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Archive for the ‘Psychology’ Category

escape_from_alcatraz.jpg Coach Nick Jensen has provided part II of a great article he did last week, What does Alctraz and your trading rules have in common? Thanks Nick!

Last week I talked about the importance of having a trading plan and mentioned that having a psychological plan as well is an effective method to deal with market conditions. I have put some guidelines together that can be included in this plan and some of the questions you may want to ask yourself as you develop it. One thing I want to point out is each trader trades at a different skill set level and so each
trader will also trade at a different psychological level as well.

This plan needs to be yours; spend some time introspecting, really trying to understand how you tend to react in different market conditions. Then as you evolve as a trader this plan should evolve with you: do not stay stagnate, you need to progress and strive to achieve a higher level of trading competency as well as psychological competency.
Losses: Trading is not a business of perfection but a business of probabilities. Doing A, B and C does not always equal D and that is OK. You do not have to win on every trade but make sure that you are cutting your losers loose. How do you react when you take a loss? Identify those emotions and realize it is normal to take a loss in the market as long as your risk was justified when you entered the trade and you are taking on a minimum amount of risk.
·Do I fear taking a loss?
·When I take a loss how will I react to the market? (I say “next”)
·How many losses in a row will I take before re-evaluating my system or the execution of my system? (I have taken in 8 losses in a row before, it could be more)
Wins: It is just as important if not more important to control your emotions when you have a winning trade. Do not fall into the trap that you are invincible in the market. It is nice to go on a winning streak but that’s all it is: a streak. Take the profits, be grateful for them but don’t be surprised or disappointed when it comes to an end.
·What will I do to stay calm when I win a few in a row?
·Will I reward my efforts and if so how?

Capital Draw Downs: It is normal for your portfolio to fluctuate in value. Typically the more aggressive of a trader you are the wider the swings in your account. Identify what would be a typical swing in your account during normal trading activity. What you need to identify is how much of a capital draw down is abnormal and warrants a halt in trading to re-evaluate what may be going wrong.

·What percentage drawdown in my account will trigger a suspension of trading?
(In my opinion a 20% draw down is maximum)
·I can not trade real money again until I………….. (What things do you need
to identify and or fix before you can trade live again)

Emotional Extremes: We all know that emotions are a normal part of life. They are also a normal part of trading as well and that is nothing to run from. It becomes dangerous when those emotions get to extreme levels because we tend to become irrational.

·How am I going to identify what are normal emotions and what are extreme
levels?
·If my emotions are at extreme levels; why and what can I do to change it?

Again, in order to stand on the banks of Alcatraz and know we’re going to reach the other side of the bay, we have to be prepared to deal with those things in which we can not control. These are a few suggestions to prepare you to do so, feel free to add to them or take away from them as needed.

 

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 * Contributed  by Investools coach Shay Aslett

crystal-ball.jpg Happy New Year! (Well, it’s only 20% gone – we still have 80% of the year) In this article, I’m going to predict your future and forecast exactly what kind of results you’re going to get in the next 12 months. Sylvia Browne, step aside… I’m pretty good at this.

What if I could take out my crystal ball and predict with 99% precision exactly what kind of results you will achieve with your trading & investing by year’s end?

Well, no problem, I can do that.

I would claim that I have some kind of “gift” for this, but to be honest, you and I don’t need to be psychic to make predictions like these.

There are two things you can always count on: (1) Nature’s laws of cause and effect, and (2) human nature.

On that basis, here are my 20 currency trading & investing predictions for the New Year:

shaysworthy1.jpg I PREDICT that if you can reach into your pocket on any day this year and pull out a card or piece of paper with all you’re currency trading & investing goals written on it in vivid detail, the odds are 95 to 1 in favor of you achieving every one of those goals before the year is out.

I PREDICT that if you focus your thoughts, on your goals and how you are going to achieve them, all day long, you will reach your goals so fast this year, it will make your head spin. “What you focus on expands”.

I PREDICT that if you focus your thoughts on investing woes and trading problems and if you think about what you don’t want, all day long, your problems will get worse than ever this year.

I PREDICT that if you made a new year’s resolution, but you didn’t turn it into a specific, written goal with a deadline and a strong reason why you must achieve it, you will freely abandon it the moment the going gets tough.

I PREDICT that if you can tell me all the reasons why achieving your currency trading & investing goals are important to you, you will be motivated from within to stick with it when the going gets tough.

I PREDICT that at times, the going is going to get tough.

I PREDICT that if you can tell me today what your life purpose is and what is your lifelong vision for your currency trading & investing, you will still be as motivated and driven at the end of the year as you were at the beginning.

I PREDICT that if you don’t have long term goals and a “big picture” vision for your life that you will lose your New Year’s enthusiasm and motivation in a matter of months or even weeks.

I PREDICT that the way you see yourself in your mind’s eye today will be an exact reflection of what you see in the P n’ L column at the end of the year.

I PREDICT that if you have a setback that seems to get in the way of you reaching your currency trading & investing goals and you tell yourself  “this is just temporary; this too shall pass,” then it will pass and it won’t set you back.

I PREDICT that if you believe the way you’re trading today, is out of your control and you feel helpless or powerless to change, you won’t even make much of an effort this year.

I PREDICT that if you accept complete responsibility for the way you are trading today and you believe that you have the power to change, that you will take action and keep taking action, even through the tough times.

I PREDICT that if you’re unhappy with your trading and investing and you say, “it’s not my fault” or you blame it on “the market”, central bankers or news, then your currency trading will look pretty much the same at the end of this year as it did on New Year’s day.

I PREDICT that the more you have patience, a long term perspective and the ability to postpone immediate gratification, the more likely you are to be a success one year from now.

I PREDICT that the more you seek the, “perfect trade”, “hot tip” or “the perfect trading product,” the more likely you are to be a failure one year from now.

I PREDICT that you will be tempted by many, high risk, quick-profits this year.

I PREDICT that if you hang out with losers and negative currency traders this year, you will become just like them.

I PREDICT that if you hang out with winners and positive currency traders this year, you will become just like them.

I PREDICT that you will run into more negative currency traders and losers this year than positive traders and winners.

I PREDICT that if you recruit just one currency trading & investing partner that stands behind you and the trading changes you want to make this year, you will double your chances for success. If you surround yourself with numerous trading & investing partners, you will become virtually unstoppable.

So how does your currency trading & investing future look for the year ahead?

Based on my “predictions,” if it doesn’t look as bright as you’d like it to be, then don’t worry, because a prediction is not predestination.

You can’t do anything to change the past, but by changing your thoughts, attitudes and actions in the present moment, the future is yours to create.

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 *Contributed by Investools coach Nick Jensen

escape_from_alcatraz.jpg Recently my wife and I vacationed in San Francisco.  While we were there we did all of the normal tourist attractions and among those we visited the infamous Alcatraz.  Supposedly nobody ever escaped from this penitentiary but there were 36 men and 14 different attempts.  While listening to all of the escape attempts by the tour guide, he laid out the inmates’ clever and detailed escape plans to get out of their cells, past the guards, out of the prison itself and then to the edge of the water where they either put air in their make shift rafts or attempted the 1.5 mile swim in the frigid waters of San Francisco Bay.

Although in my mind some of these plans were brilliant attempts, there seemed to be a common thread to all of them. 

None of these men were psychologically prepared to deal with the elements that they had no control over.  No matter how carefully they planned they were not prepared to deal with the 50 degree water, wind, waves or dense fog.

            Carefully planned entries and exits applying the appropriate amount of risk taking into consideration current market conditions should make the perfect trade, right?  In a perfect world yes, but in this same perfect world these escapees would have had a boat waiting to pick them up as well.  As a trader there are elements that are out of our control that we must be prepared to deal with.  You can have the perfect plan, with the perfect setup and things can still go wrong … welcome to the wonderful world of trading!  That is what makes trading so great, it is challenging all of the time!  With those challenges also come great rewards; like a whole load of money!  So how do we prepare to deal with those elements that we have no control over?

            My suggestion is this.  Just as we have investing plan rules and journals for our trading I think we need to have psychological plans in place to deal with the emotional side of trading as well as keep an emotional journal.  If these two elements are incorporated into your routine already, then great; if they’re not, then consider taking the plunge.  Whether you acknowledge it or not every trader is affected emotionally or psychologically by not only taking losses in the market but also from taking profits out of the market.  Once we realize how those emotions affect our thought process and how we analyze ourselves as well as how we analyze the market and our next trade then we can take steps to assuring we are seeing clearly through the fog.

            Think about what questions you can ask yourself in order to insure you are psychologically prepared to deal with the elements of the market that you may not be able to control.  Just as if you were standing on the shorelines of Alcatraz to make he 1.5 mile swim how are you going to make it if the waves start crashing over you, or if the fog gets so thick that you can’t see a swim stroke in front of you, can you mentally conquer the task when these conditions were not in your detailed plan?

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