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Tuesday, December 10, 2013


A Trader’s Journey

As I continued trading, I managed to make those periods of blackouts shorter and shorter. I accepted that they would happen, without frustration or panic. When they occurred, I cut back on my activity and tried
to minimize my losses while waiting for my clear state of mind to return. Step by step I developed some new ideas for returning to the correct mindset more quickly. I wrote several mantras that I would read and repeat, in a sense meditating on the subject. After a while I wrote mantras for specific trading problems. Regular repetition of them helped me reduce the number of those undesirable periods and make the ones I did experience much shorter. I regained control over myself once again. The mantras follow.

1. General State of Mind

Responsibility for Your Own Trading. No one has control over me. I am controlling myself. Any changes in my account are caused by me. I am looking into my actions to find the reason for any changes that occur. I have the power to make positive changes in my account. No one can hurt me, since I am protected by my rules and discipline. The market is not a hostile environment; it’s just a sea of opportunities. I am giving myself money or taking it from myself. I am not hiding in the comfort of blaming someone else. I want the result—profit or loss—to come from my choices.

Opinionless State of Mind. The market has no firm link between reason and outcome. I don’t have to figure out the future. I don’t need the weight of opinion on my shoulders. I am free to react to what happens by relying on my reading of stock action. I keep a flexible state of mind. Nothing prevents
me from changing my tactic if the market doesn’t act as I expect it to.

I don’t know what the market will do next. I don’t have to know. I know how I will react to anything the market does. I am confident in my ability to react correctly. I have a strategy that works and the discipline to carry it out. I am independent-minded. I don’t trade to please others. I am self-reliant. I question any trade I take, but I don’t question my ability to make the right decisions. I trade effortlessly and automatically. I manage risk and assume losses. I trust myself.

Living in Reality. I do not convince myself that I am right. I just watch stock movement and make my conclusions. When market behavior changes, so does my strategy. Market movement is the ultimate truth. I am not trying to outsmart or outguess it. I live in the here and now. My mind is open to possibilities.

Emotionlessness. I am objective and calm. I am a detached observer. I don’t get angry about stocks not doing what I expected. I know they do what they do and that the market is what it is. I don’t get frustrated with stop losses; they are part of the game. I don’t get overexcited with winning trades; they are just one more confirmation of my correct approach. I feel good about my trading and about myself. My performance as a trader doesn’t reflect on my self-worth.

2. Morning Tune-up after a Winning Day

I am relaxed and confident. I have an optimistic, winning attitude from yesterday. I remember the feeling of doing the right things, and I am going to repeat those things today. I am focused. I can see everything that happens. I evaluate events quickly and precisely. I see myself in control.

3. Morning Tune-up after a Losing Day
Today is a separate day, which has nothing in common with yesterday. Today’s performance is fresh. It is I who have the power to do the right things. The stock market has no power over me. It’s not after me. It has no memory of yesterday, and neither do I. I remember how I feel when I win. I am going to remember this feeling of victory. I can identify and execute winning trades.

4. Recovery after a Losing Streak or a Heavy Loss
I am starting fresh. I know what to do to win. I am doing the right things right now, and not trying to get back my money. I am not taking revenge—there is no one to fight with. I am taking it slowly until I get a
good feeling. I am not complaining about my loss. I paid money for the lesson. Now I am applying my new knowledge to my trading. I am taking only trades that match my set of rules. There is no memory of money lost—my trading account is not money. It’s a tool for making money. I am rebuilding my confidence with many small wins. They let me feel the taste of winning. I don’t let events control me. I am in control of myself. I am going to remember the feeling of every win.
5. Stop Loss
Stopping out prevents losses. It’s not losing; it’s preventing a loss. I am not trying to control the market. I admit to its independence. I am willing to act in tune with it. If I find myself in the wrong place at the wrong time, it’s in my power to get out. I have the responsibility to keep my trading account in good shape, and stop loss is my way to achieve this. There is nothing wrong in being stopped out. A stop does not make me a loser. It makes me a winner, serving as the line of defense for my account. This is my way to control events. This is my salvation. I want to be in control and be happy. A stop is not a loss. A stop prevents a loss from growing. The market is in endless motion. No trade is so significant that it’s worth holding onto if it doesn’t work. The next opportunity comes right away. I switch easily from the trade that doesn’t work to another that will. I enter any trade accepting in advance that it can stop me out. If the trade doesn’t work out, it won’t come as a surprise to me. My trading strategy has the inevitability of losses built into it, but no single loss can get out of hand.

6. Fear of Trading, Hesitating to Pull the Trigger
Trading is a game of probabilities. I don’t have to be right every time. I just have to follow my rules. I know my system works. Every trade is either a profit or a stop. Any given trade is not of significance. The results over a certain time period are what matter. Trading within my proven system puts the odds on my side. I have to play to allow opportunities to materialize. I know I can trade by my rules. All I do is react to signals— a signal to enter and a signal to exit—that are generated by my system. They take me in and out with no hesitation. I can observe the market and emotionally detach from it. Any stock movement is simply numbers that change following certain patterns. I know how to read those patterns. I am totally focused on what the market is telling me. I can hear it and react to it.

7. Letting Winners Run

I don’t have to be right all the time. I don’t have to take a profit as soon as my position shows one. I have to sell when my system generates a selling signal, not when I have a profit. My goal is to play within a set of rules, not to make money. Things once set in motion tend to remain in motion. I want to ride them while they move. I just trail my stop until the stock proves that it has reversed or until a sell signal is generated. My system is profit-oriented. I am going to let it generate profits.
8. Overtrading
I have only one reason to put on a trade. This reason is a valid setup in terms of my system. There are no external influences that can make me trade. Boredom is not a reason to trade. Being down for the day is not a reason to trade. The market doesn’t care about my being up or down. It generates profitable opportunities regardless of what I want. I wait for the market to create a situation I can recognize. I am not eager to find the trade. I will know when it comes along. I don’t have to be in the market all the time. I sit and wait for the right opportunity. My money works when it’s in a trade that exploits a profitable opportunity. My money works when it’s sitting on the sidelines being ready for the right moment. You can use these mantras or design your own for your specific problems. Their repetition really helps instill good habits and tune up your mindset. In early chapters we discuss a trading journal as a way to pinpoint a specific mindset problem. A combination of such diagnoses with mantras creates a powerful way of troubleshooting your trading.

Rules for and the Mindset of a Mature Trader

The Dos and Don’ts of Trading

Trading should be natural and easy. Don’t force anything, and don’t fight the market or yourself. Perfect trading is like breathing. You inhale and exhale, enter and exit. Be calm and relaxed. Look for recognizable opportunities. Be focused and alert. Detach yourself from the heat of action. Be an observer and wait for opportunities to find you. Don’t trade what you can’t read. Don’t think you have to trade everything. There are just so many opportunities that fit your personality, your ability to read. Take those, and ignore the others. Don’t try to be a universal trader who can trade any type of market on any given day.

Don’t fight. Trading is not war. The market is not after you. It has no idea you exist. In fact, it has no ideas at all. Stock doesn’t know you bought it. It does its thing—just go along with it. The market is your boss. Obey it and get paid, or rebel and get fired. You don’t fight the ocean; you swim in it. If you find yourself in a current that takes you in an undesirable direction, you don’t try to change its direction. Look for another current.

Don’t guess. Don’t personalize the market. Don’t expect the market to care. It doesn’t care. It’s not hostile. It’s not friendly. It exists. That’s it. You are free to engage or not. Trading is ultimate freedom. You are free to decide when to go in and when to go out. The market is an endless flow of opportunities for profit and loss. It’s for you to choose. The market presents opportunities to you. Be open to perceive them. Be open-minded as the market talks to you in its language. There is just one language of the market. It’s the language of price, volume, and pace. Any tool you use to read the market is derivative of that original language. All the junk surrounding this direct conversation between you and market, like rumors, tips, analysts’ opinions, other traders’ opinions, can only distract you from the reality of price, volume, and pace.
Forget that your money is at stake. Money in a trading account is just a tool for making money. Preserve your tool. You need it in order to make money. By taking stops, you preserve your tool from grave damage. The market is not certain; it works in probabilities. Hence, stops are unavoidable. Take them with no hesitation when the market says you are wrong, and your tool will survive to serve you another day. Admit when you are wrong. Now and then, a stock will shake you out and reverse. Don’t let it force you into ignoring stops. You can always reenter a position, but you can never get back your loss. Each loss carries a lesson, and it’s up to you to assign the price to that lesson. Do not pay more than you have to. Think of your trading as a whole, as a never-ending process. Don’t put too much significance on any one trade; it’s just one of many. Allow yourself to
lose, and move on.

Do not take a trade out of revenge or because you need money. The market has no memory or knowledge of you. It’s just a giant pool of actions of other traders. It’s not going to reward you just because you need
to be rewarded. You are the one who is in charge. You have the power to take the money out of the market or to lose it to market participants. When traders engage in market activity, they put their money in a big pot. From the moment they start a trade, this money is faceless and nobody’s. Anyone is free to take it if his or her skill allows. By putting money in the pot, each player assumes the risk of losing it. This risk is balanced against the opportunity to take the money from the pot. You assume this risk; you put your stake on the table, like everyone else. Never feel guilty about taking money from the pot. Understand that risk is inherent and a natural part of trading. You accept the risk when you move from a less volatile commodity (money) to a more volatile one (stocks or whatever market vehicle you choose to trade). You do that because this volatility is what you need in order to make money. With opportunity comes risk. You can’t get one without the other.

Trading can and often should be boring. It’s normal. You are not in it for excitement. It’s okay to spend hours sitting in front of your screen doing nothing. This is not a job where you get paid by the hour. You get paid for doing the right thing. The right thing to do is often to stay away from the action. If you want excitement, look for it somewhere else. Learn to find the joy in self-control. Accept the boredom that is a part of good trading.
Never think, “I know what the market is going to do.” You don’t. Nobody does. Think, “I know what I am going to do in any scenario the market presents.” Determine your action for any possible scenario. This is your ultimate freedom and protection. The market can do nothing to you outside of your set of if-then scenarios. In every one of those, “if ” is for market action and “then” is for your response. You cannot control what the market does, but you can control and should adjust your response. Decide what it is you are going to trade. If it’s a trend, follow its direction. If it’s a range, fade it. Buy high and sell higher in an uptrend. Sell low and cover lower in a downtrend. Buy low, sell high in a range. If you play a trend reversal, don’t do it on price alone. You need a more solid reason to buy than, “It’s cheap enough,” and a more solid reason to short than, “It’s too expensive.” Define your signals. A signal generated by your system is the only valid reason you have for making a trade. The rest is emotions. Don’t let emotions dictate your business decisions. When your trading system generates an entry signal, take the trade with no hesitations. When your trading system generates a sell signal, close the trade. If you question your trading system, test it on paper. Don’t trade if you’re testing. Establish your level of aggressiveness. Know your trade-offs. A highly aggressive approach maximizes your profit in cases when you are right but reduces the number of cases when you are right. A conservative approach allows you to be right more often but diminishes your profit potential in each case. Stay flexible. Modify your trading system to correspond to market changes. Adjust your level of aggressiveness and the setups you choose to the kind of market you are dealing with. Constantly check whether what you are doing matches market conditions. Define what a sucker is. Suckers think they are smarter than the market. Suckers think they can figure it out. Suckers think there are secret systems and indicators. Suckers think they can avoid losses. Suckers don’t apply stops because they know they are going to be right. Write down all the traits of a sucker and read them often to see if you spot any such traits in yourself. Don’t be a sucker.

Define how a winning trader thinks. Write down all the traits of a good trader and read it often to see if you are there yet. Use this comparison to see where your weaknesses are and what you need to work on. Be brutally honest with yourself. Everything you don’t tell yourself, you will hear from the market, and it won’t be pleasant talk. Whatever happens to you in the market, it’s never the market’s fault. It’s not the market maker or specialist’s fault. It’s not the mysterious manipulator or evil short seller. It’s always you. You make the decision. You implement it. You engage and disengage. Accept full, undivided, absolute responsibility. Be your own person. Don’t complain and don’t explain. With responsibility comes control. Gain total control of yourself. Trading is the ultimate exercise in self-control. This is a cold and uncomfortable feeling at first—the feeling of being alone in your castle. The joy of having your edge and being the best at it will come and compensate you for that discomfort. The feeling of great self-control, of total power over your own actions, will be a great reward for all your efforts. Be the master of your universe. Learn self-irony. Don’t take yourself too seriously. You don’t have to prove anything to others. Be the first to laugh about your mistakes. Unburden yourself of the pressure of trying to be perfect. Excellent is good enough.

stolen from:
who stole it from Zentrader
who stole it from somebody else
who stole it from Vadim Graifer
Thank You, Vadik!


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