Sunday, July 09, 2006

trading and Personal Challenges

Traders who at times experience emotional challenges or frustrations
in their trading careers are by no means alone. These
challenges are part and parcel of the business. Listen to the
body and its body signals – there are always signs the body
will put out when engaging bad habits.
But there are certain steps that can be taken to protect against
each trader’s own personal Achilles heel.

Beware of precisely what the particular problem or challenge
is. For example, maybe a trader has the tendency to give back
three weeks worth of profits in two days.

Sometimes it’s very helpful to identify the conditions that precede
periods when a trader gets “sloppy.” Was he feeling elated
after having hit new equity highs? Or, was he distracted by
events that were occurring outside of trading? A trader has to
learn to acknowledge the sides of his personality that hold him
back in trading, because these traits are never going to
disappear. After all, we are not robots – we are human. But
when he can recognize a pattern of feelings or emotions he
feels before he starts to get into trouble, he is a lot less likely
to take a trade that was not part of his game plan.

Have a trading plan each day. This is insurance against making
marginal, spontaneous trades. It also will protect the trader in that
it forces him to take one day at a time and reminds him that the market
alternates between trending periods and choppy periods. Atrader
that can identify ahead of time the type of period that he is in can
be prepared with the appropriate type of strategy for that day.

Routines and rituals are tools for staying grounded in the present
and can aid in keeping the trader’s behavior consistent with
his trading plan. Everyone needs tools to create structure and
order in an otherwise very abstract game. Record-keeping such
as logging trades, statistics or market indicators, is an excellent
discipline that helps one stay in the present and stay consistent.

Set small goals every day. Such a goal might be to have three
winning days in a row, or to follow a trading plan just for that day.
It might be to make no more than three trades a day and to refrain
from overtrading. Or, it could be to put a half position on every
five-minute bull or bear flag that forms. A trader’s small goals
should reflect his own trading style, needs and weaknesses.

A trader should learn to differentiate between challenging
conditions that are caused by the market environment, versus
unforced errors that he makes himself. He should avoid being
hard on himself if the current environment is flat or his normal
trading style is not suited to current conditions.

A good way to correct behavior is to think at all times about a
desired outcome. Post it next to the trading screen. Read it
every morning. Every time a trader goes to take action, he
should ask if it truly supports his desired goal. If he wants the
outcome badly enough, he will find away to reach it. He should
imagine the winning feeling upon achieving those short-term
goals and replay that feeling over and over in the mind as motivation.
It’s important to be very clear about what his purpose
and goals are in the market each day, not just over the long run.

Traders should consider having a trader friend with whom
they can share their daily account statements. Most traders
will do better when they have to be accountable to an outside
party with regard to their trading performance; they are less
likely to let one large loser get out of hand. If his judgments
are impaired, at least there is someone on the other end who
can draw attention to the fact that the trader is deviating from
his plan or might be in need of a break. A trading buddy is not
there to offer advice on the market or on individual trades. In
fact, if a trader finds himself having to ask for advice or opinions,
it is a sure sign that he should not be in that trade. A
buddy is there to serve as a coach – to offer a pep talk or motivational
boost if needed, or to serve as an outside party topoint out when a
trader is engaged in destructive trading
behavior that is resulting in an extended draw down.
Markets can change quickly. The more unbiased a trader is,
the easier it is to change with the environment. If he starts to
develop a bias that is not warranted by the technicals, but is
instead caused by emotions or poor reasoning, his body signs
and language more often than not will tell him. Most professionals
know when they are in a bad trade and know when
they are making a mistake. The more trades a trader makes
and the more experience he gains, the more he will learn to
recognize his own personal signs that indicate he is indeed in
a bad trade, regardless if it has not hit his stop level yet. Until
a trader is able to gain in this knowledge, it’s yet another
excellent reason for always have a resting stop in the market!
Of equal importance, again, he needs to remember how his body
feels when he is in control and has a winning position on. The
best traders learn to take this one step further and add to a winning
position. GREEN LIGHT GO! Step on the gas! This
concept is as crucial as learning to recognize when a trade does
not feel right.


boo said...

rish ji
each and every word of your's is valuable and it seems that you are writing about my mind and temperament , this article will help me a lot in my day trading.
each behavioural pattern of my body language will be easy for me to study very minutely form today bec'z of your advice in this article.

thank you sir.

johnny said...

Yes This articleis like alert. Nice peace of work

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