Good post
Mary
MENTAL STATE: switches in thinking
Part 1
This topic is too huge to exhaust it in a single class. We will have
many classes on it. I am going to go today
through some major points that we will develop and elaborate in the
future. In fact, the right mindset is what shows
the difference between a winning and losing trader. Let me start
with a quote from an interview that Ed Seykota
gave once. It may sound strange or too cute, but the more I read it
repeatedly, the more sense it made. When asked
what losing traders can do to transform themselves into winning
ones, he said:
" A losing trader can do little to transform himself into a winning
one. This is the kind of thing winning traders
do".
Just think of it. It does not matter if you win or lose at the
current stage. That is not what makes you a winner or a
loser. You either have the ability to change yourself or you don't.
If you do, you have what it takes to be a winning
trader. I don't believe you don't haveit. Maybe you don't want it.
But if you do, you certainly can! Why do you need
to change yourself? There are several reasons.
First of all, great trading requires a very unusual "opinionless"
state of mind. We discussed before how opinions
can distort your perception. You know how dangerous it can be to
have an opinion and to stick to it. However, at
the same time, isn't it what makes us successful in other fields of
activity? We were taught to insist, to prove, to
press.
Only in arts do great masters say;
"Dissolve yourself in what you are doing, then you have a chance to
create a great painting or poem."
This is first major change trader has to go through. Next thing we
have to defeat is our sense of certainty. The
trader wants to firm the link between a reason and an outcome. The
majority of events fit into the conventional
correlation;
"If A happens, B follows" or "it takes A to happen for B to occur".
Aristotle logic serves us well in our life, but not in trading.
Everything is fuzzy here. A new trader is looking for
this set of reasons and outcomes, thinking that there is some kind
of secret in it. He often asks for an indicator or
system used by others and tries to apply it. But the truth is that I
can give any system to 10 different traders and I
will get 10 different results. The quest for a reason that would
define a result leads to nothing but frustration. A
natural question at this point is if there is no link between reason
and result, how can we trade at all? There is only
one answer possible. We need to recognize that the market works in
probabilities, not in certainties. We need to
realize that our opinion is a map, not a territory. Lastly, we need
to be willing to lose our opinion in order to not
lose our money.
The next major switch has to do with ego.
Ego is what doesn't allow us to drop our opinion. That's what
whispers in our ears "You are right and the market
is wrong. All those who sell here are wrong." Ego is not something
you can turn off. It might get oppressed for a
while but it raises its head again. Ego itself is a topic for
separate class and might very well make for a topic of an
entire book. Within the framework of this session, let's state this
switch as an absolute necessity.
There is one more example of a switch in thinking. Let's think of
what's going on with a trader as the stock he
bought moves in his favor or against him. The standard emotional
reaction is;
When the stock goes in the trader's favor, he fears that his profit
disappears and takes it while it's there. When the
trade moves against him he hopes that it goes back and makes him
whole.
This set of reactions is in direct contradiction with the rule "Cut
your losses quickly, let your profits run." In order
to trade accordingly to this rule, we have to switch these two
emotions. You have to fear when the stock goes
against you and cut your losses right away. It's good to be a
chicken sometimes! We have to hope your trade works
out OK and stay with it as long as a sell signal is not generated.
Emotions are the greatest enemy of a trader. A certain level of a
trader's development leads to the state when
trading decisions are generated and executed with no emotions at
all. Why are we so emotionally involved in this
game? When we hang the picture on the wall, looking for the right
spot for the nail, are we emotional about it? No.
So, why can't we get rid of emotions in trading? It is because when
we are hanging the picture, we don't feel like
our money is on the line. From this, here comes the next switch. No
thinking of money! It's just not a subject of
your job as a trader.
Your job is reading stock movement. Can you put that nail in the
right place if you don't pay attention to what you
are doing, if you think of only the money that you should get paid
for hanging that picture? Most likely a nail will
be misplaced - and payment too, accordingly. Do your job right and
the money will come as a reward for a job
well done.
The next major switch (yeah, they all are major) is responsibility.
We live in a society that has some protecting structures in all
aspects. There is nothing like that in the stock market.
Nothing will stop you from self-destruction. In this situation, you
have only yourself to count on. You have to
assume absolute responsibility for everything that happens to your
account. Nobody and nothing is there to blame.
You are the one who makes the final decision and pushes the button.
It's tough to think like this. It takes guts. You
have to step out of the comfort zone of "It's not my fault, there is
nothing I could do about it." to "I can do it and I
am going to take responsibility for result".
Plenty of people prefer to stay in the comfort zone of "It's
someone's fault. Some evil intentions or unmanageable
forces hurt me". Sometimes they might even be right. But guess what?
It doesn't help! You have to make your
choice. What is it that you want? Comfort or result? You want
results, then take the responsibility. If someone is to
blame, you will never learn. How could you if you did everything
right and still lost? Your trading becomes just
gambling. Either those higher powers cut in and ruined your trade or
they didn't. In any case, the result depends on
something else. So why learn?
"I lost my connection", "Darn GSCO MM", "INCA killed me, it should
be made illegal to hold the stock like this",
"Software froze on me", "News wasn't fresh", "Call was not good".
Those are variables of the same "It's not my
fault".
Part 2
If you adopted the ideas of the uncertainty of market action and of
your being solely responsible for the state of
your trading account, the next natural switch is from "I know what
the market will do" to "I know how I will react
on anything the market does".
This will save you a lot of frustration. Frustration is inevitable
for those who are looking for a definite way to
predict market action. The first approach is disaster. The second
approach leads to control over yourself. This is
the only control you need to trade successfully. With control,
confidence comes, bringing that great feeling of joy
of being in tune with the market. The market ceases to be a
frightening enemy, it becomes a friendly place. You
still have to respect it and be careful with it, but you are not
frightened by it anymore. What could possibly hurt
you if you are not taking trades that do not exceed your risk
criteria and if you are controlling your losses? How
can you get frustrated by the fact that market doesn't do what you
expect if you expect nothing, but are ready to
anything?
When you switch to the approach "I know how I will react on anything
the market does" and assume the fact that
the market works in probabilities, the next switch in thinking
comes. You start to think in scenario terms.
You begin to plan your trade like following:
If ABCD goes below this level, the trade is no longer valid and I am
going to stop out. If ABCD goes above that
level, the reason for being in trade is reinforced and I will stay
with it until ABCD does this or that. Being armed
with this set of scenarios, you are pretty much ready to respond to
any turn of events and nothing can surprise you
or throw you off balance. As Eric Patterson’s adage says, Plan your
trade and trade your plan.
There is one last thing I want to say today on this matter. There is
a Russian movie titled Stalker. The plot line
shows there is a machine that grants wishes. It’s hidden in the
Zone. The Zone is a pretty dangerous place. Guides
illegally bring people to this machine for a fee. But there is a
catch that becomes known only at the end of movie.
The machine grants not the wish one asks for. It grants a wish that
is hidden somewhere deep inside that person. It
is hidden in their core. Usually the carrier of this wish has no
idea what it is.
In a way, the market works like that machine.
Hidden self-destroying tendency, off-screen desires to suffer might
sit within and undermine one's attempts to
make it in trading. That's why trading is a path to self-discovery.
This path is not easy. Trading rules are so
simple. Cut your losses, let your profits run, the trend is your
friend, do not double up on losers, etc. That journey
to self-discovery and self-changing, requiring absolute honesty and
willpower, is the real challenge.
Let’s go for questions, if there are any.
<RT Member> Concerning the opinionless state of mind: thought Threei
might like to know that in psychotherapy,
A. Bion's famous aphorism is that one must approach each new session
"without memory or desire." Seems to fit
here as well.
<Threei> Thank you, I was looking for your professional comment :)
<RT Member> The "emotionless" state of trading is something I've
been working on for a while now. I've found I
can reach that "zone" most of the time now but definately not all
the time. I'm curious if your experience has
found that the emotionless state is something you aspired to and
reached one day or is it something you are
constantly working on and 'tweaking' along the way?
<Threei> I would put it this way. Man is not a machine. We reach
this state, we exploit it for a while, then we slip
out of it and start to work our way back in. This cycle repeats
itself many times and I really doubt there is an end
to it. But, the more experience you get, the faster your recognition
of another "slip out of the right state" occurs and
the easier your recovery is. The ratio of time spent in "right"
state and "wrong" state becomes more and more
favorable. In a while, the very process of recognition if you are
tuned right becomes almost automatic. You know
when to take a break and let yourself to get regain your balance.
<RT Member> What is your opinion about whether or not most folks can
develop the right mental attitudes in
isolation or do they need to be dialoguing with others to hear
themselves more accurately?
<Threei> There is plenty of arguing going on about this. Trading
from home or from trading office. My strong
opinion is (I realize it's arguable) that trading from an office has
high potential to hurt the right mental tune.
Interacting with other traders more often than not tends to lead to
listening to others opinions rather than thinking
on your own. Trading is a lonely business. Internet communication is
less dangerous as it has no noise and no
emotions expressed by others by intonation, face expression, etc.
There is less impact. Pretend you get a strong
feeling for a stock reversal or your system generated a buy signal
in the situation of furious selling. Why is there
furious selling? The crowd is panicking. You know it's a sign of the
bottom. But when you have 30 traders around,
the chances are that most of them will feel and act like the crowd.
You don't want your thinking/perceiving process
to be impacted by anyone who can induce emotions. There are some
positive sides to it of course. For instance, if
the trading office has some real good instructor or a great trader
who lets you to look over his shoulder, this would
be OK for some initial stages. Eventually, the trader has to cut off
external impact, in my opinion. There is too
great of a temptation to verify your take with others, to be a part
of crowd that gives a warm and fuzzy feeling. But
profits and discomfort go hand in hand in trading.
BigDD
"Mary" <mary...@noyahoo.com> wrote in message
news:39E9DC4A...@noyahoo.com...
Mary
BigDD wrote:
>
> Thank you, Mary. This is why I read this ng. BigDD
>
>
No problem.If you are interested the post is from the "trade what you
see,not what you think" thread on Silicon Investor
Another good thread is "daytrading fundamentals"
Relaxed and boring trading to you..Mary
Josh Stern
>A good post from a great trader..
Thanks Mary, that was an interesting read. If I am
remembering correctly, you mentioned in a posting a
few days ago that your personal trading strategy involves
going against intra-day trends and being indifferent to
long term trends. But the lecture you posted seems to
primarily advocate support of inter-day trends.
Is that correct? Do you feel that your approach
is closely related to what the author advocates?
-= Josh
don_cameron__(donald.cameron2<please_remove>@sympatico.ca
wrote:
>Mary <mary...@noyahoo.com> wrote:
>
>>A good post from a great trader..
>
>Thanks Mary, that was an interesting read. If I am
>remembering correctly, you mentioned in a posting a
>few days ago that your personal trading strategy involves
>going against intra-day trends and being indifferent to
>long term trends. But the lecture you posted seems to
>primarily advocate support of inter-day trends.
>Is that correct? Do you feel that your approach
>is closely related to what the author advocates?
>
>
>-= Josh
>
>
>
>
If anyone wants to read more of the same you can go to
www.realitytrader.com and sign up for their free trial until Nov 9.
It is geared very much to day trading with the occasional overnight
hold. It also seems to concentrate very much on long trades rather
than shorts.
BigDD
>
>
> Josh Stern wrote:
Mary, please stop it. Stick to posting the psychological part...not very
important details. If everyone were to adopt certain methods you describe,
as I know some do (!!!), then I fear those methods would be
jeopardized...and I'd have to do something completely different! Thank you.
:-) BigDD
704set
704set
Mary <mary...@noyahoo.com> wrote in message
news:39E9DC4A...@noyahoo.com...
Mary
Josh Stern wrote:
>
> Mary <mary...@noyahoo.com> wrote:
>
> >A good post from a great trader..
>
> Thanks Mary, that was an interesting read. If I am
> remembering correctly, you mentioned in a posting a
> few days ago that your personal trading strategy involves
> going against intra-day trends and being indifferent to
> long term trends. But the lecture you posted seems to
> primarily advocate support of inter-day trends.
> Is that correct? Do you feel that your approach
> is closely related to what the author advocates?
>
> -= Josh
The reason I posted the lecture was to stress the importance of the
psychological part of trading.Every good trader I have known would give
this same basic "lecture".This has nothing to do with what methods one
uses for trading.Methods are worthless without the psychological part.It
is like a coin.The coin is worthless without two sides.
The way or methods I use happen to go against what most other traders
would use.For instance I don't use level II,stop orders or a direct
access broker.I trade against the intra-day trend.And yet I consider
myself very successful.My methods are opposite of other successful
traders and both camps do well.This all goes back to the reason I posted
this in the first place.It is the psychological side of the coin that is
important.It is the only common "trait" among winning traders.
Before I go on anymore let me answer your question more directly.My
approach is opposite to the author.It does not matter.The author and I
and every good trader does one thing.They limit losses and maximize
gains.Everthing else goes toward this end.There are many ways to get
there and therefore many "methods" that will work.The main impediment to
getting there is not what method one uses but psychological reasons.For
instant,most traders cannot lmit losses.It is not because they don't
know how.They simply can't.One reason is most have a need to be "right"
or feel smart.If a trade goes against them they cannot sell for a loss
because it proves they were wrong.If you truely don't care about being
right then it doesn't matter.All that is important is how much you made
that week;period.
The reasons my methods are so different than most traders is they mimic
the specialist and MM's.They buy when everyone else is selling and short
when everyone else is buying.