Archive for category: Psychology

Top 15 Ways to Manage Trader Stress

19 Jun
June 19, 2013

Trading stress is primarily caused by two  things: either not knowing what to do or knowing what to do and not doing it.

Many times in trading  a new trader will discover that real money on the line is not the same as reading about trading or simulated trading. One of the top three things that will determine the success of a trader is the trader’s psychology, the weakest part of any trading plan is the trader. Stress can knock a trader out of trading faster than anything else. You have to trade like it is a business. Realize that it is highly probable that half of your trades will be losers and your profits will come from the half of your trades that are bigger winners  than the half that are losers. You can not control the market you can only control what you do, your entries, exits, position sizing, and method. Practicing discipline and self control at all times keeps you out of very stressful situations. The key to trading success is not fun and excitement and being right all the time, it is about making what you do as sterile and boring as possible and steadily make money with good trades that have the odds in your favor. This is a business not an amusement park ride, trade accordingly.

  1. Only risk 1% of total trading capital per trade with stop losses and proper position sizing. Proper positions sizing makes the emotional impact of any one trade only one of the next one hundred a totally different mental perspective than an all in/have to be right Hail Mary trade.

  2. Only trade a  position size you are comfortable with.

  3. Trade a method or system you believe in based on back testing of a positive expectancy.

  4. Know where you will get out of a trade before you get in.

  5. Only trade with a detailed trading plan.

  6. Believe in your ability to follow your trading plan. YOu must have faith in yourself to lower your stress levels.

  7. Know yourself as a trader and only take your kind of trades. Take trades that will leave no regrets because they were good trades regardless of out comes.

  8. Do not listen to any unsolicited advice about the trade you are in, follow your own plan. Noise can really cause stress and mess up a trade, trade with emotional horse blinders on, keep out others voices and listen to your trading plan.

  9. Sit out markets that you are uncomfortable trading due to volatility or other looming risks. Know when it is time to trade and time to ‘go fishing’. This can save you a lot of emotional capital.

  10. Do your homework before you trade. Be confident in your trade until it hits your stop. Get out when your stop is hit, you already lost money don’t lose sleep as well.

  11. Keep your ego out of your trading, run it like a business.the P& L is your focus not your ego and not trying to prove anything to anyone else.

  12. Only trade when the odds are believed to be in your favor. It is much less stressful trading with the trend than against it.

  13. Do not blame yourself for losses if you followed all your rules. The market giveth and the market taketh away, just keep taking your entries and exits.

  14. If you do not know what to do, DO NOTHING.

  15. To lower stress levels trade less and get away from watching every single price change. Day traders could trade only the open and closing hour, swing trader and trend traders could just take opening or closing signals. You could go from every tick to just checking in every hour or so if you have options or hard stops in. Most of the days trading is random noise, and randomness will stress you out focus on your time frame and only the quotes that really manner when they manner. 

Successful Trading: How to Put it All Together

14 Jun
June 14, 2013

What trips up the vast majority of traders so they never quite make the transition from new trader to good trader?

Not being able to deal with the stress of trading: this is caused primarily from a lack of faith in themselves and or their method.

They lack the ability to pull the trigger when it is time to enter a trade or cut a loss.

Some people just can’t overcome the fear of losing money both in the entry and exit.

Many traders just do not have the discipline or work ethic to create a trading plan through proper homework.

Most traders have no trouble over analyzing the markets to death with enough indicators to make someone go cross-eyed. Many traders read enough books to know how to trade, many follow enough different people online that they get so confused they do not know what to do. Most traders spend far to much time in front of the computer all day watching the prices tick. The majority of traders would really quit trading if they added up the amount of time they spent for the privilege of losing money.

What is the key to over coming the barriers to success in trading. A GOOD TRADING PLAN, not a few rules I mean a complete plan. A plan that you 100% believe in based on your own studies and back testing. Your own personal plan that YOU created, not someone’s opinions.

What needs to be in there?

The Trading Plan comes first and should account for the following parameters:

1.  Entering a trade. Quantified approved entries.

2.  Exiting a trade. Predetermined Exit point BEFORE you enter a trade.

3.  Stop Placement. How will you know you were wrong about a trade? A stop loss, trailing stop, chart signal, volatility stop, time stop, or target price.

4.  Money Management. How much capital will you risk on any one trade? This is the key to position sizing.

5. Position Sizing. How much capital will you put on any one trade? Do you have rules that tell you to trade bigger or smaller based on the odds?

6.  What to Trade. What qualifies stocks to be on your watch list?

7.  Trading Time Frames. Are you going to day trade or position trade and hold for a week or more? or will you be a short term or long term trend follower?

8.  Back Testing. You need back testing either with a computer, by reviewing charts, or others research to show that your system is a winner.

9.  Performance Review. You must keep a detailed log of your trades and watch your performance to understand the wins and losses and their causes.

10.  Risk vs. Reward. Each trade must begin with the potential of winning more money than you are risking.

This is a very basic outline, I suggest expanding this to include 30 rules minimum; 10 each covering the areas of risk management, psychology, and method. If you can write this, believe it, and follow it, you will win in trading the only question that remains is when?

New Trader, Know Thyself

28 Nov
November 28, 2012

Trading is more about the trader himself than the markets. The markets are neutral they have no agenda and no evil plots to take your money. Each random entry has a 50% chance to win or lose even with no method attached. The key is getting an edge in your trading. Knowing who you are as a trader, what your plan is, and sticking to your own method is the place to start. Everything you are learning now should be taking you to your own trading plan that fits your personality. All your homework right now should be giving you faith in yourself to take your trading method live with real money.

  1. New traders do not need trading ideas they need a trading system. A single trade alone has no real meaning unless it is made inside a robust trading system that contains a good risk/reward ratio and proper risk management on every trade.

  2. New traders should understand their own stress tolerance level for position sizes and losses. Trading the right size is crucial to keep as many emotions as possible on the sidelines. It is crucial that a trader be able to handle their trading size so they can trade their plan and not have it over ridden by their emotions.

  3. A new trader has to decide who they are: day trader, position trader, growth investor, CAN SLIM investor, momentum trader, option trader, trend follower, or a combination of these, etc.  An edge is gained over the market by mastering a method and sticking to it so you can benefit when it is in favor. While a changing market environment may dictate your entries, exits, or if you just stay on the side lines, it can not dictate your method or change who you are as a trader.

  4. New traders should look for answers on what they should be doing in charts and price action based on their own method and time frame not with other traders. We can all learn from great traders principles that will make us better but we all have to trade our own plans at the end of the day.

  5. Our success in the markets will be based on our work ethic, discipline, focus, risk management, perseverance, and pain tolerance. NO newsletter, seminar, book, stock pick, or Holy Grail trading method is a magic elixir that will take the new trader to success. All the above things are just classes, and it is great to educate yourself, but real success in trading takes place in the arena that is the markets. The real education takes place when real money is on the line, when the losses happen, and you decide this is the game for you.

Fragile Traders vs. Anti-Fragile Traders. Who breaks First?

15 Nov
November 15, 2012

Reading Nicholas Taleb’s newest book Anti-Fragile really got me thinking about how traders are broken.

Traders can become fragile and be broken in several ways:

  1. They can quit because they believe that trading successfully is impossible.

  2. They can lose half their account or all of their account and just give up.

  3. They can become emotionally traumatized by one huge loss or a string of losses and just not be able to trade any more due to the pain going forward.

  4. A trader can lose faith in them self as a trader.

  5. A trader can lose faith in their system.

  6. A trader can trade too big and blow up their account, they want to trade, they believe they can make it back but have no money.

A trader can become anti-fragile they can benefit from adversity at times by:

  1. Having 100% confidence that they will be in the 10% percentile of  consistently winning trades, it is just a matter of time.

  2. They do not give up after losing the majority of their very first account  they just accept it as paying tuition and start again this time with faith they will win.

  3. The anti-fragile trader trades small, their emotions do not bleed into their trades, each trade is just 1 of the next 100. They risk 1% of capital per trade.

  4. The successful trader identifies themselves as a successful trader, losing trades do not change who they are.

  5. The trader believes that time is on their side and draw downs are just temporary, short term losses do not change the trader’s belief in long term success.

  6. Successful traders know that their trading account is their life blood, guarding  it against big losses is their #1 priority.

Fragile traders are inevitably  broken, anti-fragile traders are not only not broken but benefit from circumstances by learning, growing, and becoming more resolved to win. Adversity makes them stronger.



How I was Wrong but Still Made Money Today

08 Nov
November 8, 2012






“Plans are plans until they aren’t. Don’t confuse trading ideas with prophecy. You don’t know the future. Unless you cause it.”
-Curtis Faith

This morning I went in very biased about buying Apple long, my mind was clouded with the support level of the 50 week moving average holding up perfectly yesterday and in the pre-market. Looked like a perfect play off  the last support level that held up for years. My love for the products did not help me think more clearly. I came in biased. I even wrote a special morning blog to explain my set up. One of the best professional money managers and a great prop trader commented on my blog post in the morning on facebook, and pretty much said I was wrong, dead wrong on that support holding. As the stock opened for trading I became flexible and aware of what happened in the past when I traded against those guys. Yes, Apple was oversold, yes it was far extended from the 5 day ema and due to return, yes it was holding at the 50 week ema, yes it has $100 per share in cash and the most innovative products in the world and a ridiculous P/E ratio of 12. But with a clear, cautious, and flexible mind ready to go long instead I shorted when it failed to make new highs of the day after opening and losing the 50 week line, then when it rallied back above it and failed again I doubled up. I used weekly in the money puts and ended up with very nice gains almost doubling my capital at risk in one hour. One thing that new traders have trouble with that seasoned traders do not is flexibility to change with the market.  We have to identify a place the market can move that tells us that we are dead wrong no matter what our beliefs are.