Mindfulness : The Zen approach to Trading SuccessMindfulness is a practice that involves being fully present and engaged in the moment, aware of your thoughts and feelings without judgment. It originates from ancient Buddhist meditation practices but has been adopted widely in various forms across the world for its mental health benefits. In this post, we'll dive a bit deeper into what it is, where it comes from, and how it can help you when trading. Some practical tips and where to start are included as well, so keep on reading till the end.
❔ What is mindfulness?
Mindfulness is like having a special tool that helps you pay close attention to what's happening right now, in this very moment, without wishing it was different. It's about noticing the little things - how your breath feels going in and out, the way your body feels sitting or standing, or even the sounds around you. It's all about being fully present and aware, like watching a movie and noticing every detail on the screen without getting distracted by thoughts of what you will do later.
When you practice mindfulness, you're training your brain to focus on the present moment. It's like when you use a magnifying glass to look at something closely; you see a lot more detail than you would if you were glancing at it. Mindfulness works the same way, but instead of looking at something outside, you're paying close attention to your thoughts, feelings, and sensations.
By practicing mindfulness, you learn to respond to situations with more calmness and less knee-jerk reactions. Instead of getting immediately upset or stressed by something, you give yourself a moment to decide how you want to react. It's like pressing a "pause" button, giving you the chance to choose your response.
In simple terms, mindfulness changes your mindset by helping you live more in the "now," handle your emotions better and be kinder to yourself. It's like having a secret garden inside your mind where you can go to find peace, no matter what's happening around you.
❔ Where does it come from?
Mindfulness, originating over 2,500 years ago within Buddhist meditation practices, transcends its ancient spiritual roots to address a universal human need: the desire to be fully present and aware in our lives. This practice, once cultivated in the serene landscapes of ancient India, has evolved beyond its religious confines, finding a place in various Eastern traditions such as Taoism and Zen Buddhism . Each culture enriched the concept, emphasizing awareness, intention, and compassion, and highlighting mindfulness's universal appeal and applicability.
The late 20th century witnessed a significant cultural bridge as mindfulness made its way into the Western world, largely thanks to pioneers like Jon Kabat-Zinn . His approach through the Mindfulness-Based Stress Reduction (MBSR) program at the University of Massachusetts Medical School showcased mindfulness as a powerful tool for psychological well-being, stress reduction, and enhanced quality of life, irrespective of its religious origins. Today, mindfulness is embraced across diverse fields for its profound benefits, embodying a timeless practice that enhances the human experience by promoting a deeper connection with the present moment.
❔ Why Mindfulness for Trading?
Why is mindfulness important for trading? Think of trading like a big room full of buttons. Each button can make you feel something different – happy when you win, sad or scared when you lose. Mindfulness is like having a special guide in this room. This guide helps you walk through without hitting every button by accident. It teaches you to notice the buttons (your feelings) without having to press them all. This way, you can feel happy about the good things and not feel too bad about the not-so-good things, keeping your mind steady no matter what happens.
Mindfulness helps you stay calm and clear-headed. When you're trading, it's easy to get caught up in the excitement or worry a lot. Mindfulness is like putting on a pair of glasses that helps you see everything more clearly. You learn to pay attention to what's happening right now, instead of getting lost in thoughts about what might happen next or what happened before. This can help you make better decisions because you're thinking clearly and not just reacting to your feelings. It's like having a secret weapon that keeps you feeling good and thinking smart, no matter how wild the trading world gets.
❔ How does it help in trading?
Emotional Regulation : Trading can be an emotionally charged activity, with the potential for high stress, anxiety, and strong emotional reactions to wins and losses. Mindfulness helps traders recognize their emotional states without becoming overwhelmed by them, promoting a balanced approach to decision-making.
Improved Focus and Concentration : Mindfulness enhances the ability to concentrate on the task at hand. For traders, this means being able to focus on analyzing markets, monitoring trades, and making decisions without being distracted by irrelevant information or internal chatter.
Reducing Impulsive Behavior : By fostering an increased awareness of thoughts and feelings, mindfulness can help traders avoid impulsive decisions driven by short-term emotions such as fear, greed, or frustration. This can lead to more disciplined and considered trading strategies.
Stress Management : The practice of mindfulness has been shown to reduce stress levels. Given that trading can be a high-stress occupation, particularly during volatile market conditions, mindfulness can help traders manage stress, maintain clarity, and avoid burnout.
Enhancing Decision Making : Mindfulness promotes a state of calm and clarity, allowing traders to evaluate situations more objectively. This can improve decision-making by reducing the likelihood of decisions being clouded by emotions or cognitive biases.
Learning from Mistakes : Mindfulness encourages an attitude of non-judgmental observation. This perspective can help traders view losses or mistakes as learning opportunities rather than personal failures, cultivating a growth mindset that is crucial for long-term success.
Incorporating Mindfulness into Your Trading Routine
Here are a few things you can do to build in mindfulness routines in your trading day.
🧘🏽♀️Daily Meditation : Start with just 5 minutes a day. There's a plethora of apps like Headspace or Calm to guide you.
🤯Setting Intentions : Each morning, remind yourself of your trading goals and how you want to approach the day mindfully.
😤Mindful Breathing : Feeling overwhelmed? Pause and take ten deep breaths to reset your mental state.
⏸️Mindful Pauses : Before you click that trade button, take a moment to ensure this decision feels right in the gut.
✍🏽Reflective Journaling : End your day by jotting down your emotional journey alongside your trades. You might be surprised by the patterns you find.
📚 Get started:
Interested in expanding your mindfulness repertoire? Here are some resources to get you started:
Jon Kabat-Zinn's " Wherever You Go, There You Are " for mindfulness 101. ISBN 978-0-7868-8070-6
The Headspace Guide to Meditation and Mindfulness by Andy Puddicombe for those looking to integrate mindfulness into everyday life. ISBN-10 1250104904
10% Happier for meditation skeptics who want practical insights. ISBN-10 0062265423
✅ Takeaway
Who knew that the path to trading success could involve a bit of Zen? By embracing mindfulness, you're not just becoming a better trader; you're investing in your overall well-being. So, here's to trading mindfully and finding that inner peace amidst the market's chaos. Remember, in the world of trading, the best investment you can make is in yourself.
📣 Join the Conversation!
Now, it's your turn! Have you tried integrating mindfulness into your trading routine? Notice any shifts in your decision-making or emotional resilience? Or maybe you've got some mindfulness tips and tricks of your own to share. Drop your stories, insights, or even your skepticism in the comments below. Let's build a community of mindful traders, learning and growing together. Can't wait to hear about your experience!
Mindfulness
The Art of Zen Trading1. Create an awareness of your body.
2. Pour happiness into everything you do.
3. Detach. "Connected to everything, attached to nothing."
4. Set process-based goals.
5. Breathe, be aware of the present v the illusion.
6. Everything is temporary.
7. Trading is skillset building.
8. Mistakes and failures are a requirement.
9. The fight is the real reward.
10. You yourself have to engineer your own peace, happiness, and success--moment by moment, action by action.
The Hardest Part of Trading (Not what you Think)Seeking More information - When first introduced to markets, every beginner immediately thinks he must learn the rules of the market in order to succeed. He initially believes there is a "holy grail" a system, a leader, or a mathematical equation like Fibonacci levels. He believes these will protect him in the market, and will lead him to a profit once he understands them.
The problem is, there are no set rules which work consistently in the market. If there were, the institutions and everyone else would simply use them. What would happen then? Well, there would be no one or institution to take the opposite trade, and the market would cease to exist altogether.
And so the new trader changes from one system to another, from one guru to another, and constantly thinks he must learn more information in order to succeed. What he believes to be preventing his success is a lack of knowledge, a lack of information. But you see, the more information you have does not necessarily lead to better decisions. There is a lot of evidence to support the contrary, and suggests that too many choices actually impair decision making skills.
On top of this, most of the information in the trading world is quite simply wrong. There are 10 x more scam artists who claim to "know" and will take your money to teach you how to trade than there are profitable traders. These people do not understand markets them selves, and cannot make money in the market, so instead they prey on new market entrants. This is the primary reason I started my trading website; to provide high value information at a low cost. And to give those who are serious about trading an actual chance to make it in the markets.
Dealing with Uncertainty - The reason most traders seek new information is because they are afraid of uncertainty and want certainty. They seek something to protect them in the market. Something to protect them from themselves. A system that will guarantee a profit. But there is no such thing. Markets constantly change and evolve through the market cycle. And there is no system that works across all three parts of the market cycle. The sooner you realize this, the closer you will be to making a profit.
It is very hard to learn how to deal with uncertainty. But you do it every day. When you wake up in the morning are you certain you will live through the end of the day? No, and you can never be completely certain of this. Certainty is an illusion. There is no certainty in this life. The only certainty is... uncertainty!
Patience and Discipline (Ability to Do Nothing) - Every profitable trader uses these two terms (patience and discipline) when asked how they are profitable. When a beginner hears this, he rarely understands what this means. Discipline means doing something even when you dont want to do it, or doing something you dont want to do. Patience means waiting for your turn, or waiting for something to happen.
In other words, when the time is not right you must do nothing. This stokes a fear in most people, especially in today's give me distractions, social media world. They say "Well what am i supposed to do if i am doing nothing?" Doing nothing seems contrary to getting what you want, getting somewhere. In and outside of the trading world everyone believes in order to be a "trader" you must trade - constantly. This is why most lose money. Because they do not understand that there is a time for doing nothing. And that time is most of the time!
See more on understanding markets (Price Action Trading) and yourself (Trading Psychology) at my website below.
If you found this helpful please like! Feel free to comment or ask questions.
Lessons from an Experienced Trader #3Lesson 7 Trade Outcome is Random
The outcome of any given trade is random, no matter how strong your edge is. It is impossible to predict whether a trade will result in a loss, decent profit, or a windfall profit. Contrary to what most Price Action traders and price analysts believe, you cannot and will never be able to predict the market. Most amateur traders fail to recognize this fact, or deny this reality altogether. They believe eventually, they will be able to avoid losing trades and pick winners. They do not understand the outcome of any given trade is random, and therefore impossible to know before hand.
Consider weather prediction as an example. Meteorologists have highly sophisticated weather models and algorithms to predict weather behavior, just like traders and institutions in the market. Yet the weathermen cannot accurately predict what will occur. They can say "There is a 60% chance of rain today if you live in X." But they cannot say exactly when or where rain will fall. It is the same in the market. You may have a good idea of what may occur, and even be right! However, there is still a reasonable chance (usually around 40%) that you are wrong, and the exact opposite will occur.
The market is always right. It does not matter what you think or believe should or will happen. All that matters is what is happening. Just because a trade looks good or an edge is strong, does not mean it will result in a profit. There is still an opposing probability that it will fail.
The point is that you will never know beyond a reasonable doubt what the market will do next. You may have a hunch, or a strong edge, but that will only get you so far. Therefore the only thing to do is to always take your edge, because you never know if this will be the windfall profit you are looking for, a small profit, or a loss. And quite frankly, it does not matter!
Lesson 8 Market Outcome Does Not Matter
The outcome of any single trade does not matter. It is very common for traders to become attached to the outcome of this individual trade. This is what leads to emotions, anger and frustration with trading and the market. We get stuck in the mindset that we have to win X amount of profit like 2X risk on this trade, or have to make money every day to be a profitable trader. This is not the case at all. In fact you only have to win one 1 or 2 really good trades out of 10 to maintain a consistent performance.
Any single trade is irrelevant to a trading system or strategy. It is the cumulative result over a series of trades that results in a profit. This is why it is so important to know and only trade your edge, otherwise you introduce randomness into your performance, and are unable to produce consistency.
*If you find this analysis helpful please like! Feel free to comment or ask questions.
Lessons from an Experienced Trader #3Lesson 7 Trade Outcome is Random
The outcome of any given trade is random, no matter how strong your edge is. It is impossible to predict whether a trade will result in a loss, decent profit, or a windfall profit. Contrary to what most Price Action traders and price analysts believe, you cannot and will never be able to predict the market. Most amateur traders fail to recognize this fact, or deny this reality altogether. They believe eventually, they will be able to avoid losing trades and pick winners. They do not understand the outcome of any given trade is random, and therefore impossible to know before hand.
Consider weather prediction as an example. Meteorologists have highly sophisticated weather models and algorithms to predict weather behavior, just like traders and institutions in the market. Yet the weathermen cannot accurately predict what will occur. They can say "There is a 60% chance of rain today if you live in X." But they cannot say exactly when or where rain will fall. It is the same in the market. You may have a good idea of what may occur, and even be right! However, there is still a reasonable chance (usually around 40%) that you are wrong, and the exact opposite will occur.
The market is always right. It does not matter what you think or believe should or will happen. All that matters is what is happening. Just because a trade looks good or an edge is strong, does not mean it will result in a profit. There is still an opposing probability that it will fail.
The point is that you will never know beyond a reasonable doubt what the market will do next. You may have a hunch, or a strong edge, but that will only get you so far. Therefore the only thing to do is to always take your edge, because you never know if this will be the windfall profit you are looking for, a small profit, or a loss. And quite frankly, it does not matter!
Lesson 8 Market Outcome Does Not Matter
The outcome of any single trade does not matter. It is very common for traders to become attached to the outcome of this individual trade. This is what leads to emotions, anger and frustration with trading and the market. We get stuck in the mindset that we have to win X amount of profit like 2X risk on this trade, or have to make money every day to be a profitable trader. This is not the case at all. In fact you only have to win one 1 or 2 really good trades out of 10 to maintain a consistent performance.
Any single trade is irrelevant to a trading system or strategy. It is the cumulative result over a series of trades that results in a profit. This is why it is so important to know and only trade your edge, otherwise you introduce randomness into your performance, and are unable to produce consistency.
*If you find this analysis helpful please like! Feel free to comment or ask questions.
Overcoming Emotions and Zen TradingOvercoming Emotions
Most traders want to "overcome" their emotions. They view thoughts and emotions as the enemy which prevents them from succeeding in the market. This is a false perception. Yes emotions and thoughts can lead to actions in the market, but they are impossible to remove. So long as you are human you will have emotions and thoughts. There is an alternative to removing them, and that is to use them to your advantage in the market.
By practicing mindfulness, which is awareness of thoughts, emotions, and perceptions, you can learn to recognize how these affect your trading performance. By recognizing and being aware of them, you have a chance to change the outcome. For instance if you consistently enter poor trades due to fear of missing out. When you become aware of this fear you can learn to stop yourself from entering and avoid the poor trades that hurt your performance.
There is a direct correlation between how you feel about yourself or the market, and how you perform. If you are worried about money you will overly focus on risk or prices going against your position even if only slightly, and likely make a mistake by exiting too soon. Or you do not want to take the loss and will hold the trade too long, hoping the market will let you off the hook with a smaller loss.
What is Zen Trading about?
Zen trading is a mindset of flowing with the market without hesitation, being aware of and trading along side emotions, and making actions intuitively rather than forcefully. A Zen trader remains in a relaxed, effortless state of mind; without any internal struggle. He does not attach his self worth to his performance at any given time, and is unhindered by market outcomes. He acts on his edge when it is present without hesitating, and takes what the market gives him when it is time to do so. He trusts himself, his strategy, and the market to provide him with a consistent performance over time; whether or not he makes money on this trade, today, or this week. He is aware of the bigger picture; the Tao or life, and knows there is more to life than trading or money. Trading is not his life. It is simply something he does to earn a living, and he seeks to maintain a Zen spirit in his trading and actions in the market.
*If you find this analysis helpful please like! Feel free to comment or ask questions.
Lessons from an Experienced Trader #2Lesson 4 Know what you want in the market
Contrary to what most believe, successful traders do not actually trade constantly. Attempting to trade constantly leads to increased commission costs, random trading, and compound mistakes. In fact, successful traders spend most of their time doing absolutely nothing! How long does it take to enter an order? A click of the button. A few seconds. Maybe a few minutes at most to create bracket orders.
So what do Professional Traders do the rest of the time? They wait. They wait until the market offers what they want or are looking for. Then after entering they wait some more to see if they are right. They wait for the market to provide them with the information to either hold, or exit.
They allow themselves to Be, the trade to Be, the market to Be and do what it is going to do. They do not force actions or attempt to make the market do what they want. They wait until the action comes about on its own, until it is natural, a reflex.
If you do not know what it is in the market that you are looking for, you will fold under pressure and confusion. A Professional Trader knows exactly what he wants (not just to make money), he knows what he is looking for in the market, and is willingness to wait for it to arrive. By doing so, he is rewarded and paid by the market for his patience and willing to do nothing. Even if this means not trading for hours, days, or even weeks depending on the time frame.
It is far better to do nothing and avoid unnecessary losses, than to try and create tensions, forced actions, and lose money. You have to ask yourself "What is more important? The actual act of trading, or making money?"
Lesson 5 Define your edge
An edge is what you have defined as being what you want from the market in the previous lesson. This can be anything from a specific setup, to just plain context like a strong market. If you do not know what your edge is, you will struggle to perform consistently due to randomness.
Many new traders, especially those who follow price action, believe they should be able to trade the market no matter what the context is. If you think you are just going to walk in to the market, trade based on whatever the market is doing and make money; you are fooling yourself. Doing so will lead you to trade randomly, entering willy nilly at the market, and make many mistakes which will cost you your profitability.
Do you walk into Walmart or Aldi's without knowing what you want to buy until you get there? No, you have a list of items, or at least an idea of what you need before you go. Do you start a business because you woke up this morning and thought it would be nice to own a car wash? Hopefully not. You first identify an opportunity, and then create a business model after a lot of research. Then finally you open the business.
Of course everyone thinks or says "well so and so does this and that, and he seems to be making money." Sure, maybe he is, maybe not. If he is, he has defined his edge and is simply employing it. What someone else does has absolutely nothing to do with what you should be doing.
Once you have defined your edge, you must wait for it to arrive. If the market is not offering what you want or what your edge calls for, you do nothing until it is. If your edge is a trend trading method and the market is in a trading range, you do not trade until the market is trending.
If you have not clearly defined your edge, you should not trade. If you do not know what it is in the market you want and are looking for, you have no business in the market. Simple as that. If you chose to do so, you are putting yourself at unnecessary risk and trading randomly. Yes this sounds harsh, but it is the reality of the market. The market will not give you anything, especially if you don't even know what it is that you want!
Introduction to Trading PsychologyIntroduction to Trading Psychology
Learning to read a price chart takes a while, but is relatively straight forward. It is obvious learning how to read a price chart alone is not what leads to consistent profits. So, what is it that separates the very few successful traders from the so many failures? Is it their strategy, their money management skills, IQ, were they born with a different skill set than most, do they work harder than most, or are they just plain lucky? All of this sounds plausible, but are they really the driving factor behind consistent profits? The short answer is no, none of the above. Perhaps we have been looking for the answer in the wrong place all along. In fact, most traders never even consider the possibility that it is their attitude or mental habits which prevent their success. What truly separates the winners from the losers has nothing to do with external factors, but rather what goes on internally while observing and engaging the market, or in other words; a trader's mentality.
Trading Psychology 5 Edge ExecutionEdge Execution
Trading is a numbers game, and markets are based on the mathematics of the traders equation. However, understanding this alone will not guarantee profits. The ability to apply and conform to the math of the current market context is what leads to consistent profits. Beginners often have a misconecption that they need to know what is going to happen over the period of the next X number of bars in order to make a profit. They believe they must enter at the exact right time and price in order to win on a trade. This could not be further from the truth, and anyone consistenly making money from the markets knows the reality. The reality is a trader does not need to know what is going to happen next in order to make a profit. In fact, a professional trader knows that any given trade is irrelevant to the bigger picture, and an income is generated over a series of trades; not any single trade. This menatlity is past the duality of winning and losing, which are simply accepted as part of the job. This can be called the "probability mindset."
Profits are generated over a series of trades, not any single trade. Therefore, it is not necessary to make money on every trade, every day, or even every month to be a succesful trader. It takes time to build confidence, believe this is true and fully understand this concept. Perhaps this is why most traders fail, by giving up before coming to this realization. It has been said that professional traders have "Won the game before they started playing." (Jack Swagger). This confidence can only come from the probability mindset, when a trader accepts he may lose on this trade, the day, or even this year. But he accepts his risk, and trusts the math that over time he will generate a profit. Even if he takes a large loss, or several, it does not matter; he knows he will make it back up. The overall point of this is that losses are part of the trading process. If a trade is a loser, it does not matter; move on to the next trade. Dwelling on losses or a drawdown does not bring the money back, but continuing to trade does. In this sense it can be said that a successful trader "trades his way out of a drawdown."
It is helpful to think of losses as the "cost of doing business" just like any other business would incur expenses while conducting its operations. There are very few (if any) businesses that do not require heavy start up costs, or capital to continue the business while generating profits. Ever heard the saying "It takes money to make money?" Trading is no different, although most traders fail to realize this, and focus solely on profits. In trading, our costs are commissions and losses, which are offset by gains, resulting in a net profit.
Employing your Edge
So what does this have to do with exeucting an edge? Well, it is necessary to understand not every trade is a guranteed success, and there is a random distribution between wins and losses, with any edge. Even the best setup or edge will result in a loss 30-40% of the time. It is virtually impossible to know in advance, which trade will win and which will lose. Therefore it is absolutely imperative to take every trade that meets a traders edge, regardless of how the trader feels, thinks, or any other variables unrelated to the edge. With this said, here are the basic steps to exeucting and employing an edge.
1). Identify edge. Pick a setup (second entry, wedge reversal, follow through bar, ect.) It is a good idea to start with one until familiar with reading prices.
2). Ask yourself at the close of every bar "Is my edge present?" If no, wait. If yes, enter the trade.
3). Execute the edge with a series of 10 or 20 trades, document every trade. At the end of the series analyze results and tweak.
Wishing you the best of luck on your trading journey
-Josh Ridenour
Trading Psychology 4 "Now Moment"Trading the "Now moment"
Most of the time, prices do what they have been doing or normally do based on the current context. But what about when they dont, or instead do the opposite? For instance a strong bear breakout of a bull channel. Five minutes ago prices were rallying higher and higher, with no end in sight. Now prices are falling dramatically, what is a trader to do? Is he going to continue trading as a bull channel or trading range? Or does he exit his longs with a loss and sell at the market? Unless he accepts the reality that in a market truly anything can happen and anything is possible, he will more likely be unable to let go of the past and not willing to recognize the opportunity being presented right now. In this scenario he would probably fail to take the later action, and instead continue to fight the strong bear breakout because his mind is convinced prices are still in some form of bull trend or bull flag trading range. Until a trader truly accepts this fundamental point of market reality, it is easy to get caught up in what should happen and the true opportunity continues to elude him.
The reality of the market is; every moment in the market is unique, and every opportunity has a different set of risk, reward, and probability. What worked today, may or may not work tomorrow. Most beginners fail to appreciate or even realize this is the case, as they attempt to apply rigid rules to a constantly changing environment. This prevents a clear, objective view of what prices are likely and not likely to do. As a result, this does not allow the trader to correctly identify the opportunity being presented "right now."
Awareness
A major obstacle to trading the "now moment" is where a traders awareness lies at any given time. Is he thinking about what happened an hour ago, or what may happen by the end of the day, or is he intently focused on what is transpiring in this very moment? Identifying and becoming aware of what is occuring internally while trading is helpful in this situtation. The idea is not to fight or prevent emotions from occuring, but rather acknowledge they are present and inturn may lead to a poor trading decision. Most trading errors are due to an emotional outburst or the traders awareness being somewhere else other than the market. Beathing exercises such as focusing on the breath and taking slow, deep breaths, can help ease the internal tension and return focus back to the market. This is a form of awareness training (mindfulness), which can help a trader with concentration and placing his awareness on the trading task at hand. It is also beneficial to practice some form of mindfulness outside of trading to become more intune with yourself, and ultimately the market.
Trading along side stress / emotions
What makes the difference between an amateur and professional trader is not the lack of thoughts, emotions, or stress. Professional traders too have these characterstics as we are all human, although they may be less obvious to the observer. However, a professional does not act on these feelings, and instead does what is necessary based on the market structure, not how he feels or what he thinks. He may find himself distracted with thoughts or an emotion, but then brings his awareness back to the trading task at hand. Amateurs do the opposite by allowing these feelings and emotions to lead to actions in the market, which more often than not are trading errors. Amateurs get stuck so to speak in the stress or emotion rather than the correct trade action. Moving past this is not easy, but returning awareness to the market rather than internally is the first step. An easy way of accomplishing this is to periodically throughout the day ask yourself "Where is my awareness?" or "Where is my mind?" The next question is, "What is the opportunity being presented right now?” or “What is the market telling me to do right now?”
Continued...
Trading Psychology 3 Fear Keys to building a strong Traders Mentality (Probability Mindset)
There are many hindrences to developing the probability mindset, and it would be easy to write an entire book dedicated to them all. However most of these issues fall into four broader categories; fear, false beliefs, trading the "now moment", and edge execution. In the following paragraphs we will touch on these key issues and simple ways to address them.
Fear
As humans we all experience fear throughout our lifetime and so much so the "fight or flight" response has been genetically enbeded into our DNA. Many traders believe they will natuarlly be able to “trade as a computer” after X amount of practice or experience. They assume these components of human nature will eventually give way and soon they will be able to trade without fear or emotions. There is a problem with this theory. We are not computers, and never will be. We are human, which means we are susceptible to emotions and fear responses that are built into us. We are also far from perfect, and full of mistakes, furthering us apart from computers. With this said, it is extremely unlikely a trader will be able to over-ride his natural insticts without slowly and gradually changing his way of thinking first. The best way to overcome fear is through exposure in small doses. For example someone who is afraid of heights, is not taken to a fifty foot cliff and forced to jump off. And he surely does not overcome this fear spontaneously, or naturally after any period of time. Instead he is slowly exposed to heights and as he gets comfortable, taken to increasingly higher points. He may jump off a ten foot cliff, then twenty, and so on until he reaches the fifty foot cliff and jumps off. It is important to realize his fear was never removed completely, but rather he was able to cope with the fear and still jump. This model can be applied to trading, whether it is slowly building a position size, executing an edge every time it is present, or getting comfortable being in the market with looming uncertainty.
Fear can often be debiliating, and is a major hurdle to overcome when transitioning from an amateur to professional trader. The most common result of fear is "anaylsis paralysis" where a trader is unable to make an action due to information overload. There are many different types of fear that occur while trading. Fear of failure, success, missing out, leaving money on the table, and mistakes, just to name a few. It is normal to feel uneasy when putting on a trade or while in a position. The problem lies within hesitation when fear prevents you from entering an otherwise reasonable trade, or any other necessary market action (take profits, cut a loser, hold longer, ect). If you find yourself not entering a trade, there are only two reasons why. First, the trade does not meet your edge criteria, which is a completley valid reason to not enter a trade. The second which is a problem, is fear. When a trader stops entering trades meeting his criteria due to internal fears, he begins to cherry pick trades, and skews his traders equation. This can mean the difference between a profit and a loss at the end of a series of trades. Understanding and recognizing fear within yourself and the market is vital to profitable trading. Awareness of fear within yourself is the first step to overriding and correcting it. And recognizing fear in the market is often a good opporunity to position a profitable trade. It can also be helpful to realize fear only exists in terms of one's ego and is not actually real, only percieved.
Using "Halfsky" position to overcome fear
Many traders experience fear and hesitation after a series of losing or winning trades. When he passes on a trade which works, he is upset he missed out. If he enters and loses, he is upset he gave back profits. This back and forth continues to build, and again leads to cherry picking trades as he believes he can identify w
Trading Psychology 2 How Strong is your Trading Mentality?How strong is your Trader Mentality?
Signs of an "Amateur Mindset"
If you identify with any of these characteristics while trading, you are suffering from an Amateur Mindset. These are normal when first learning how to trade, and even common in advanced traders who have not yet mastered their trading psychology. Very succesful traders may still occasionally experience some of these symptoms while increasing positions, but as far as day to day, do not.
Hesitation to enter positions meeting edge criteria
Fail to exit trades not performing to expectations
Feelings of fear (missing out, failure, success, leaving money on the table, etc.)
Upset/mad when prices go against you or happy / relief when prices go your way
The market is too painful to watch (pain avoidance)
Market actions led by emotions / feelings / stress
Forms and applies rigid rules for entry / exiting market
Afraid to make mistakes / upset after mistakes
Signs of a "Probability mindset" or Professional Trader
Enters or exits trades without hesitation
Does not experience internal conflict while entering, or managing trades
Willing to take a loss (accepts his risk)
Flows with the market seemingly effortlessly
Not attached to outcome of any trade
Emotions / stress do not lead to market actions
Enters / exits however necessary
Accepts mistakes and moves on
Interestingly, it is easy to separate a professional trader from an amateur, not based on profits or losses, or the amount of ticks he makes a day; but based on his actions in the market. By observing how a trader interacts and engages with the market it is obvious if his actions were led by emotions or intuitively based on what the market told him to do at the time. Professionals flow with the market, and do not fight or resist it in any way. As a result money seems to flow effortlessly into their accounts, and their equity curve is that of a healthy bull trend. Amateurs are constantly fighting the market and themselves, with actions led by what they think, perceive as a threat, or the false belief that they know what is going to happen next. The outcome is a slowly depreciating account balance, and an equity curve that is flat or in a bear trend. The later is a sign of trading errors made by the trader and not that of an edge being executed properly.
Continued...
Trading Psychology Introduction to Trader Psychology
There is evidence of technical analysis dating back to the 17th century. The candlestick charts most of use everyday to trade were created in the 18th century by a Japanese rice trader. By this point one would think technical analysis should result in more profitable traders and lead atleast a quarter of price technicians to a profit. However, this is not the case and in fact the opposite is true as most traders fail, even after years of studying price action. With this said, it is obvious learning how to read a price chart alone is not what leads to consistent profits. So what is it that seperates the very few succesful traders from the so many failures? Is it their strategy, their money managament skills, IQ, were they born with a different skill set than most, do they work harder than most, or are they just plain lucky? All of these sound plausible, but are they really the driving factor behind consistent profits? The short answer is no, none of the above. Perhaps we have been looking for the answer in the wrong place all along. In fact, most traders never even consider the possibility that it is their attitude or mental habits which prevent their success. What truely seperates the winners from the losers has nothing to do with external factors, but rather what goes on internally while observing and engaging the market, in other words; a traders mentality.
"If the next bar is a bull follow through bar, the bulls have a 60% chance of making a profit. If the next bar is a bear bar that means....." Absolutely nothing! Unless you can structure a trade plan, and abide your plan as the market unfolds, without questioning yourself or your plan, and execute it flawlessly. Most beginning traders believe if they study harder and learn more setups, they will eventually become profitable. This is the fallacy of price action analysis. In fact, most economists and price analysts do not make good traders. Why? Because they form rigid rules and ideas as to what prices should or will do, and in turn fail to recognize and accept the "now opporutinty" the market is offering to traders who are open to all possibilities, including a lower probability event. Even more debilitating is the false belief that they can pick out winning trades, and avoid the losers, which leads to cherry picking through a traders edge.
If the market spends most of its time with a probability between 40-60%, why is it so hard to generate a consistent profit? Understanding prices and their tendencies is only half the battle of becoming a Professional Trader. The other half and harder to develop, is the traders mindset. What makes a good trader is not only his knack for reading prices. It is the ability to flow with the market as it is unfolding, and the art of doing the right thing at the right time; without questioning himself. If the market is only offering X amount of profit, he takes it. If the market is unfolding in a way that he did not expect, he exits. He is willing to take a loss, and more importantly does not care what happens to "himself" in the market. He does not take it personally, and carries on throughout the day executing trade after trade.
Continued...
