It may seem as if undisciplined traders are having fun, but that is usually a false appearance. Losers can be extremely harsh and shockingly abusive towards themselves. They keep breaking the rules and hitting themselves, breaking and hitting.
For example, a trader finds a stock that he likes and buys it. The stock rallies, but a few days later it stalls and appears ready to reverse. The novice sells at a profit—and feels good about it for about a day. Then the uptrend resumes and the stock shoots up. Now the trader feels a great pain because he is no longer onboard. Had he continued to hold, his profit would have been so much larger. How does he react? Probably by beating himself over the head!
Instead of congratulating himself for having correctly identified the trend and taken some money out of it, he feels disappointed and angry. In his next trade he probably will take greater risks and overstand trend. Afterwards, he will beat himself up for that and then probably get out from the next trade too soon.
This poor guy should be celebrating that he got two out of three right, instead of beating himself up. He was right on the market and right on the entry—but premature on his exit. With two correct decisions out of three resulting in a profit, he is well ahead of the majority of market participants. He should pat himself on the back and then create a good record of his trade, documenting his entry and exit. He should revisit his record in a month and then again in two months, updating his diary with fresh charts. He should celebrate his achievement and take fulladvantage of that trade as a learning experience.
Beating yourself up will not make you a better trader.
Think of another situation: a trader notices an attractive stock, studies it, and makes a mental note to continue to watch it and probably buy. Soon he loses track of that plan. As the joke goes, a “mental note” is not worth the paper on which it is written! A few weeks later he glances at the stock again and sees that it had a big run-up. His pick was right but his attention wavered.
What does the trader do? He kicks himself, as if that would do him any good.
A healthier approach would be to congratulate himself on his superior stock-picking skill. He deserves a pat on the back for finding that wonderful stock. He can probably find another one just as good, and the next time he will be more alert and not miss the signal to buy. He would benefit from fixing his deficient record-keeping. This trader needs a system for documenting his discoveries and keeping them in his view in an actionable form, something that we will discuss later in this book. The fact he found that stock is great—all he needs now is to catch up on the record-keeping.
You need to stop beating yourself up when your trades go awry. You have to celebrate your achievements and soberly take stock of your shortcomings. Keeping good records will help you identify and correct your mistakes, and allow your accomplishments to shine even brighter.
Beginners underestimate the importance of psychology. Your mind is an essential component of your success (or lack thereof). You would not throw your laptop on the floor if it froze on you and caused you to miss some quotes. In the same spirit, please do not hit your poor head when it misses something—treat it kindly and nicely, and it will serve you better! While working on this chapter, I received an e-mail from Nils Gajowiy, a trader and a teacher of traders in Germany:
At a seminar for beginning traders we spoke about the importance of a written trading plan and the negative impact of emotions on trading. Suddenly one of the participants asked: “Can you tell me anything positive about emotions? I keep hearing that they mislead us to take wrong decisions, to deviate from the trading plan, etc. But do they have any positive aspects?”
I kept thinking that positive emotions are a strong motivator which increase our strength in many other areas. We have a saying in Germany, “When you are in love, you can move mountains.” I looked through all my books and saw that nobody has ever written a word about the positive impact of emotions on trading. Do you have any suggestions about that topic? I hope that my earlier comments on treating yourself kindly and celebrating even partial successes will help answer Nils’ question. Let me list several additional points:
• It is better not to trade when you are in foul mood. Remember that even a good trader has only a very narrow edge in the market. Anything that reduces that edge will shift the balance of power against you. Feeling calm, relaxed, and in a pleasant mood is extremely important for your success. If you have a severe toothache or if a problem with a spouse or one of your kids has you very upset, you would be better off taking a break from the markets.
• If you feel stressed or preoccupied, stand aside from the markets
until your personal stress clears up. The markets require you to think and act fast. You need to get into the flow of things and make quick intelligent decisions, without ruminating or worrying. The markets send out a torrent of information which you must process and act upon as swiftly as if riding a surfboard.
• Successful traders love the game more than the profits. On Sundays, with my weekend homework completed and plans for the next week drawn up, it is a pleasure to think of the next day’s opening. A surfer probably has a similar feeling in the evening, knowing he’ll be going to the beach in the morning. This good feeling comes from being prepared. Even if the ocean becomes stormy and tosses my plans out of the water, it can only scrape me a bit but not hurt me!
When I began interviewing people for Entries & Exits, it came as a surprise to me how many men wanted to talk about their love for their wives. One after another talked with great feeling about the trust, support, and encouragement he felt at home. A person with a happy personal life has an advantage, while someone with a stormy personal life finds himself doubly stressed. A person who goes home to a smiling, loving spouse and does not need to spend an ounce of mental energy on figuring out the angles of a tense personal relationship is in a much better position when he or she sits in front of the computer to analyze charts and make decisions.
For example, a trader finds a stock that he likes and buys it. The stock rallies, but a few days later it stalls and appears ready to reverse. The novice sells at a profit—and feels good about it for about a day. Then the uptrend resumes and the stock shoots up. Now the trader feels a great pain because he is no longer onboard. Had he continued to hold, his profit would have been so much larger. How does he react? Probably by beating himself over the head!
Instead of congratulating himself for having correctly identified the trend and taken some money out of it, he feels disappointed and angry. In his next trade he probably will take greater risks and overstand trend. Afterwards, he will beat himself up for that and then probably get out from the next trade too soon.
This poor guy should be celebrating that he got two out of three right, instead of beating himself up. He was right on the market and right on the entry—but premature on his exit. With two correct decisions out of three resulting in a profit, he is well ahead of the majority of market participants. He should pat himself on the back and then create a good record of his trade, documenting his entry and exit. He should revisit his record in a month and then again in two months, updating his diary with fresh charts. He should celebrate his achievement and take fulladvantage of that trade as a learning experience.
Beating yourself up will not make you a better trader.
Think of another situation: a trader notices an attractive stock, studies it, and makes a mental note to continue to watch it and probably buy. Soon he loses track of that plan. As the joke goes, a “mental note” is not worth the paper on which it is written! A few weeks later he glances at the stock again and sees that it had a big run-up. His pick was right but his attention wavered.
What does the trader do? He kicks himself, as if that would do him any good.
A healthier approach would be to congratulate himself on his superior stock-picking skill. He deserves a pat on the back for finding that wonderful stock. He can probably find another one just as good, and the next time he will be more alert and not miss the signal to buy. He would benefit from fixing his deficient record-keeping. This trader needs a system for documenting his discoveries and keeping them in his view in an actionable form, something that we will discuss later in this book. The fact he found that stock is great—all he needs now is to catch up on the record-keeping.
You need to stop beating yourself up when your trades go awry. You have to celebrate your achievements and soberly take stock of your shortcomings. Keeping good records will help you identify and correct your mistakes, and allow your accomplishments to shine even brighter.
Beginners underestimate the importance of psychology. Your mind is an essential component of your success (or lack thereof). You would not throw your laptop on the floor if it froze on you and caused you to miss some quotes. In the same spirit, please do not hit your poor head when it misses something—treat it kindly and nicely, and it will serve you better! While working on this chapter, I received an e-mail from Nils Gajowiy, a trader and a teacher of traders in Germany:
At a seminar for beginning traders we spoke about the importance of a written trading plan and the negative impact of emotions on trading. Suddenly one of the participants asked: “Can you tell me anything positive about emotions? I keep hearing that they mislead us to take wrong decisions, to deviate from the trading plan, etc. But do they have any positive aspects?”
I kept thinking that positive emotions are a strong motivator which increase our strength in many other areas. We have a saying in Germany, “When you are in love, you can move mountains.” I looked through all my books and saw that nobody has ever written a word about the positive impact of emotions on trading. Do you have any suggestions about that topic? I hope that my earlier comments on treating yourself kindly and celebrating even partial successes will help answer Nils’ question. Let me list several additional points:
• It is better not to trade when you are in foul mood. Remember that even a good trader has only a very narrow edge in the market. Anything that reduces that edge will shift the balance of power against you. Feeling calm, relaxed, and in a pleasant mood is extremely important for your success. If you have a severe toothache or if a problem with a spouse or one of your kids has you very upset, you would be better off taking a break from the markets.
• If you feel stressed or preoccupied, stand aside from the markets
until your personal stress clears up. The markets require you to think and act fast. You need to get into the flow of things and make quick intelligent decisions, without ruminating or worrying. The markets send out a torrent of information which you must process and act upon as swiftly as if riding a surfboard.
• Successful traders love the game more than the profits. On Sundays, with my weekend homework completed and plans for the next week drawn up, it is a pleasure to think of the next day’s opening. A surfer probably has a similar feeling in the evening, knowing he’ll be going to the beach in the morning. This good feeling comes from being prepared. Even if the ocean becomes stormy and tosses my plans out of the water, it can only scrape me a bit but not hurt me!
When I began interviewing people for Entries & Exits, it came as a surprise to me how many men wanted to talk about their love for their wives. One after another talked with great feeling about the trust, support, and encouragement he felt at home. A person with a happy personal life has an advantage, while someone with a stormy personal life finds himself doubly stressed. A person who goes home to a smiling, loving spouse and does not need to spend an ounce of mental energy on figuring out the angles of a tense personal relationship is in a much better position when he or she sits in front of the computer to analyze charts and make decisions.
Posts
No comments:
Post a Comment