What’s your favourite piece of trading wisdom?

If you’ve been reading my newsletters for a while you’ve probably heard me mention mine:

An act of self preservation in the ‘normal’ world can have the exact opposite effect when you’re trading.”

Think about it… we come naturally hard-wired to grab at ‘lucky’ finds. We get that overwhelming urge to stash easily won loot before anyone else notices. It’s probably some kind of evolutionary throwback…

Stumble across a couple of tasty dinosaur eggs and you’d best tuck them away to feed your family before the next guy knocks you over the head for them.

Unfortunately the stashing approach is not so effective in the markets.

Quickly close out the trades that move into early profits and you can deny yourself easy money. Those are the times the market can reward you handsomely for your good timing. It goes against your primal nature to do so, but letting those trades run can often swell your account significantly.

Or how about the times your trade moves against you and shows no sign of recovering?

A ‘never say die’ approach may be applauded in the outside world – have the courage to dig-deep when your back is against the wall and it might be the difference between a business thriving or folding.

But use the same tactics when you’re trading and you can literally bleed yourself to death. Don’t let your ego get in the way of sensible trading decisions. No matter how stubborn you are, there can only be one winner – the market. The key is to position yourself in line with it so you win too!

And it can be tough to come to terms with these contrasts but the markets are just so different to any other commercial environment.

The financial markets are like nothing else.

An academic education can’t prepare you for it. Not really.
Sure, you can swot up on theory. But it’s not until you feel your heart pumping through your chest as your first big position takes off that you really understand the true emotional aspect of trading.

And in the same way, the markets are so unlike any other workplace…

They are always changing minute-by-minute, in a constant state of perpetual motion, without any true structure. The markets roam pretty much wherever they like. It’s one huge never ending event with no cap on the money that can be made (or the losses that can be incurred).

There’s nothing else like it.

The trouble is most people associate a safe, static environment with feelings of security and well-being. And there’s absolutely nothing wrong with that at all. It’s just the markets aren’t the place to find it!

A safe and static environment will not reward you with thousands of pounds in a matter of seconds – the markets can!
By definition, a safe, static environment does not give you the opportunity to make thousands of pounds in a matter of seconds with very little physical effort.

This reality doesn’t sit well with most people’s self identity. They see themselves as steady £X/per hour kind of guys. Again nothing wrong with that at all, it’s just when a true profit windfall lands in a trader’s account his deep-seated self image can often tell him he doesn’t deserve that money. He can end up losing it as quickly as he earned it without understanding what just happened.

Subconsciously he’s striving to stay true to how he sees himself.

It’s why you hear those stories of lottery winners ending up bankrupt within a couple of years. Their self-image cannot handle being so far out of line with the pleasant reality of being a multi-millionaire, so circumstances change to remove that internal conflict…

As the workmen arrive to board up the windows to his repossessed mansion the poor guy stands scratching his head, trying to figure out where it all went wrong

So the ‘normal’ rules of expending time and effort to earn a proportionate reward just do not apply to trading.

In order to prosper we need to learn to think differently (and it might mean unseating some long held beliefs about yourself too).

Here are seven key ‘learning’ areas I recommend you concentrate on:

  1. Learn how to visualise appropriate goals. You’ve got to be able to see yourself trading profitably before you can truly accept it as your new reality. Get hold of Psycho Cybernetics by Maxwell Maltz for a menu of visualisation exercises. Choose your favourites and do them – every day!
  2. Identify the technical trading skills you need to improve. Learn to work on perfecting the process of trading instead of thinking about the money. The money will follow as a by-product of trading well.
  3. Learn to adapt to changing market conditions. It’s no use stubbornly trying to bang a square peg in a round hole. Learn the tell tale signs of a trending market versus a range-bound or congested market. Make sure you know which particular methods from your tool-bag work best in current conditions.
  4. Learn to work with your exposure to risk. The first step is the ‘Sleep Soundly Test’. Make sure your intraday trading activities or overnight held positions do not keep you awake worrying. Once you’re at that stage, start to steadily increase exposure as your account grows. You need the ability to grow your account through incrementally larger trades (all while keeping stress levels under control and maintaining an unbiased opinion on the market’s comings and goings).
  5. Learn to pull the trigger fearlessly. In other words, fear can have no place in your trading activities. If your strategy says make the trade, you must make the trade. Remember, no one knows for sure what’s going to happen next – it’s all about probability anyway. And you’ve got to be in it to win it!
  6. Learn to let the market tell you when enough is enough. Remember not to choke those trades that break out quickly in your favour. Try to incorporate a trailing stop mechanism on at least part of your position. This means you get to participate in those big moves you time just right.
  7. Learn to maintain an objective outlook. Try to keep an unbiased analysis of the market. It’s not so easy to do when you’re committed to a trade – you tend to see things through a distorted lens that your own interest creates. But keeping your wits about you and not being blinkered to the reality of current conditions is the mark of a master trader.

Putting this effort in behind the scenes is where the real heavy lifting is done by successful traders. They work hard on themselves first so they enjoy the ‘easy’ rewards trading can bring later.

Give it a try yourself. Focus on the learning area you think might be causing you the most difficulty and don’t be surprised when you notice the positive effect your new thinking is having on your results!

Be Prepared: Market Moving Data Coming This Week (London Time):

Wednesday 9th July:
19:00 USD FOMC Minutes

Thursday 10th July:
12:00 GBP Interest Rate Decision

Friday 11th July:
– No big reports scheduled

Monday 14th July:
– No big reports scheduled

Tuesday 15th July:
09:30 GBP CPI
10:00 EUR German ZBW Economic Sentiment
13:30 USD Retail Sales

We’ve a pretty quiet week ahead on the data releases. Don’t be surprised to see quiet conditions in the markets. It could be a great opportunity to tackle whichever of those learning areas you identified as your first port of call!