The Right Attitude

“Whether you think you can or think you can’t you’re right.” Henry Ford

Much has been said about how one’s attitude can determine one’s outcome. Time and time again this has proven to be true.

“The last of the human freedoms is to choose one’s attitude in any given set of circumstances.” Viktor E. Frankl

For traders, the fact remains that a positive attitude creates positive expectations which lead to positive results. The opposite is also true – a negative attitude creates negative expectations and therefore leads to negative results. Either way, these emotions and attitudes will determine your actions.

Your trading success will be based on accepting the fact that losses are a part of trading and in spite of that, you will remain confident to execute trades and follow the rules of your trading plan. That is the blueprint for profitable trading in a nutshell.

Your confidence will grow as you learn what works and what does not. The more you begin to repeat what does work, you will become disciplined to ignore what does not. Your confidence will grow as you begin to believe in your ability to focus on what works, take the correct action over and over again, and accept the outcome. This positive growth pattern will diminish the fear, remove the emotional investment and lead to consistent action.

Consistent action can only come when you accept both emotionally and financially that losses are a part of trading.

Notice others that participate in highly competitive fields – professional sports for example. They accept the risk of a loss before ever stepping on the field of play and still expect to win – that is, they have a positive attitude.

Imagine how crippling it would be if every time the team lost, they gave up, or let the loss devastate them emotionally to the point where they expected to lose or could not bring themselves to even go back on the field (a negative attitude, to say the least.) They know they cannot change the past – so why dwell on it. They know that one game, or one contest, is just one of many they will compete in, so why let one result determine the outcome of the others.

They know that to win, they must quickly recover from a loss. They evaluate what worked and what didn’t, make adjustments to their plan, and prepare for the next contest – all with the positive expectation (confidence) that they will win the next time, execute their plan, and not repeat the same mistakes.

It’s the same in trading. Starting off with the right attitude, knowing losses (assumption of risk) are part of the game and shaking off mistakes are all essential if your goal is to be a consistent winner.

‘Winning traders learn from mistakes, losing traders repeat them.” Jason Stapleton

Be positive, stay positive, learn from your mistakes, follow your plan and accept the responsibility and risk that comes with being a winning trader.

What are your techniques or strategies for staying positive after a loss. How long did it take for you to accept that losses are a part of trading? What keeps you focused and optimistic?

Make a list and reinforce those insights.

Rick

It’s Not Witchcraft, It’s Fibonacci

From the July 2013 Issue of Futures Magazine (illustrations not included)

It’s Not Witchcraft, it’s Fibonacci by Billy Williams

Fibonacci numbers are almost as familiar to traders as they are to mathematicians, but they have not been used as effectively in the markets. In many ways, this failure to fully utilize Fibonacci analysis is because of a focus on its application with respect to support and resistance, where it is less effective.

Instead, there are ways to use Fibonacci’s measures of price retracement to peer into price action and better understand the strength of a price move. Employing this practical application of Fibonacci retracements can complement a trading approach as well as serve as a standalone method for identifying pullback entries.

Another powerful aspect of Fibonacci trading is that retracement levels are robust. They can be used in day-trading, swing trading and investing in all markets: Grains, forex, stocks, Treasuries and other commodities. Their measurements are relative and adjust to whatever market and time frame you are using.

A reliable set of guidelines will define the characteristics of key retracement levels so that they offer a practical way to gauge where price is likely to rise and where it is likely to fall. Based on those terms, any price reaction at these levels can help you determine profit targets and areas where caution is advised because of possible weakness. We’ll demonstrate some of these techniques using a grain-based exchange-traded fund (ETF) and equity ETFs; however, these methods are applicable across markets.

Voodoo & prophecy
In its most basic form, a retracement is a price move in the opposite direction of the most recent price move.

Price does not magically reverse at Fibonacci retracement levels and these points are not the Holy Grail of trading. Instead, they are a signpost for a possible destination that acts as a guide for price movement. A lot of things can happen on price’s journey, but Fibonacci helps point its likely path.

While some investors look at Fibonacci numbers as the equivalent of reading tea leaves or fortune telling, the reality is that they have their place in a skilled trader’s arsenal of technical analysis. If for no other reason, Fibonacci levels deserve attention because they are so popular among traders. Like a self-fulfilling prophecy, when price scales back, many institutional and retail traders alike take notice of where price is in relation to the Fibonacci retracements.

However, while it’s important to be aware of Fibonacci levels, it is vital that you view and apply them differently than the vast majority of traders.

There are two retracement levels that deserve the majority of your focus: The 38.2% and 61.8% Fibonacci retracement.

As price trades near each of these levels, a reversal or inflection point often will materialize. In a Fibonacci retracement, the reversal point is where price halts its pullback and resumes trading in the direction of the original price move. At the inflection point, price weakness is revealed and the market could fail to gain a foothold to reestablish the original trend.

These two concepts form the cornerstone of using Fibonacci retracements and are key to unlocking the door of successful price interpretation that can lead you to picking low-risk setups. This will serve as a reference when sizing up turns in price that occur within these retracement levels to measure how strong the preceding price move, or trend, was previous to the pullback.

While opportunities exist with each retracement level, these are general guidelines and broad target areas, not exact points.

For a 38.2% retracement level, the guidelines are:

• If price holds at the 38.2% retracement level, the prior move is considered to be strong. As a result, the counter move should be strong.
• A 38.2% retracement after a strong advance typically is followed by a move to a new high.
• A 38.2% retracement after a strong decline typically is followed by a move to a new low.

For a 61.8% retracement level, the guidelines are:

• If a stock experiences a 61.8% retracement, the prior move is considered weak (or near its end). As a result, the counter move should be weak.
• A 61.8% retracement after a strong advance often leads to a move with a one-in-three chance of exceeding the prior high. The same also applies in reverse.
• The first retracement after a strong up move is considered a buy most of the time, but you need to consider exiting a trade as price nears its previous high or low.

These guidelines act as a safeguard to keep your own emotions under control to prevent any euphoric anticipation of a runaway move or sense of overwhelming fear of a losing trade. Keeping your personal expectations in check will preserve your objectivity and prevent you from projecting those feelings into your trading.

Staying accurate
For beginners, it can be maddening to attempt to use Fibonacci retracements to achieve any kind of real clarity on price points and future price movement. Often, new traders simply draw retracements from every angle, resulting in a price chart that is so littered with Fibonacci retracement levels that it looks more like graffiti than sound technical analysis. In the end, measuring Fibonacci retracements incorrectly can do more harm than good.

It’s important to understand that price highs and lows are relative to retracements when calculating retracement levels. That said, it’s important to look for a strong move without a significant pullback to the 38.2% or 61.8% level. If price pulls back slightly without touching any of those levels and goes on to make a new high or low, then adjust your measurement to account for it. This keeps your measurement of these levels in sync with the dynamics of the market, which are constantly in flux.

When one of these key levels is touched, you are looking for some kind of reaction as this level becomes a pivot. You are looking for support/resistance levels to be established, for a trend to resume or the next Fibonacci level to be tested.

It’s common to look for advice on how an average trader can be successful in today’s market; the answer is not to be average. Average traders lose money, while exceptional traders take money from average traders.

One way not to be average is to examine common technical tools in depth. Cookie-cutter analysis of Fibonacci retracements fails to provide the value add needed for consistent signals over time.

Fibonacci numbers are used pervasively by traders, but the real benefit is looking beyond common beliefs and realizing they are better employed to size up other traders, just as a good poker player doesn’t play his cards, but plays the other players. Measuring the strength of Fibonacci retracements can help you glean insight into what comes next.

Billy Williams is a 20-year veteran trader and publisher of www.StockOptionSystem.com, where you can read his commentary and a report on the fundamental keys for the aspiring trader.

An interesting perspective and some food for thought.

Rick

The Power of Positive Thinking

How Positive Thoughts Build Skills, Boost Health, and Improve Work by James Clear

Positive thinking sounds useful on the surface. (Most of us would prefer to be positive rather than negative.) But “positive thinking” is also a soft and fluffy term that’s easy to dismiss. In the real world, it rarely carries the same weight as words like “work ethic” or “persistence.” But those views may be changing.

Research is beginning to reveal that positive thinking is about much more than just being happy or displaying an upbeat attitude. Positive thoughts can actually create real value in your life and help you build skills that last much longer than a smile. The impact of positive thinking on your work, your health, and your life is being studied by people who are much smarter than me. One of these people is Barbara Fredrickson.

Fredrickson is a positive psychology researcher at the University of North Carolina and she published a landmark paper that provides surprising insights about positive thinking and its impact on your skills. Her work is among the most referenced and cited in her field and it is surprisingly useful in everyday life. Let’s talk about Fredrickson’s discovery and what it means for you…

What Negative Thoughts Do to Your Brain

Play along with me for a moment. Let’s say that you’re walking through the forest and suddenly a tiger steps onto the path ahead of you. When this happens, your brain registers a negative emotion—in this case, fear. Researchers have long known that negative emotions program your brain to do a specific action. When that tiger crosses your path, for example, you run. The rest of the world doesn’t matter. You are focused entirely on the tiger, the fear it creates, and how you can get away from it.

In other words, negative emotions narrow your mind and focus your thoughts. At that same moment, you might have the option to climb a tree, pick up a leaf, or grab a stick—but your brain ignores all of those options because they seem irrelevant when a tiger is standing in front of you. This is a useful instinct if you’re trying to save life and limb, but in our modern society we don’t have to worry about stumbling across tigers in the wilderness. The problem is that your brain is still programmed to respond to negative emotions in the same way—by shutting off the outside world and limiting the options you see around you.

For example, when you’re in a fight with someone, your anger and emotion might consume you to the point where you can’t think about anything else. Or, when you are stressed out about everything you have to get done today, you may find it hard to actual start anything because you’re paralyzed by how long your to–do list has become. Or, if you feel bad about not exercising or not eating healthy, all you think about is how little willpower you have, how you’re lazy, and how you don’t have any motivation.

In each case, your brain closes off from the outside world and focuses on the negative emotions of fear, anger, and stress—just like it did with the tiger. Negative emotions prevent your brain from seeing the other options and choices that surround you. It’s your survival instinct.

Now, let’s compare this to what positive emotions do to your brain. This is where Barbara Fredrickson returns to the story.

What Positive Thoughts Do to Your Brain

Fredrickson tested the impact of positive emotions on the brain by setting up a little experiment. During this experiment, she divided her research subjects into 5 groups and showed each group different film clips. The first two groups were shown clips that created positive emotions. Group 1 saw images that created feelings of joy. Group 2 saw images that created feelings of contentment. Group 3 was the control group. They saw images that were neutral and produced no significant emotion. The last two groups were shown clips that created negative emotions. Group 4 saw images that created feelings of fear. Group 5 saw images that created feelings of anger.

Afterward, each participant was asked to imagine themselves in a situation where similar feelings would arise and to write down what they would do. Each participant was handed a piece of paper with 20 blank lines that started with the phrase, “I would like to…” Participants who saw images of fear and anger wrote down the fewest responses. Meanwhile, the participants who saw images of joy and contentment, wrote down a significantly higher number of actions that they would take, even when compared to the neutral group.

In other words, when you are experiencing positive emotions like joy, contentment, and love, you will see more possibilities in your life. These findings were among the first that proved that positive emotions broaden your sense of possibility and open your mind up to more options. But that was just the beginning. The really interesting impact of positive thinking happens later…

How Positive Thinking Builds Your Skill Set

The benefits of positive emotions don’t stop after a few minutes of good feelings subside. In fact, the biggest benefit that positive emotions provide is an enhanced ability to build skills and develop resources for use later in life. Let’s consider a real world example.

A child who runs around outside, swinging on branches and playing with friends, develops the ability to move athletically (physical skills), the ability to play with others and communicate with a team (social skills), and the ability to explore and examine the world around them (creative skills). In this way, the positive emotions of play and joy prompt the child to build skills that are useful and valuable in everyday life.

These skills last much longer than the emotions that initiated them. Years later, that foundation of athletic movement might develop into a scholarship as a college athlete or the communication skills may blossom into a job offer as a business manager. The happiness that promoted the exploration and creation of new skills has long since ended, but the skills themselves live on. Fredrickson refers to this as the “broaden and build” theory because positive emotions broaden your sense of possibilities and open your mind, which in turn allows you to build new skills and resources that can provide value in other areas of your life.

As we discussed earlier, negative emotions do the opposite. Why? Because building skills for future use is irrelevant when there is immediate threat or danger (like the tiger on the path). All of this research begs the most important question of all: if positive thinking is so useful for developing valuable skills and appreciating the Big Picture of life, how do you actually get yourself to be positive?

How to Increase Positive Thinking in Your Life

What you can do to increase positive emotions and take advantage of the “broaden and build” theory in your life? Well, anything that sparks feelings of joy, contentment, and love will do the trick. You probably know what things work well for you. Maybe it’s playing the guitar. Maybe it’s spending time with a certain person. Maybe it’s carving tiny wooden lawn gnomes.

That said, here are three ideas for you to consider…

1. Meditation: Recent research by Fredrickson and her colleagues has revealed that people who meditate daily display more positive emotions that those who do not. As expected, people who meditated also built valuable long–term skills. For example, three months after the experiment was over, the people who meditated daily continued to display increased mindfulness, purpose in life, social support, and decreased illness symptoms.

Note: If you’re looking for an easy way to start meditation, here is a 10–minute guided meditationthat was recently sent to me. Just close your eyes, breathe, and follow along.

2. Writing: This study, published in the Journal of Research in Personality, examined a group of 90 undergraduate students who were split into two groups. The first group wrote about an intensely positive experience each day for three consecutive days. The second group wrote about a control topic. Three months later, the students who wrote about positive experiences had better mood levels, fewer visits to the health center, and experienced fewer illnesses. (This blew me away. Better health after just three days of writing about positive things!)

Note: I used to be very erratic in my writing, but now I publish a new article every Monday and Thursday. I’ve written more about my writing process and how you can stick to your goals in this article.

3. Play: Schedule time to play into your life. We schedule meetings, conference calls, weekly events, and other responsibilities into our daily calendars… why not schedule time to play?

When was the last time you blocked out an hour on your calendar just to explore and experiment? When was the last time you intentionally carved out time to have fun? You can’t tell me that being happy is less important than your Wednesday meeting, and yet, we act like it is because we never give it a time and space to live on our calendars. Give yourself permission to smile and enjoy the benefits of positive emotion. Schedule time for play and adventure so that you can experience contentment and joy, and explore and build new skills.

Happiness vs. Success: Which Comes First?

There’s no doubt that happiness is the result of achievement. Winning a championship, landing a better job, finding someone you love — these things will bring joy and contentment to your life. But so often, we wrongly assume that this means happiness always follows success.

How often have you thought, “If I just get ___, then I’ll be set.”

Or, “Once I achieve ___, I’ll be satisfied.”

I know I’m guilty of putting off happiness until I achieve some arbitrary goal. But as Fredrickson’s “broaden and build” theory proves, happiness is essential to building the skills that allow for success. In other words, happiness is both the precursor to success and the result of it.

In fact, researchers have often noticed a compounding effect or an “upward spiral” that occurs with happy people. They are happy, so they develop new skills, those skills lead to new success, which results in more happiness, and the process repeats itself.

Where to Go From Here

Positive thinking isn’t just a soft and fluffy feel–good term. Yes, it’s great to simply “be happy,” but those moments of happiness are also critical for opening your mind to explore and build the skills that become so valuable in other areas of your life. Finding ways to build happiness and positive emotions into your life—whether it is through meditation, writing, playing a pickup basketball game, or anything else—provides more than just a momentary decrease in stress and a few smiles.

Periods of positive emotion and unhindered exploration are when you see the possibilities for how your past experiences fit into your future life, when you begin to develop skills that blossom into useful talents later on, and when you spark the urge for further exploration and adventure. To put it simply: seek joy, play often, and pursue adventure. Your brain will do the rest.

Are You Over Trading?

Traders . . . Take a look back at the pairs on your platform and markets you trade. Get a sense of the average amount of signals you get per week – especially the rock solid ones that rigidly meet your rules for entry requirements and have additional confirmation patterns (double tops, divergence, etc.) associated with them. Take note of the number of these set ups, on what day, in which session they occur, and at what time in each session. If you’ve done your backtesting, this should not be difficult to revisit.

You will begin to notice patterns. You will also begin to notice, especially when trading multiple pairs; there are more than enough opportunities to make a living. For every three trades I take, I miss ten others. It takes a while, but you will learn to get over the regret of missed opportunities – because in trading, compared to other businesses, the opportunities are infinite. You can’t change the past, so worrying about missed trades is a waste of time.

Let’s do some quick math. On an 8 pair portfolio on the 1 Hr time frame there is an average of 30 signals per typical week for my trade plan for between 50 and 100 pips each. On average, 20 or so of these occur during the times I trade – London and New York. If I caught 4 trades, had a 1:1 risk/reward and lost 25% of those trades, with an average of 50 pips net profit per winning trade that would be 100 pips per week. (3 winners for 50 pips each and one loser at -50 pips = net 100 pips.) On a full lot that is $4000.00 per month USD (400 pips x $10 per pip = $4,000.) That’s a sizeable part time income. The point is simply that you can very easily, and in a very relaxed fashion, make good money.

Sitting out can be advantageous also. It is no mistake that some pros do not trade at all on Fridays or days of major announcements (FOMC, NFP, Beige Book, etc.) They realize there are so many opportunities, why put any capital at risk on a day of unpredictable volatility? They also know that trading is a long term endeavor and that quality, not quantity, is the key to profitability. They never feel as though they are missing something by being out of the market. They are patient, deliberate and will wait hours, days and even weeks for the proper set up.

The market rewards this patience and discretion. If during high volatility, you find yourself becoming anxious, overwhelmed or regretful – stop trading.

Understand that you can’t have it all. You can’t have every pip of every run on every pair. Look back. You only need two or three good trades per week to be hugely successful.

With the recent volatility these past months, there can be a tendency to over trade. The fear of loss compels many traders; if they don’t take advantage of these huge moves, somehow they are unsatisfied or feel inadequate – and then try to catch up by over trading. Too many positions can become unmanageable, placing too much capital at risk, and creating fear that will cause you to close trades before your profit targets are attained or impulsively close them at the slightest pull back against your position.

Although adjustments may be made for market conditions, professional traders stick to their plan and their rules – whether August, December  or  April – financial crisis or no. It is the calm trader that profits consistently – even during such volatility and uncertainty. So learn to relax and be satisfied with less – that is, fewer and better trades. It will keep your head in the game and money in your account.

Rick

Recovery from Failure

We immediately know when we’ve failed, made a mistake or broken the rules of our trade plan. Our internal dialogue is usually “Idiot, I know better than that,” or “Not again – what the hell is wrong with me?” or the famous “I promise I’ll never do that again!” During the course of figuring this out, we will have many failures. If we work diligently and purposefully, we can make the necessary corrections. This takes time and we have to be willing to forgive ourselves. But, we need to ask ourselves several questions to pinpoint and then repair our mistakes. Here are a few to consider:

Did you really follow your rules and trade system? Winners may lose, but they always follow their trade system to the absolute. They let their trade system do its job and understand that statistically they can expect losses. However, those stats are meaningless unless followed to the letter. Make sure you are following you rules and valid signals per your trade plan and trade system. If not, the odds are going to be stacked against you.

What should you have done differently? Do a thorough post-mortem. What was it that caused you to digress? Was it your trading mindset, outside distractions, platform execution errors or perhaps a lack of preparation? Record every trade and notice tendencies that lead to failures or mistakes. Make a conscious effort to target and correct these elements/behaviors one at a time.

To what extent did your perceived strengths become liabilities? What did you take for granted and how did it affect your performance? Did you have a series of winners and get over-confident? Did you have a series of losers and place a trade for revenge or because you were angry? You need to identify any emotions you are investing in your trading and revert back to practicing in a demo account until you can become consistently profitable. Getting this under control is critical for successful future results.

What is your estimated recovery/correction time? The difference between winners and losers is that winners don’t dwell on the past. Recognize the issues/challenges and move forward. Know that mistakes are part of learning and becoming proficient at any skill. The sooner you can get over your frustrations and regroup, the sooner you can be positive and productive to overcome them.

Can you quantify and assess the failure? Have you over-leveraged your account equity? Is the loss/mistake recoverable and if so, how long and how much will it take? Is your risk aligned with you trading personality and trade plan? Failure is an iteration in your overall trading journey, so try to make the next iterations ones of progress and success. Don’t over-think or over-compensate. Do an honest assessment of where the gaps exist and then fill them one at a time. Don’t be in a hurry to fix everything at once. Prioritize your issues and formulate a plan with a realistic time line to correct them.

Remember that failure is temporary if you are willing to invest the time and energy to become an expert. Always reflect on what you do well – especially with unconscious competence – things that are automatic and effortless. Recognize how you got there and use the same template in your approach to trading. Forgive yourself, but get focused. The goal is to admit and accept we will make mistakes, but the key to success is understanding we can only fix them if we know what they are and why we are making them. Create a list and work it. When you’ve checked off the last item, I promise you’ll be in a better frame of mind and your account will reflect your progress.

Slow, steady and diligent always wins the race in the markets.

Rick

Sensory Overload

Sensory overload . . . a big issue in trading and in developing your trading psychology.

It comes from all angles – information about what to do, what supposedly works, what to invest in (education), magic solutions, chart data, news, pundits, and rumors. Just Google “Forex” (250 million results) or “Trading” (1 billion results.) Where and when does it stop?

Our problem is fear of loss – believing that if we ignore anything it may be the one thing that propels us toward success – so we try to absorb it all. The fact is we can’t. But, we sure waste a lot of time and a lot of money trying to. I can save you some time and money right now – don’t buy any robots or magic buy/sell indicators. They’ll never work for you – and when they don’t, you’ll be more confused and frustrated. These distractions are a nothing more than an excuse to absolve you of responsibility and accountability.

The answer to your trading success is not more “stuff.”

Then there is distrust and skepticism. Whom do we trust after having purchased so much crap and being taken advantage of? Are there really any legitimate resources that we can relate to, rely on, and that have our best interests at heart? (There are a few and you’ve found one here, but I’m not going to waste time trying to convince you.) It is difficult to trust again after having felt like a sucker time and time again – embarrassed for still believing the overblown promises and sales pitches.

Sadly, it is often too late or at the expense of real value that we finally just start to give up or wonder if we can really become successful at this.

How do we ultimately filter through all of this noise? There is no one right answer. The best advice I can give is to do it through trial and error. You have to find what fits your own personality and proclivities. And then you have to act. You have to become good at assessing quickly – is the presenter/ making sense? Does he/she have a track record of results? Does the information/program account for all aspects of complete trading education delivered in a logical and professional manner? If not, move on. Chances are the “product” will be yet another in a long line of wasted time and resources.

If you are at the point where you are frustrated and just kind of spinning with no direction, I suggest you stop trading and start over. Get back to the basics. There are time tested principles that have worked for ions and marketers are counting on your laziness.

Look for information that will provide a solid foundation and then a realistic progression of Trade Plan Development. It should cover everything you need to be successful and independent – and that’s why you got into trading in the first place . . . right?

Here’s what you need to know and learn . . .

Foundation and Basics – Learn and understand the language of the market.

Platform and Charts – Become efficient at using and executing on your platform software.

Systems and Tools – Find indicators and processes that you can understand and implement.

Trade System and Testing – Develop rules for entry, stops and targets and then test and adjust to determine long term system profitability (no less than 200 occurrences.)

Practice and Repetitions – Practice executing your system on your platform for accuracy and dexterity on your demo account.

Live Trading and Psychology – Trade a micro account to develop and adjust your own trading psychology to control emotions and subjectivity.

Consistency and Transition- Track your results for consistency and execution. Once you can perform with confidence and reliability, think about a plan to transition to full time trading if that is your goal.

Risk and Trade Management – Explore expanding your strategies and formulate increasing your position sizing based on your historical performance data and account equity.

That’s a basic outline and, of course, there are more details involved in each step. The most important thing to remember is to master each step before moving on and do not skip any steps. Do either of those and you will create challenges and cost yourself thousands of dollars.

The very first thing to do is take a deep breath and relax.

You can do this.

Rick

Trading Traps

We have the benefit of learning from my good friend and awesome professional trader Akil Stokes.

“Trading Traps”

Many of us grew up as competitors whether it was on an athletic field, in a classroom, or at our first job. However, as we grow older some of us start to slowly lose that competitive drive as we become content with our current situations. I’ve come to notice that those who lose their drive usually fall into one of three main groups, Blamers, Settlers and Achievers. The Blamers group consist of people who have made no strides towards reaching their goals in life, (if they have any goals at all) and day in and day out they create an excuse for why their stuck in their current situation. They will often blame everything and everyone else for why they haven’t progressed instead of looking for a solution on how to better themselves and move forward . The second category is called the Settlers, which consist of those who have achieved their initial goals and have become comfortable with where they’re at in life. The fear of pushing forward and the thought that stepping out of that comfort zone may ruin their current situation keeps them content with where they’re at which is never taking any steps backwards, but not progressing either. The third and final category are called the Achievers. These lucky few have achieved more than they could ever imagine and have accomplished every goal that they’ve set for themselves. However, the problem is that they’ve achieved so much that they not only become bored with their current situation but they run into problems when trying to figure out what to shoot for next.

The same issue of losing our drive is one of the biggest factors that affects us in our trading journey. As experienced traders know, and newer traders will find out, this skill has a long learning curve and if you’re not 100% dedicated to becoming a successful trader then the chances are you’re going to fail. The number floating around out there says that only 10 -20% of traders become successful and those very same groups that I mentioned above, are the traps that the other 80% of traders fall into at some point during their journey.
Many new traders become stuck in the Blamers group trap right away because as soon as things get difficult they find an excuse for why they can’t be successful. “I just don’t have the time,” “I guess I’m just not smart enough,” “The markets are just against me,” etc. Excuses! Excuses! Excuses! And in all honesty anyone that wants to become a successful trader CAN one, it just doesn’t happen overnight.

Hopefully you’re dedicated enough to dodge the Blamers trap, but be warned because there is another one right around the corner called the Settlers group trap. However, when it comes to trading, this trap is almost the complete opposite of what I mentioned above. Instead of settling many traders actually become frustrated because a strategy isn’t showing the results that they anticipated. Therefore they bounce around from system to system only to get similar results. Many traders are very uncomfortable accepting the fact that it takes time to master any one strategy and there is NO GET RICH QUICK SCHEME in trading (despite what you may read online). So instead of taking their bumps and bruises mastering a strategy, they waste time by jumping ship only to struggle once more and repeat the process. In my trading journey I spent the better part of my training mastering a single strategy. However, as soon as I started trading live and it didn’t give me the initial results I wanted, I decided to jumped ship and go to another one. Like many of you out there, I didn’t want to put in the time necessary to master my strategy, I just wanted to make money and make money fast. To make a long story short I ended up losing a over $30,000 of someone else’s money in just a few months. OUCH indeed but as I look back I now realize that it was this event that lead me to refocus, chose a single trading strategy and really work on mastering it (along with my trading psychology). After making the switch I still struggled for about 3 months but I stuck with it because I could feel myself improving, even if my trading account said otherwise. Every once in a while I did get the urge to jump ship and try something new, but in the back of my head I knew that I would simply be starting the cycle over again and seeing how I was running low on capital, I didn’t have the time to take that chance. It was in the fourth month when everything took off and I’ve been a consistently profitable trader ever since.

This brings me into the last group, the Achievers. The traders that get stuck in this trap are the ones who have mastered a strategy and have been consistently profitable. You’re probably asking yourself, what’s so bad about that. The trap comes in the question of what’s next? I personally believe that staying in a single place for too long makes one comfortable, and when one becomes comfortable they often become lazy, and a lazy trader is just asking for trouble. I don’t care how experienced you are, it takes a certain amount of focus and dedication to be good at trading and if those things start to slip, so will your results.

So the question is how do I avoid falling into one of these trading traps? My answer… set goals and lots of them. We talk a lot about setting long term goals for what you want to achieve both in and outside of trading, and those are very important. But what I feel are just as important are the small, easily achievable everyday goals that we set for ourselves. Having a list of goals to attack everyday is a great way to stay motivated day in and day out. Also if you make these goals achievable, that feeling of accomplishment can do wonders for your psyche. As a kid in elementary school, I had a foreign language teacher that would give us candy each time we used a word correctly. Although it was my long term goal to learn how to speak this language fluently, I centered my focus on learning one new word each day so I could receive more candy. Setting and achieving these small goals kept me motivated and without knowing it I was slowly working my way towards my bigger ones. Trading isn’t any different.

Thank you for taking the time to read this and as always a big thanks to The Pro Trader Network for presenting me with an audience and a platform to share my thoughts.

-Akil L. Stokes

Thanks Akil . . . another great read with very valuable insights!

Rick

9 Things Successful People Do Differently

Here’s a great article from the Harvard Business Review. Although published in 2011, there some great suggestions here.

9 Things Successful People Do

Funny how timeless things that work are still fashionable.

Rick

Another List

I like lists – easy to follow and easy to keep track of. I have them posted all around my trade station and work area. Here’s another one from author Stephen Burns taken from his book “New Trader, Rich Trader.”

———————————————————————–

The 18 Principles that Make Rich Traders so Successful
Trading in the stock market is like being in a Monopoly board game of ten total people and one person will end up winning the majority of everyone else’s money before the game is over. This is much like in trading where 10% of traders are profitable and the other 90% lose or just break even in the long term.

If the 1 in 10 Monopoly winners consistently won game after game then you would want to know what they were doing differently than the other nine consistent losers. Well I do not know what the Monopoly winners were doing but here is what rich traders are doing differently.

These principles were compiled after 13 years of successful trading and studying the winning traders throughout history, Livermore, Darvas, O’Neil, Micheal Covel’s Trend Followers, Jack Schwager’s Market Wizards and many more. I also sent these principles to many rich traders and market historians to double check my findings like John Boik, Alexander Elder, and Chris Kacher and many others. I got two thumbs up. So for a free short cut to learning how to win in the markets here you go. (Of course the next step will be do you understand these principles? Many are very counter intuitive.)

PSYCHOLOGY
New Traders are greedy and have unrealistic expectations. Rich Traders are realistic about their returns.
New Traders make the wrong decisions because of stress. Rich Traders are able to manage stress.
New Traders are impatient and look for constant action. Rich Traders are patient.
New Traders trade because they are influenced by their own greed and fear. Rich Traders use a trading plan.
New Traders are unsuccessful when they stop learning. Rich Traders never stop learning about the market.

RISK
New Traders act like gamblers. Rich Traders operate like a businessperson.
New Traders bet the farm. Rich Traders carefully control trading size.
For New Traders, outsized profits are the #1 priority. For Rich Traders, managing risk is the #1 Priority.
New Traders try to prove they are right. Rich Traders admit when they are wrong.
New Traders give back profits by not having an exit strategy. Rich Traders lock in profits while they are there.

METHODOLOGY
New Traders give up and quit. Rich Traders persevere in the market until they are successful,
New Traders hop from system to system the moment they suffer a loss. Rich Traders stick with a winning system even when it’s losing.
New Traders place trades based on opinions. Rich Traders place trades based on probabilities,
New Traders try to predict. Rich Traders follow what the market is telling them.
New Traders trade against the trend. Rich Traders follow the markets trend.
New Traders follow their emotions which puts them at a disadvantage. Rich Traders follow systems that give them an advantage.
New Traders do not know when to cut losses or lock in gains. Rich Traders have an exit plan.
New Traders Cut profits short and let losses run. Rich Traders let profits run and cut losses short.

The book has one chapter dedicated to explaining each principle in narrative form with a dialogue between a rich trader and a new trader.

—————————————————————————

More reinforcement of the habits and behaviors that make the difference. Obvious to observe, but often difficult to put into practice. Think about each one of these behaviors and how they apply to your current trading habits and mindset. Work toward improving the good and removing the bad.

Rick

Self Sabotage Revealed

by Dr. Van K Tharp

In my peak performance training with traders, I give a strong psychological slant to the concept of self-sabotage. Self-sabotage typically occurs when one lacks the discipline to act in one’s own best interest. For example, when you have dessert, knowing it’s taboo because you are trying get healthy, you might call that self-sabotage. Or perhaps you know you need to exercise and you really feel good when you do so, but somehow you just feel lazy and want to skip the exercise period. Self-sabotage occurs in trading in many instances:

■ When you know you should follow the ten tasks of trading, but you don’t.
■ When you know you need to determine if your system will really work, but you just trade it anyway.
■ When you know you should develop a business plan for your trading, but somehow that just seems like too much work.
■ When you know you need to put a stop loss order in on a trade, but you don’t.

These and numerous other examples characterize self-sabotage. And these examples of self-sabotage typically occur when you have internal conflict between various parts of yourself and when emotions pop up that result in behavior that is not in your best interest and when you just avoid doing what’s important for success.

Many traders, however, avoid thinking about self-sabotage in this manner because they don’t like to go inside of themselves to see what is going on. They prefer to think technically about systems rather than notice what their beliefs are and whether or not they are useful. As a result of this tendency, I’ve developed another definition of self-sabotage that everyone can relate to: repeating the same mistake multiple times.

My definition of a mistake is when you don’t follow your rules. And if you don’t have rules, then everything you do is a mistake. And self-sabotage occurs when you keep repeating the same mistakes over and over and over again.

For example, you don’t raise your stop when the market makes a new high. When you skip it once, and your rules say you must do it, then it’s a mistake. When you do it three times in the same week, then it is self-sabotage. When you develop this attitude, can start keeping track of your mistakes and see how much they cost you.

For example, suppose you are about to be stopped out for a 1R loss. You don’t want to be stopped out, however, so you cancel the stop – which is your mistake. The position keeps going down and eventually you get out with a 3R loss. That mistake cost you 2R (i.e., instead of a 1R loss you got a 3R loss).

Now suppose you have a system that makes you 100% per year. However, you make a 2R mistake each week. At the end of the year, instead of being up 100%, you have lost money just because of your mistakes. Now can you begin to understand how trading reflects your behavior and that one of the critical things that you must do as a trader is to eliminate mistakes.