the gun a little bit… but let’s go for it anyway since it’s an important point. This post has been massively inspired by Rogue Traderette’s post here and it’s worth checking out for the picture of Julie Andrews (lolz) as well as the main point she makes. I might actually get around to posting a chart on one of these blogs soon – lol

So to continue… Your mind is an incredible tool which has evolved over millennia to be extremely efficient at protecting you from harm. Now that we are the largest and most successful species on the planet there’s not a lot of real threats left out there.

The challenge is that your brain and emotional responses are still wired to deal with the chemical signals triggered by stress and worry. Which is a bit of a pain in the arse when it comes to trading 😀

Anyone who’s just started in this arena will be in the middle of getting a rude shock when they put actual real money on the line. All sorts of extremely compelling signals will be dancing about your brain as soon as the trade looks like it’s going to go off-side… It may also be on-side but if you don’t ‘get’ how price moves you’ll still be freaking out.

There are a couple of ways to help counteract this and so I’ve made a list 😉

  1. Trade smaller size. If you’re freaking out all the time you’re trading too big. There are brokers out there that will let you trade 6p per point – there’s no excuses here
  2. Knowledge. I don’t care what anyone says but you absolutely cannot learn to trade from reading a bunch of trading books. I’ve tried. While many authors are well intentioned I’ve not read one yet that actually defines what works today in a general sense and even fewer begin to tell you how to figure out how to develop your own approach to the markets which matches your personality/ psychology/ approach/ beliefs etc. There is no overall blueprint. Find someone who is trading in the current market and who is nailing it. Then see what it is about their approach you like/understand and see what bits you can implement effectively. Then practise, practise, practise… Hang on, I’m getting side tracked into writing another whole post here. Will do this topic later!
  3. Do all your worrying in advance. Realise that once the trade is on there is nothing you can do to influence the outcome. The most effective way to do this is to cover all the bases before you place a trade and then take a mental step back from the screen. Get out of your own way. Your trade idea is now out in the wild. Getting attached to the outcome and worrying about the future (which you can’t control) is a pointless waste of energy which will compromise your ability to manage the trade.
  4. Focus instead on watching your reactions as the trade unfolds without being too judgemental over the results. It’s only a bad trade if you fail to learn from the experience, you puke the low/high before you get stopped out or you get out for no reason (giving into fear).
  5. Do not look at your P&L because it will only make you tense. This is like looking in the rear view mirror when the tyrannosaurus is chasing you down. Not a good move overall… Your trading results are invisible to the market and no-one cares about your position except you.
  6. Focus on the process and the present moment – not the outcome. What ‘could’ happen next is entirely outside of your control. You’ve stacked the deck in your favour but you aren’t dealing the cards
  7. Here’s another way to think about placing a trade. The ‘work’ is actually in the analysis before you go anywhere near entering a position. Once the trade is on you’re no longer working but simply waiting to see what happens next. Sort of like watching a film unfold. You have a script in your head and the point at which you shouted ‘action’ is under your control. Once the camera is rolling you’re no longer in control as the market is going to do what it wants. It will go badly, it can go well or it can exceed all expectations

The bit everyone has problems with is that they’re not in control of the outcome. Newbies will spend a ridiculous amount of time searching for a ‘holy grail’ that will give them an illusion of control. Most people are actually looking for someone/something to tell them what to do and give them the answers (I know this as a project manager) rather than think for themselves. Independent thinkers are few and far between. Leaders even rarer beasts.

Here’s an interesting point. When people crap out they blame the market, their strategy or maybe the news. When a trade goes very well they take all the credit which is of course fundamentally flawed psychologically. People avoid taking responsibility for taking crap/low probability trades. Human nature once again kicks us in the goolies…

You really only have control over a few things

  1. Your analysis of the situation and what this means for an entry point
  2. Where you put your initial stop/ take profits and how this controls your position size
  3. What you focus on as the movie rolls – see the list above

Watch the position but try very hard to do so from a detached perspective. Watch ‘you’ watching the trade and look very hard at what’s actually happening as the candles print right. Do not look at your P&L and also keep in mind that if your take profit is 50 points away that getting there could take a few hours (at least) plus involve maybe at least one major retracement move. All this depends on so many variables that only screen-time can give you a sense of. You’ll learn a lot about your own brain if you keep half an ear on all the trash-talk it’s chucking out in your direction about how your position is about to go completely wrong 😉

A great point from meditating is that ‘you’ are not the thoughts in your head. Learning not to identify or listen to that sort of incessant mental chatter is a great skill to learn.

Now, why am I jumping the gun talking about this? [got back there eventually]

I’m feeling that I’m near to having sorted this out from the last couple of trades I’ve put on. Yeah that’s me asking the universe to kick me right in the balls there 😉

This really derives from having covered all the points needed in advance then taking a mental step back when the trades actually on. Having placed a lot of dog**t trades I now know what one looks like so avoid them at all costs. So I’m maybe jumping the gun because I feel as though I’m now on the border between conscious incompetence and conscious competence… Time will tell. Here’s a reminder of the stages…

  • Unconscious incompetence = you don’t know what’s needed to succeed (ignorance)
  • Conscious incompetence = admitting you don’t know (acceptance)
    • I reckon I’m just leaving the borders of incompetence although I’m sure a relapse is completely possible!
  • Conscious competence = success is possible with constant effort (doing the practice)
  • Unconscious competence = success is effortless (enlightenment)

So it takes >570 hours to wade through the first two stages… Being stubborn is under-rated!

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