Mindset

Discussion in 'Trading' started by Joe Ross, May 10, 2010.

  1. I often write about mindset, attitudes, psychological hangups and emotional problems that plague traders. The following is from a friend on mine, Noman Hallett, who has delved deeply into such matters.

    “It occupies a chapter in just about every trading book ever written. It’s been preached by every lecturing market guru since the Aden Sisters danced to the music of the gold market.

    “Go ahead and hire a personal trading coach and likely the second thing he or she will utter will be these chosen words (right after “Futures trading is speculative and only risk capital should be used.”)… and those words are, “Limit your losses and let your winners run”.

    “OK. We’ve been told.

    “But you didn’t have to tell us. It makes perfect sense. ‘On a roll’…

    ‘Go with the flow’… ‘Ride the wave’… ‘Get out while the getting’s good’… we’ve heard both sides of those golden words massaged in numerous different phrases. We get it.

    “During my trading and coaching days, I would re-visit students that I trained weeks or months previously and low and behold I would discover that many of them were actually doing the opposite... letting their losses run and limiting their gains.

    “After a while I wasn’t surprised… I would go into a refresher visit EXPECTING to see ‘limit/run rule’ repeatedly ignored.

    “I would ask the students ‘Why?’... There were many different stories but one main theme… all the traders, in some way, had gotten out of emotional control.

    “During their trainings, I had made sure that they had done extensive back-testing on their systems and I did that because I knew that the more they tested and saw that their system would have been successful, the more they would TRUST in the system and have the strength the follow its signals, especially through rough periods.

    “Apparently, simply back-testing, and seeing ‘would-have-been’ results wasn’t enough to keep these traders in emotional control. What I had been missing was that these traders were taking the losing PERSONALLY!

    “These new traders had been seeing losing trades as reasons to let negative thoughts into their heads. A loss would mean that all the articles they read about ‘gambling’ traders may be true. All the family accusations that they were crazy traders … well, that could have some merit!

    “This kind of negative thinking (as well as other forms of related negative thinking) makes it so you don’t want to take a loss. If you take a loss, maybe you’re that much closer to that idiot trader that you’ve been accused of.

    “So you enter a trade (after, say, coming off a losing trade) and it starts to go south. As the market heads for your stop, you start looking around at the news, or a chart of a ‘sister’ market that’s showing strength, searching for an excuse to make it OK to lift your stop.

    Found it.

    “… Cancel the trade.”

    Stop Canceled.

    If the market comes back, you’ll be the smart guy or gal that made the right move and turned a loser into a winner. What you really just did, however, is turn a potential winner into a potential loser.. YOU. You may have had a winning trade, but you will lose in the end. You learned the wrong lesson.

    It’s not about YOU. It’s about THE MARKET. If you don’t take your emotions out of it, you don’t have a shot. You must see yourself as a trader not someone who is becoming a trader.

    There’s very little room for mistakes in your trading. Leverage makes sure of that.

    If you are going to play in the Big League, you have to do act and do what the Big Leaguers do… right from the beginning.

    Do all you practicing on the paper-trading playing field. Once you put your money up, you either do what your tested system tell you to do or pick a different profession.

    If you’re not training mentally, you’re not giving yourself the best chance laughing in the face of your relatives!