Trading Advice Blog

With my recent posts on emotional releasing, I’ve received quite a few emails from traders asking for advice. A common theme is asking what to do when you feel as through the emotions that are getting in the way of your trading success are so pervasive, so stubborn, you just don’t know if you can clear them.

Its not uncommon if you’ve been trading for a while with consistent losses to have worn quite a deep groove of emotional scar tissue - a mixed bag of fear, shame, frustration and the like, which now gets triggered every time you are in the market.

What is critical is that you are able to distinguish the cart from the horse. Is it your edge (or lack of one) that is causing you to fail, triggering these strong emotions? Or do you have a good edge but your emotions are getting in the way of trading it effectively?

As I said in my recent post Desperate Traders Wanted, it is absolutely imperative if you are going to sort your trading out, that you are sure that you have an edge. You have to know your expectancy. Without that certainty you have no constant in your trading with which to be able to change your situation.

This post is for those of you that have a quantifiable edge, you’ve yested it, and been able to trade it successfully on a simulator without the pressure of real money — but when you get into the live market, your emotions kick in and obscure your judgement, affecting your ability to implement your edge.

So here you are, you’ve been struggling at it for a while. As a developing trader you’ve tried a number of different methods, and its taken you some time, possibly many months, even a few years to get to the point where you have reached a level of expertise, a level of certainty with your method - your edge. In that time, as a result of the learning process you’ve paid some fairly hefty tuition - in educational materials, in orderentry mistakes, in losses — losses as a result of a previous lack of edge, or losses caused by emotions that have affected your decision making, caused you to second guess yourself etc.

As a result of this journey, you are now a bit over-sensitive — to money, to the potential of losing it, or perhaps to the pressure of getting it right. Performance anxiety is heightened because you’ve had so many experiences of losing, and that feeling is so familiar to you, that when you think about trading live, a part of you expects to fail again.

What makes it so hard is that you know what to do, you are clear about your edge — and when you continue to fail, its no longer just the fear of losing, the fear of failing, its the fear that you aren’t in control of yourself.

So you have a decision to make. Its going to take some work to change things, its going to take courage to look your emotions in the face and let them go. Its not hard, but it does take committment. Are you going to hang up your spurs and give up trading, or do the emotional work necessary?

If you chose to forge ahead with tackling your emotions start by learning the clearing techniques. Practice them, get really comfortable with them. The great thing is that we have emotions about everything so there is plenty of material to practice with. If you are finding that your trading emotions are really strong you are going to need to clear them again and again. It may take a week or so, but you’ll find that gradually they have less and less power over you until they fade.

Every day before trading I sit for at least 20 minutes with my eyes closed, turn inside and look at what I’m feeling. Am I nervous, did I lose yesterday and am I still carrying that? Am I afraid of something, frustrated or angry about something? Am I elated about something? The elation of winning can be just as dangerous as fear of losing. Whatever I’m feeling I release it using one of the techniques.

Once I’ve done my pre market prep and I’m sitting in front of the screen, I take a few more minutes to clear. I think about starting to trade - does it bring up any anxiety? Clear it! Am I willing to make money for myself today? Any twinges inside? Clear it! Did I lose yesterday, any residual feelings about that? Clear it! And now I’m ready.

I clear throughout the day while I’m trading -  the Sedona Method is great for that, as its so simple. At the end of the day I clear anything that stayed or any longer term issues that I’m aware of.

Any emotions that you are finding difficult to budge, use the Core Transformation technique. It is the emotional clearing big gun! It will clear pretty much anything!

I wish you the best of luck and I invite you to stay in touch, ask questions, share how its going for you. The reason I focus this site on clearing for trading success is that its uncomplicated and it works!

Mo

Lost your confidence? Fear your constant trading companion? Wondering how on earth your dream of being a successful trader is going to happen?

As they used to say on the Six Million Dollar Man, “We can rebuild you!”.

Not many would argue that trading can be extremely emotionally challenging. Losing money, seeing your hopes evaporate in front of your eyes, failing at something which seems as though it should be much easier than it is, can be gut wrenching.

Sure, some new traders are lazy and expect something for nothing. But there are many that work really hard to be successful, and yet no matter how hard they try it seems that success keeps slipping away. What do you do when things have reached rock bottom?

Here’s a tried and tested, step by step plan to turning things around:

1. Hit the pause button. When things have gotten this bad, pushing on through it is not the best strategy. Its time to regroup. You are much more likely to keep losing than you are to improve when you are in this kind of state. The more you keep damaging yourself emotionally, the harder it is going to be to turn things around.

2. Take the emotional pressure off and stop trading real money. In fact stop trading altogether until you have followed these steps. When you are in an emotional pressure cooker it is very difficult to deconstruct your trading and figure out what the issues are.

• Take the pressure off
• Deconstruct
• Rebuild
• Test

If you do this and then start replying the pressure of trading real money gradually, in the way I’m going to descibe, you’ll stand a much better chance of succeeding.

As part of your deconstruction and rebuilding efforts, I suggest you read this post to give you some ideas 10 More Ways to Deconstruct Your Trading and Build a Better Plan

In particular focus on these things..

3. Be honest with yourself about your edge. ie. Do you really have one? Do you have a trading method or system that is consistently profitable, even if you haven’t yet been able to trade it profitably with real money. I say “be honest” because you’d be amazed at how many traders kid themselves that they have an edge, when in fact they don’t really know if they have or not, and invariably they don’t.

Here’s a clue for anyone who is still trying to figure out a method. Its not a guessing game. Its not nebulous. When you have a method that has a consistent edge you know it. You’ve tested it. It works. You know it in your bones, and that’s what gives you the confidence to trade it. So if its not certain to you, you don’t have it yet.

Assuming that you have taken the time to verify that you have an edge, and if not you’ve found one, tested it and verified it, move on to the next step.

4. Clear the baggage. If you’ve been trading real money for a while and lost consistently. If you were getting that gut wrenching feeling of fear as you traded, and particularly when you lost, then you’ve got some emotional residue from those trades that you are going to need to get rid of before you can get back on the horse and stay on. Otherwise like ghosts they are going to keep haunting you. Even though you may have sorted your method out, and you have a potential edge, you won’t be able to realize it if you are derailed by old fears.

With emotional clearing techniques you can release these emotions bunched up inside you, and trade in the clear. They are easy and pleasant to do.

Here are some things to clear on.

• When you’ve taken a break from trading for a few days, think about going back to trading real money again. Think “tomorrow I’m going to trade real money again”. What do you feel? If you feel a clenching in your gut, or a tension, at the thought of it, use one of the clearing techniques to release the fear. Keep doing it each day, until you can plan to trade tomorrow without any tension or fear coming up.
• Think about entering a trade and it turning against you, and losing money. Same idea. If you feel a clenching in your gut, or a tension, at the thought of it, use one of the clearing techniques to release the fear. Keep doing it each day, until you can contemplate losing without it affecting you. Losing is a normal, natural part of trading a profitable edge. You’ll need to be able to take a loss and be fine about it.
• Think about missing an opportunity.
• Think about making money. Sometimes if you have had a difficult time with losses, the thought of making money can bring up strong emotions, both positive and fearful. Release them.
• Think about any other situation that you know brings up intense feelings for you, and clear it.

5. Start replying emotional pressure gradually. Start trading on a simulator and do that until you are trading your method consistently, and you can think about the questions in the previous step without any fear. Apply some imaginary pressure to your simulated trading, like “if you are not consistent for the next week you’ll have to stop trading for good”. This kind of imaginary pressure can simulate some of the pressure of real trading. Any difficult emotions come up - clear them.

6. Start trading with real money again gradually. When you can plan to start trading again without any fear, with a sense of positive anticipation about putting your method to the test, then you are ready to take the boat out in open water again. But take it easy. If you start feeling a lot of intensity again, if losing trades disturb you, ease off and clear them out. You may need to go back to step 4 and try again.

The overall aim with this approach is to seperate the rational, measurable, testable aspect of your method, from the emotions of trading which will affect your ability to trade it. To be successful you need to be straight on both. You need to be confident of your method, and you need to be confident in your own ability to stay in an emotionally healthy state.

Good luck!

I know this sounds crazy, but it couldn’t be more true! One of the biggest mistakes that developing traders make is having their focus in the wrong place.

Making money is a byproduct of trading effectively — thats where your focus has to be. Focus on trading well, and the money will come. It definitely will not come unless you keep your focus on developing your skills.

As a great man once said, “Bank in the bank, not in your head”.

If you are losing money, sure get upset. For a minute. But don’t wallow in it. Clear the emotion , move on, and use that energy to refocus. Don’t be one of the large number of traders that are led around by the nose by their attitudes about losing money, missing out, and leaving money on the table. Don’t let it become personal. When that happens you lose all perspective.

You can tell how concerned you are about money by asking yourself two questions while you are trading that Dr Brett Steenbarger included in a recent post Where Is Your Head When You’re Trading ?

Are you looking at your profit/loss for the day (week,month) and filtering trades through that?

Are you wanting to get your money back after a loss or hold onto it after a gain?

The other thing to do is watch your thoughts in the morning before the market opens and in the evening after it closes. How often are you thinking about whether you can make $X today, or that you lost $Y dollars today. How often do you get demoralized thinking about how many days its going to take you to make back the $Y.

These are all signs that your focus, whether conscious or not, is in the wrong place. Instead you should be thinking about the market, about the trades you are going to make, about your plan for the day. If you had a losing day, be thinking about the trades you made. What happened? Analyze it.

Once thing that is common with traders that get emotional about losing money is that they tend to avoid examining their trading in detail. The pain of losing is such that they want to change the subject, take their mind off it. Journaling, replaying trades, analyzing in detail what happened, is too painful. But that’s exactly what you need to do if you are going to cure the problem.

The good news is that it doesn’t need to be a ‘no pain, no gain’ situation. You can easily clear your emotions , take away the anxiety, so that you can face the analysis that will set you on the right track.

For each trade you made today, or over a recent trading period, make notes about what the market was doing; what you were thinking and feeling; what you did (or didn’t do) in terms of entering, exiting or missing trades; what were the consequences of what you did; what you would do differently next time.

If you can’t answer these questions it means you are not keeping enough records while you are trading. So tomorrow, keep notes, and then try the analysis again at the end of the day.

1. What the market was doing
2. What you were thinking and feeling
3. What you did or didn’t do
4. What the consequences were of what you did
5. What you would do differently next time.

If you are feeling resistent to doing this - its even more reason why you need to push yourself to do it. That resistence is your mind/body trying to keep you anaesthatized from the pain/fear of losing. But its the very fog of that emotion that is clouding your trading. Clear the emotion and do the analysis.

The key part of this exercise is taking the things that you say you would do differently next time, and using them to set goals for your trading day tomorrow. This brings conscious awareness to the things that you need to focus on. If you stay focused on your goals, you will improve.

If you do this diligently for a few weeks, and keep doing it, you’ll see a significant improvement in your trading, as you become more aware. And yes eventually, you may even make some money!!

As traders we’ve chosen an intense profession, one with a very high potential for stress. The simple act of putting our money on the line, with an uncertain outcome, creates an emotional force which we need to know how to handle. If we don’t, the emotional excitement of fear, euphoria, anger, disapointment, and other intense feelings, clouds our judgement and affects our ability to stay in the opportunity flow of the market.

Trading with these emotions in play, is akin to driving in a storm without windshield wipers. We can’t see the road clearly, and accidents are very likely to happen!

Here’s the good news. Learning to clear your emotions is easy, and pleasurable. You’ll feel such relief that you’ll wonder why you didn’t do it long ago. Your trading will be affected in dramatic ways, as you let go of the destructive results of trading while blinded. Not only that, but once transformed into positive feelings, you can use these new emotions to inspire you and find new enthusiasm for improving your trading skills.

In this post, I’m going to tell you about two easy to learn techniques that get fantastic results!

As Dr Brett Steenbarger reminds traders regularly, emotions aren’t bad. Some of the best traders are very emotional. They use that energy to drive their performance and to continually improve. The fact is that we can’t get rid of emotions even if we want to. Unless you are a Vulcan, you are going to have emotions! The key is learning how to work with them, and transform them so that they are a positive force.

While many of us have learned or are learning the technical skills of trading, the area of emotional management is something that many traders overlook in their eduction. Its sad really that we’re not taught how to work with our emotions as kids. Most of us learnt quite the opposite, how to escape or push down our emotions through television, food, exercise, drugs or in other ways. And now after many years of practice we are all expert at avoiding the pain of difficult emotions. But avoiding doesn’t help. The emotions are still there stored as stress in our body, and waiting in our subconscious for the right trigger to come out again. Its time for a change.

Before you get gung ho with the emotional clearing, first here’s a really important point. Our emotions are trying to tell us something. Its critical that we don’t avoid or even transform our emotions without first finding out what they are trying to tell us. All the positive thinking and feeling in the world will not help you if you don’t have a trading edge. Take a look at 10 Ways to Deconstruct Your Trading and Build a Better Plan and 10 More Ways to Deconstruct Your Trading and Build a Better Plan if you need help with that.

Now let’s take a look at emotional clearing.

In general I’ve found that there are two types of clearing that I need to do. One type is quick, short term clearing of emotions while I’m trading. And the other type is clearing out older, longer term emotions that may be affecting my perspective, or causing a slump etc.

I use two different techniques, one called the Sedona Method which I use for short term clearing. Its quick, effective and easy to use even while you are trading. And if you want to start by learning just one technique, you can also use this for longer term clearing as well.

There’s nothing scary involved. No voodoo, brainwashing or electrodes! You simply ask yourself a series of questions which causes a release of emotion. In fact, the Sedona Method is so simple, that on first sight you may wonder how something so basic can work so well. I don’t know why, but I do know that it works amazingly, and that it has been validated and proven to work in studies by the Harvard Medical School.

To do the technique in its simplest form, you first learn to just let the emotion be there, without fighting it, without running away from it. Then you ask yourself three questions. “Could I let it go?”, “Would I?”, “When?”. Once you have learned the subtleties of the technique, its that easy.

Now imagine that you are trading. You place a trade, and get stopped out at a loss. That loss brings up strong emotions for you, which clouds your perspective. You are so caught up in feeling bad about your losing trade that you miss the next opportunity just a few minutes later, a trade which would have been very profitable.

Rewind: Imagine that you are trading. You place a trade, and get stopped out at a loss. That loss brings up strong emotions for you. You quickly run through the Sedona Method and clear the emotion. Your perspective is clear and you immediately see the next opportunity and are able to respond to it. Your emotional clearing skill has supported a profitable trade.

In this situation, I would also follow up at the end of the day by doing a deeper clearing to clear whatever it is that is causing the extreme reaction to losing. For this I’d use a technique called Core Transformation. It also involves a simple and easy to learn series of questions that you ask yourself in order to communicate with the part of you that is feeling the intense emotion. You learn to identify what that part wants for you, and then continue to guide it through simple questionning to its core state - very positive energy.

Like every trader I’ve had hundreds, probably thousands of experiences of feeling strong emotions before, during or after a trade which I’ve been able to quickly transform into a calm, positive, opportunistic state in which I can see the market much more clearly. By using these two clearing techniques I’ve found that I’m much better prepared to execute each trade as a unique opportunity, and to maintain a positive approach to developing as a trader.

I hope you find this beneficial and get as much pleasure from emotional clearing as I do. It feels great to be clear!

If you’d like to learn the Sedona Method properly, I recommend starting with the Sedona Method book. You can also read FAQ’s here. If you are interested in finding out more about Core Transformation you can read the book Core Transformation or learn the method in detail through the DVD of the training course.

All the best!

Mo

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Here’s some trading advice for one of the struggling trader’s toughest obstacles - staying positive.

Perhaps you’ve had a string of losing days or even months! Or perhaps you’ve started to become profitable, only to blow it all on one day where your discipline slipped. Its so easy to give in to the tempation to dig yourself into a hole of despair and gloom.

“I’m so *&^*& stupid”, “Why can’t I just follow my system”, “I’m obviously not meant to be a trader”, “I’m doomed”. These are some of the things I remember saying to myself pretty regularly when I was struggling. But guess what, talking to yourself like that will only make things worse. Think like that regularly enough and you’ll start to believe it. Once it becomes a belief its going to start to affect your future thoughts and actions and will sabotage your trading.

In trading, confidence is critical.

As a struggling trader going through the learning process, you are naturally going to be faced with up months and down months. Even for experienced traders, it can be very challenging mentally when the market environment changes, when strong trends are replaced by sloppy rangebound days that are a nightmare to call.

Experienced traders know that there are going to be average months, bad months, and fantastic months that make up for the rest.  They key is to hang in there mentally so that, when the market presents its opportunities, you are in the opportunity flow.  

So what are the ways to stay mentally resilient?

Learned Optimism

Dr Martin Seligman has written a great book called Learned Optimism: How to Change Your Mind and Your Life in which he teaches simple cognitive techniques, or thinking habits to overcome negative thoughts and either maintain or regain optimism. This book should be in every traders library.

Clearing Negative Self Beliefs

If you are going to become a successful and profitable trader - in addition to developing the skills and mindset of trading, you are going to need to believe that you can succeed. Many of us wreck our own chances of success because of old, outdated beliefs that are still stuck in our subconscious - that sap our confidence.

Of course all the positive thinking in the world is not going to help you if you don’t have a trading method with a positive expectancy, and the ability to trade it consistently. But no method will give you profitable trades all the time.  There will be days, weeks, or even months where you struggle to break even.  The question is, when your method experiences a natural draw down due to market conditions, do you take it personally?  Do you start to undermine your ability to stay in the opportunity flow by beating yourself up?  Can you distinguish between the kind of tough self talk that helps you to stay motivated, and the self talk that destroys your chances of success?

Clearing for Trading Success 

You’ve probably heard about books like Think and Grow Rich, and the Law of Attraction — about the power of affirmations. There are many ways to use the power of your own thoughts and beliefs to build a positive mental environment where you attract the success you want in your life. However, what most of the teachers of these universal ideas don’t teach you, is that unless you clear your old beliefs, your new one’s don’t stand a chance.

So if you’ve been struggling for some time and you’ve stocked up your subsonscious with beliefs of doom, gloom, failure and loss you are going to need to clean them out before you can turn the page.

Here are three techniques that work based on my own personal experience. I recommend all of them very highly. They will help you in your trading and in the rest of your life as well.

Dr Brett does it again! What a fantastic book!

I’ve sometimes felt that Brett Steenbarger can be a bit of an elitist with his focus on high performing proprietary traders, but I’m totally willing to eat humble pie on that one! Here’s a book that is going to be of indisputable value to the little guy, a helping hand for everyone who’s struggling for or to maintain consistent trading success.

This book is like a humanitarian hand-out, the answer to the prayers of thousands of traders who consciously or otherwise have been crying out for help with the mental and emotional rigors of trading development.

Brett has applied his vast knowledge of coaching, psychology and trading to deliver 101 practical daily lessons, each one packed full of valuable insight. This isn’t a theoretical book, its a hands on bible for getting your mental game on, and it kicks into high gear right from the first lesson.

The opening exercise guides you through a pre-market goal setting exercise that puts you exactly in the right frame of mind to act with confidence, and work on achieving the change in your trading that you are looking for.

I wrestled for so many years trying to understand why I would apparently lose my mind in the middle of the trading day and make stupid mistakes — mistakes that I’d made again and again and couldn’t seem to kick. It wasn’t until I read what Dr Brett explains in his book the Psychology of Trading that it began to make sense:

People lose money in the markets because the person who places the trade very often is not the same person who manages and closes the trade. Quite literally another self has taken over–another mind. Brett Steenbarger

The Daily Trading Coach is a powerful resource for traders to develop the mental habits that lead to high performance trading. Throughout the lessons Brett guides you with compassion and understanding to develop what Brett calls ‘planfullness’ — the habits that allow you to continually stay or shift back into an optimal mindset.

The Daily Trading Coach also includes insights from other traders like Corey Rosenbloom, Michael Seneadza, Brian Shannon and Charles Kirk.

Hats off to Brett Steenbarger –and an advanced thank you to him from the millions of traders to come that will find this resource waiting for them.

With all the movement in the market recently, traders and investors are focusing more and more on trying to protect their capital and profit from the trend. By properly understanding the trend of symbols in their portfolio, and keeping on top of those moves, smart traders are able to protect capital and pull profits out of the market.

Staying on top of the changes and momentum shifts often becomes overwhelming, especially if you’re watching a large number of symbols and open positions. Here’s a  free tool utilized by hundreds of professionals — its called Trend Analysis. Trend Analysis is a daily email analysis tool that gives focused insight into exactly what a portfolio is doing.

Get your symbol analyzed today

The link above takes you to a page where you can get your first symbol analyzed. From there you can easily add more symbols to get a daily update. Trend Analysis covers over 300,000 symbols (stocks, futures, forex, ETFs, mutual funds). The tool doesn’t cost members anything and is used by professionals to supplement the tools they are currently using.

Get the trend clarified with Trend Analysis

Thanks go to the MarketClub team for making Trend Analysis available for no cost to regular investors as well as professionals. MarketClub boasts over 50,000 members that are positioned for success with the use of MarketClub.

Identify what makes MarketClub tick here

Successful trading!

Mo

In the world of traders there are two big camps - one is the group searching for what they believe is the holy grail - the perfect method that will give them easy access to consistent profitability. The second group will tell you that there is no holy grail of trading. They’ll tell you that successful trading is the domain of an elite few who have mastered the impossibly difficult conditions of trading to become consitently profitable. This apparently elite few have been compared to expert surgeons or chess grandmasters!

Is trading really that difficult? Are consistently successful traders the equivilent of brain surgeons and nuclear physyicists or is trading open to those of us on a slightly less rarified level? Do we need to be Tiger Woods or can we make it if we can regularly hit par?

Here’s my take on it. I’m convinced that there is a holy grail of trading and its available to those that want to find it - it won’t be found by searching for the perfect method, but at the same time its not impossible to find if you look in the right place - if you are willing to go on a challenging quest to find it! Its certainly not easy, but its certainly not impossible.

The mechanics of identifying profitable trades and executing them are no harder than any other skilled profession. It takes study, effort, and practice, but what skill doesn’t? What makes successful trading appear to be so unattainable - and become so for many - is that it requires each trader to do something extraordinary. It requires you to adopt new beliefs, to retrain your mind to think differently, and to first face and then learn to manage your emotions. This is not difficult in and of itself, but most new traders simply do not do this crucial work.

Its interesting that the type of people that gravitate towards trading are actually the people least likely to succeed at first blush. Predominantly male, successful professionals, cocky young twenty somethings, doctors and dentists - why would this group have the predisposition to fail? Because they (I was once one of them) believe without question in the validity of the way they think. Changing beliefs, confronting emotions is outside of our initial comfort zone. Only the few that take the bold step of focusing on the mechanics of their own thoughts and emotions become complete traders, and ultimately achieve the success that they are looking for.

So here’s another question. If I’m to go on this quest to the find the holy grail within myself, is there a map? Again the answer is yes, there is a clearly charted path that you can take. BUT…don’t mistake the fact that there is a map, for it being easy. Nobody can walk the path for you. No matter how many people have blazed the trail before you - you will still need to walk it yourself and fight your own dragons.

Your goal is a state of mind and being in which you can stay focused in the ‘opportunity flow’ of the market. Fear of loss cannot touch you, because you’ve learned how to accept risk, how to safeguard yourself, and how to trust in your ability to do whatever is necessary in the moment to protect your capital. In that state, free of distraction, you can see the opportunities that present themselves. You can take profits from the market effortlessly. A trader in that state can take even a mediocre trading method and make it a gold mine.

The interesting thing about learning to trade is that no matter what path you take, you need to find a method with positive expectancy - an edge that you can rely on. And here’s the challenge - no matter how committed you are to a quest for the grail within yourself, watch out! Many a trader, with the best of intentions, has been distracted by the siren call of their method. They end up on a detour, constantly focused on method and never make it to the next step. Every trader that wants to be successful must understand that their method is just the beginning, its just the entry requirement. The true quest to find expertise and consistent profits lies in mastering a different kind of methodology - a new way of thinking.

Have a great week!

Mo

Whether you’ve ridden the roller coaster of the past few weeks for profit, been bashed and bruised by the volatility, or sat on the sidelines and waited, this has been an intensely emotional time for traders and investors everywhere. Here is some practical trading advice for getting yourself into the best mental and emotional state for maximizing the opportunities of the coming weeks.

First here’s a reminder of the bottom-line on mental/emotional dynamics that every trader needs to know: As human beings our brains are hard wired to block information to protect us from emotional pain. If we are experiencing stress, anxiety, and other forms of upset, our brains begin to shut down awareness. We begin to experience what experts call perceptual blindness - unable to see what is staring us in the face - causing us to make poor trading decisions, and lose money.

In other words, our brains are not naturally designed for successful trading. As traders we must have a mental methodology, a system of thinking (in addition to our trading system/methods) to counteract our inherent mental processing. If you don’t, there is a very high likelihood that you will be defeated not by the market, but by your own brain!

Here are some of the most effective methods highlighted by leaders in the field such as Mark Douglas and Brett Steenbarger.

Mental Strategy

In his two trading books, the The Disciplined Trader and Trading in the Zone, Mark Douglas outlines a series of key mental strategies that take the fear and stress out of trading, and allow you to develop the relaxed state of awareness in which you can take full advantage of the opportunities that the market is presenting:

1) Risk Acceptance

When you know in advance how much you stand to lose if your edge doesn’t pan out in a particular trade; when you fully accept the possibility that you may lose that amount as part of the ratio of wins to losses in trading your methodology - then there is nothing that can hurt you, or cause you any psychological pain.

We’ve been taught that you can be successful if you have a positive mental attitude. And that’s true. But many traders make the mistake of believing that having a positive attitude means always thinking about winning. Thinking about losing is bad, defeatist, so they avoid thinking about losing. Successful traders however, think in terms of probabilities. They know that there will be wins and losses. They have learned how to think about their losses and about risk. Its in the acceptance of risk, not the avoidance, that they maintain a healthy and positive mind.

The fear and stress that many traders feel particularly at times like this, is caused by the fact that they aren’t comfortable with the fact that they may lose. The fear you may feel is actually your mind and body struggling to ignore reality; ignore the part of you that knows damn well that you will lose because its an inevitable part of trading. Because many traders don’t accept the risk ahead of placing a trade they experience the pain of loss - not because of the actual money gone from their account, but because they are suddenly confronted with a reality that they have been avoiding. They didn’t confront the possibility that they might lose.

Here are some strategies that I use to help me accept the risk of each trade:

While I’m preparing for a trade and evaluating where to place my stop, I ask myself “How much am I willing to spend to find out if my trading method, my edge, will work for this trade?”. Another variant on this question which helps avoid over trading is “Am I willing to spend (whatever your stop loss will be) to find out if my edge will work for this trade?”.

This simple approach causes you to think very carefully about the expectancy of your method and the state of the market. It will help you to get clear about whether your method does have an edge in this kind of volatile market. Or it may prompt you to stay on the sidelines and preserve capital.

The idea is that before you get into a trade you have quantified how much you can lose and you really are willing to let go of that money. You know that despite your edge, the market can do whatever it wants and that there is reasonable chance that you may lose. If you choose to enter the trade, mentally you have to accept that your risk money is gone. Its spent. You no longer have the money you are risking.

You have to reach the place inside where that’s OK - so that you can then approach the trade without any fear of losing that money. I like to think of it as though I’m buying a lottery ticket. My risk, my stop, is the money I’ve spent to buy the ticket to find out whether the trade will be profitable. I may win, in which case I get a refund, or I may lose in which case I wont. I’ve really no idea since the market can do anything, but mentally I’ve spent the money to find out.

2) You Don’t Need to be Right to Make Money

You have to do the mental work to let go of the need to know what is going to happen next or the need to be right on each trade. In fact the degree to which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader. Mark Douglas

The most successful traders have found a way to inoculate themselves from the stress of trading, and from the outcome of their most recent trades. Here’s how they do it:

They have an unshakable belief in the fact that

1) While the outcome of any given trade is uncertain they believe in their edge over a series of trades. In other words they know the expectancy of their method and have confidence that over a series of random outcomes, the odds are in their favor.

2) Anything can happen! In other words they have learned to think of every trade like tossing a coin - they don’t need to know what will happen. They don’t expect to either win or lose.

This firm belief in the uncertainty of any given trade, while knowing that over a series of trades you will be profitable, is very liberating. When you learn the mental discipline of letting go of the result of any individual trade you keep your mind in a state where it can easily perceive the opportunities that the market is offering. It is not distracted by focusing on your expectations of what you think should happen - it can perceive what is most likely to happen.

The Body/Mind Connection

3) Biofeedback

You can influence your state of mind, your focus, your ability to enter the zone, by being aware of your body - particularly your breathing.

There is a great software program which I use called Emwave which you can run on your computer as you are trading. You attach a sensor either to your earlobe or finger - and it tells you what kind of mental/emotional state you are in by measuring your body’s activity.

With this program you can easily train yourself, through breathing and watching your posture, to stay calm and in the zone even in the most stressful situations. When you are in that calm state you’re most in tune with the market, and most ready to take advantage of the opportunities the market is offering.

I highly recommend that you experiment with seeing the difference in your trading results between days when you use Emwave to trade ‘in the zone’ and when you operate in your normal (probably slightly stressful) state of awareness. Its quite surprising!

Emotional Clearing

4) Clearing

As always I recommend that traders learn how to continually clear their emotions using simple clearing techniques so that the build up of emotion, either negative or positive, doesn’t distract you from your focus.

Have a great and safe week ahead!

Mo

In the world of traders there are two big camps - one is the group searching for what they believe is the holy grail - the perfect method that will give them easy access to consistent profitability. The second group will tell you that there is no holy grail of trading. They’ll tell you that successful trading is the domain of an elite few who have mastered the impossibly difficult conditions of trading to become consitently profitable. This apparently elite few have been compared to expert surgeons or chess grandmasters!

Is trading really that difficult? Are consistently successful traders the equivilent of brain surgeons and nuclear physyicists or is trading open to those of us on a slightly less rarified level? Do we need to be Tiger Woods or can we make it if we can regularly hit par?

Here’s my take on it. I’m convinced that there is a holy grail of trading and its available to those that want to find it - it won’t be found by searching for the perfect method, but at the same time its not impossible to find if you look in the right place - if you are willing to go on a challenging quest to find it! Its certainly not easy, but its certainly not impossible.

The mechanics of identifying profitable trades and executing them are no harder than any other skilled profession. It takes study, effort, and practice, but what skill doesn’t? What makes successful trading appear to be so unattainable - and become so for many - is that it requires each trader to do something extraordinary. It requires you to adopt new beliefs, to retrain your mind to think differently, and to first face and then learn to manage your emotions. This is not difficult in and of itself, but most new traders simply do not do this crucial work.

Its interesting that the type of people that gravitate towards trading are actually the people least likely to succeed at first blush. Predominantly male, successful professionals, cocky young twenty somethings, doctors and dentists - why would this group have the predisposition to fail? Because they (I was once one of them) believe without question in the validity of the way they think. Changing beliefs, confronting emotions is outside of our initial comfort zone. Only the few that take the bold step of focusing on the mechanics of their own thoughts and emotions become complete traders, and ultimately achieve the success that they are looking for.

So here’s another question. If I’m to go on this quest to the find the holy grail within myself, is there a map? Again the answer is yes, there is a clearly charted path that you can take. BUT…don’t mistake the fact that there is a map, for it being easy. Nobody can walk the path for you. No matter how many people have blazed the trail before you - you will still need to walk it yourself and fight your own dragons.

Your goal is a state of mind and being in which you can stay focused in the ‘opportunity flow’ of the market. Fear of loss cannot touch you, because you’ve learned how to accept risk, how to safeguard yourself, and how to trust in your ability to do whatever is necessary in the moment to protect your capital. In that state, free of distraction, you can see the opportunities that present themselves. You can take profits from the market effortlessly. A trader in that state can take even a mediocre trading method and make it a gold mine.

The interesting thing about learning to trade is that no matter what path you take, you need to find a method with positive expectancy - an edge that you can rely on. And here’s the challenge - no matter how committed you are to a quest for the grail within yourself, watch out! Many a trader, with the best of intentions, has been distracted by the siren call of their method. They end up on a detour, constantly focused on method and never make it to the next step. Every trader that wants to be successful must understand that their method is just the beginning, its just the entry requirement. The true quest to find expertise and consistent profits lies in mastering a different kind of methodology - a new way of thinking.

Have a great week!

Mo