What’s your favourite piece of market wisdom?
It’s a bit of a brain-tangling paradox, but here’s mine…
“An act of self preservation in the ‘normal’ world can have the exact opposite effect when you’re trading.”
Think about it…
We come naturally hard-wired to grasp ‘lucky’ finds. We get an overwhelming urge to stash easily won loot before anyone else notices.
It’s probably some kind of evolutionary throwback
After all, stumble across a couple of tasty dinosaur eggs and you’d best tuck them away to feed your family before the next guy fights you for them.
Unfortunately this approach is not so effective in the markets. Quickly close out trades that move into early profits and you can deny yourself over the long term because those are the times the market can reward you is a big way for your good timing. It goes against your primal nature to do so, but letting those trades run can often swell your account significantly.
Or how about the times your trade moves against you and shows no sign of recovering?
A ‘never say die’ approach may be rewarded in the outside world. Have the courage to dig deep when your back is against the wall and it might be the difference between your business thriving or folding.
But use the same tactics in the markets and you can literally bleed yourself to death. No matter how stubborn you are, there’s only ever going to be one winner – the market!
And it can be tough to come to terms with this apparent paradox… but the markets are just so different to any other commercial environment.
An academic education can’t prepare you for it. Not really.
Sure, you can swot up on the theory. But it’s not until you feel your heart beating through your chest as your first big position takes off that you really understand the true emotional aspect of trading.
And the markets are so unlike any other workplace…
They are always changing minute-by-minute, in a constant state of perpetual motion, without any true structure. The markets roam pretty much wherever they like. It’s one huge never-ending event without a cap on the money that can be made (or the losses that can be incurred).
There’s really nothing else like it.
The trouble is most people associate a safe, static environment with feelings of security and well-being. And there’s absolutely nothing wrong with that at all. It’s just the markets aren’t the place to find it!
By definition, a safe, static environment does not give you the opportunity to make thousands of pounds in a matter of seconds with very little physical effort.
This reality really doesn’t sit well with most people’s sense of identity. They see themselves as steady £X/per hour kind of guys. Again nothing wrong with that at all, it’s just when a true windfall of profits lands in a trader’s account his deep-seated self-image can tell him he doesn’t deserve that money. He’ll often end up losing it as quickly as he earned it without understanding what just happened.
Subconsciously we all stay true to the image we hold of ourselves.
It’s why you hear those stories of lottery winners ending up bankrupt within a couple of years. Their suppressed self-image just cannot handle being so far out of line with the pleasant reality of being a multi-millionaire. Circumstances will change to remove that internal conflict. And as they’re boarding up the windows to a repossessed mansion, the poor winners stand scratching their heads, trying to figure out where it all went wrong.
So the ‘normal’ rules of expending time and effort to earn a proportionate reward do not apply to trading.
In order to prosper as traders we need to think differently. And it might mean unseating some long held beliefs about yourself too.
I’ve been having a think about this and I’ve made a short list of steps to take and the skills to learn in order to accelerate success in the markets. Here’s what I came up with…
The 7 steps to accelerated trading success
1) Learn how to visualise appropriate goals. You’ve got to be able to see yourself trading profitably before you can truly accept it as your reality. Get hold ofPsycho Cybernetics by Maxwell Maltz for a menu of visualisation exercises. Choose your favourites and do them. Every day!
2) Identify the technical trading skills you need to improve. Learn to work on perfecting those processes instead of thinking about the money. The money will follow as a by-product of performing the right actions at the right time.
3) Learn to adapt to changing market conditions. It’s no use stubbornly trying to bang a square peg in a round hole. Learn the tell-tale signs of a trending market versus a range-bound or congested market. Make sure you know which particular methods from your toolbag work best in current conditions.
4) Learn to work with your exposure to risk. The first step is the ‘Sleep Soundly Test’. Make sure your intraday trading activities or overnight held position do not keep you awake worrying. Once you’re at that stage, start to steadily increase exposure as your account grows. You need the ability to grow your account through incrementally larger trades (all while keeping stress levels under control and maintaining an unbiased opinion on the market’s comings and goings).
5) Learn to pull the trigger fearlessly. In other words, fear can have no place in your trading activities. If your strategy says make the trade, you must make the trade. Remember, no one knows for sure what’s going to happen next, it’s all about playing the probabilities. And you’ve got to be in it to win it!
6) Learn to let the market tell you when enough is enough. Remember not to choke those trades that break out quickly in your favour. Try to incorporate a trailing stop mechanism on at least part of your position. This means you get to participate in those big moves you time just right.
7) Learn to maintain an objective outlook. Try to keep an unbiased analysis of the market. It’s not so easy to do when you’re committed to a trade. You tend to see things through the distorted lens that your own self-interest creates. But keeping your wits about you and not being blinkered to the reality of current conditions is the mark of a master trader.
Be Prepared: Market Moving Data Coming This Week (London Time)
Wednesday 18th May
09:30 GBP Average Earnings Index
09:30 GBP Claimant Count Change
10:00 EUR Consumer Price Index
15:30 USD Crude Oil Inventories
19:00 USD FOMC Meeting Minutes
Thursday 19th May
02:30 AUD Employment Change
09:30 GBP Retail Sales
13:30 USD Philly Fed
Friday 20th May
15:00 USD Existing Home Sales
Monday 23rd May
No big reports
Tuesday 24th May
07:00 EUR German GDP
08:30 EUR German Manufacturing PMI
10:00 EUR German ZEW Economic Sentiment
15:00 USD New Home Sales
Not too much on the reports calendar this week… keep an eye on the Fed meeting minutes Wednesday evening and I’ll catch you again next time.