Slay Your Trading Giants
They’re waiting for you when you wake up. They may have prevented you from sleeping at all.
They might come around before the opening bell, and sometimes they won’t leave even after the closing bell rings.
If you don’t skip a trade because of them, then you’re likely to hear them after your order gets filled.
They are your trading giants, filling your head with anything but confidence, and you must overcome them if you’re going to make it in this business!
If you let them, they’ll prevent you from achieving the success you know you deserve. They can even sabotage your good days by spooking you into taking profit too soon. They’re anything but helpful…..
“I should be trading better in this market….. I should have caught that move! ….. I should have already made “X” dollars this year.”
We’ve all dealt with those voices at one time or another that tell us we’re behind where we should be…..for the day, for the month, for the year, (or worse) for our trading career.
It’s best to just ignore them and stick with what you know you should be doing – trading the best setups in the direction of the stock’s trend. Listening to your trading giants will do you no good. Listening makes you force trades to try to get something going, usually at precisely the wrong time. Listening to them takes you out of your groove to where you’re focusing on the dollars rather than the trades. Swapping your concentration for the negative thoughts of your trading giants is the worst trade you can make on any given day.
Keep it in Perspective
I just read To-do’s latest post at Market Watch and although I was already somewhat familiar with his story, reading it was 5 minutes very well spent.
He wrote it at a good time for a lot of traders caught on the wrong side of the market lately, so if that’s you be sure to check it out. His perspective is honest and clear….. “be careful what you wish for,” he even warns. At the end of the day, he’s dead right. Regardless of what you’ve made (or lost) as a trader, you’re going to need people by your side to make it even halfway worthwhile.
If you’re struggling right now, keep things in perspective. Scale back your trading and avoid the losing streak by any means possible. And then remember once that closing bell rings that there’s a lot more to life than the flickering ticks as To-do would say.
And if you’re thriving right now, be sure to appreciate it with a greater intensity than you would hate it if you were struggling. Keep it rolling and maintain your focus when the market’s in motion. And once again, remember that when the closing bell rings, there’s a lot more to life to enjoy than some good trades. Surround yourself with good people and spend some time creating something that will last.
It’s A Fine Line
I was reading this article on trading with conviction recently and it got me thinking about the fine line between having conviction in your trade and having respect for the market.
While I wholeheartedly agree that successful trading does require conviction in your decisions, that element alone will not make you a great trader. There are plenty of times when it’s best to respect the market and allow that to override (or at least influence) your strong belief in a trade.
Take last week as an example. The market had been pounded and stocks were getting cheaper by the day. You may have gotten a strong sudden urge to start buying during the fire sale, but a respect for the downside momentum ought to have talked you out of it, allowing you to wait for a lower-risk entry. Waiting for confirmation that a turn is taking place is always wise. It’s one thing to start building a position into weakness which you intend to hold for a long time (like a position in an index-based ETF for your IRA account), but it’s a different mentality altogether to throw caution to the wind and insist that your timing is perfect and you are 100% correct to go all in, hoping for a home run trade.
So the next time you have strong feelings about a trade, be sure to consider the other side of a trade and have some respect for the market. Either you give the market respect, or it will demand it from you! Taking a look at the opposing side just might lead to an adjustment in your position sizing to reduce some risk, or it could leave you feeling even stronger that it’s time to trade aggressively. Whatever you decide, be sure to stick with your plan once you’ve made it!
Get A Grip!
How’s your grip on your emotional swings in trading? Are you able to narrow your focus when things start to go your way? Are you able to walk away (if even for a short time) when you recognize that you’re making mistakes? If a fly on the wall were to observe you during the day or during the week, what would he see when it comes to your self-control over your emotions?
Making and losing money (trading) inevitably stirs up some emotions within us. Whether it’s the pain and frustration of a losing trade stopping you out, the excitement of money flowing into your account by way of that trade you just nailed, or the uncertainty of that new position you just entered, trading can easily put logic on the backburner if you let it.
Few people are able to channel their raw emotions into their best state of performance. Michael Jordan and Tiger Woods come to mind. We’ve probably all seen them get a little miffed at a competitor or themselves, put on their game face, and just get hot instantly. However, the majority of people don’t have that ability, so removing as much emotion as possible is the best bet when it comes to damage control and staying cool under pressure.
Keep tabs on your emotions and take note of the times they help you and when they hurt you. If you find yourself digging a deeper hole when you get frustrated, then employ some logical steps to avoid repeating this mistake. If on the other hand you find your good days getting great as a result of your narrowed focus, then maybe you’ve got that special edge so many traders lack!
Trend Lines Often Need Adjustments
Minor bumps along the way often require slight adjustments in trend lines.
Technical analysis offers a number or tools and indicators to apply to charts in order to better determine buy and sell areas. Some traders have hard-and-fast rules regarding their analysis tools (and I’m a big proponent of having trading rules in place), but there are parts of technical analysis which do require some ongoing flexibility.
Trend lines are the tool I use the most in my trading and charting, and they definitely require keeping an open mind. Drawing trend lines and trading effectively with them is certainly more of an art than a science, because they can morph over time. While a trend line can be defined as a straight line connecting at least two relative highs or relative lows, what’s often left off of the description is that they frequently need to be refined.
The first time I draw a trend line, I usually consider it to be a rough draft. That means I’m willing to adjust it slightly as the chart pattern begins to mature and time goes by. The more times that price bars touch a trend line, the more valid it becomes. However, not every break of a trend line leads to another meaningful move in price. Therefore, if price pierces the trend line slightly but there’s no change of character in the underlying stock (or index or futures), that’s my signal that the break is of less significance and I’ll likely need to adjust my trend lines.
My aim is not to be perfect the first time I set a trend line. What I want is to have something valid I can trade from, as that will not only increase my confidence in the trade but also my profitability over time.
Technical analysis tools exist to help us, not bind us as traders! Trend lines are usually a work in progress and therefore rarely set in stone. Keep this in mind if you use them in your trading, and try to be sure that something meaningful is occurring when you see a trend line being broken. If the volume is up or the momentum is building, you can take the trade with much greater confidence.
Seeing the Future?
It would be nice to have a crystal ball. But that’s not what trading is all about. Timing is everything. Although we might accurately predict the next move of a stock or the market itself, as traders we must still place the corresponding orders to enter and exit positions at the right times and in the right directions in order to profit. Simply understanding the direction to trade in won’t help you near as much as knowing when to get in and when to get out.
While I think it’s important to be able to locate and use chart patterns and technical analysis for trading, I sure don’t think a trader’s ability to tell the future (or backrest the past) will make him a profitable trader. Chart pattern recognition is certainly helpful to traders, but what about execution? What about psychology and knowing when to ride out a pullback versus recognizing a reversal and knowing when to bail out? The learning curve can be steep. Some things you just have to learn by trading.
Don’t get tied up trying to hone your prediction skills! Every trader is going to go through times of being right and being wrong. Successful trading is about damage control when you’re wrong and pressing it when you’re right. What’s most important is staying in sync with the market and adjusting your trading size and frequency at the right times in order to maximize your profitability.