Saturday, September 26, 2009

Learning to take my foot off the brake

My last post, “Simplicity”, explains that my trading plan is finally finished after 2-1/2 years of trading it, and watching it run otherwise in real-time. It will not be tweaked or added to anymore as there’s no point in it. All improvement at this point must come from my execution of that plan. Assuming you have a time-tested plan it becomes pretty evident that the trader himself is the weak link among the two. I am into serious thought here as to what I need to do to quit riding the brake pedal and let the real potential of the plan come to fruition. It’s not hard to sit here and imagine where I’d be today if the person executing the plan were as good as the plan itself. Think about that one in your own trading life.

Oh yea, it’s the psychology that works against us we’ve all heard about a thousand times over. Blah, blah, blah. Cut to the chase. It’s the fear part of “fear & greed”. It’s surely not that I’m (as some psychologists like to throw in the mix) “afraid of success” and so I’m sabotaging myself. Hell no. I’m just afraid of losses. And it’s gotten really, really stupid. My stats show I pass on about 3 out of every 5 legitimate setups for one reason or another. Sure, some setups are “clean” and some are “messy”, but they are setups still. It’s a very true fact in trading that many of the best opportunities come when the charts are devoid of many signs of confirmation. If I wait until it’s “so easy that even a caveman can do it” then I’ll be dropping the ball on a lot of potential gains. We ALL know this is true, don’t we. That’s not a question.

If you ever want to solve a serious problem you have to be darn sure you’re asking the right questions first. I really believe I know why I ride the brake pedal too much (but I’m not getting into that in detail here.). Here are a couple things I know as facts though…….

I am a fairly meticulous record keeper (i.e. my post “Make the letter R work for you”) so I KNOW what the average risk (drawdown) is on a legitimate setup. Even though this is a fairly new stat for me the sample size is now about 710 setups as of today. And I know what the Won/Loss record is for trades. It has a pretty good sample size backing it up. So these two stats mean I truly do know some FACTS -- not just assumptions or worthless theories. (Now don’t jump in and remind me how naïve it is to count wins and losses. I do it mainly for the psychological value).

This is a fight between the LOGICAL side of me and the SUBCONSCIOUS (imagination) side. Logical is what I believe out loud. The other is irrational and created in large part by the “baggage” we (I) bring to our trading careers. I know it’s irrational because I know the facts stated above. But there’s no handle I can just turn to shut off the irrational thoughts. If I know my subconscious is acting irrationally then it seems that I can override it with logic. And I’m sure I can…with time and effort. Based on the facts I know, here is what I must ingrain in my mind to shut down the senseless thoughts that are keeping me from pressing the accelerator pedal…..

1) The big picture matters, not the little picture. That is, my results for the week matter, not the results for the rest of today. In this CORRECT sense the next trade - win or lose - is relatively unimportant. And then so is the one after that. Ultimately, this is TRUE. I have enough opps throughout the week to know that no single trade should matter.

2) There is NOTHING wrong with having a losing trade. Only chronic losing is wrong. What is the likelihood of me having 3 losers in a row? Very small. So what then is the likelihood of me becoming a chronic loser? Very, very, small (as long as I follow my plan and don’t become reckless. I won’t.). Ultimately I believe this to be TRUE.

3) What is the likelihood of me having a catastrophic loss? A simple stop order, automatically placed when I enter the trade, virtually ELIMINATES THE POSSIBILITY of a “too big” loss. This is the TRUTH. This same stop-loss in fact ensures that any loss is kept relatively small. My plan won’t let me enter if the stop size is too big (again, on the assumption I will follow my well-laid out plan and not cheat on it).

If it weren’t for that fact that I’ve done my homework consistently over time then none of the above 3 points would hold water because they wouldn’t be based on time-proven facts. One assumption though is that I won’t, as mentioned, become reckless and get outside of the parameters of the plan which are designed to keep me relatively safe.

I need to make a mental shift from fear (which is constrictive and mentally draining) to abundance (the feeling that all my dreams are now coming together such that I wake up with a smile on my face everyday because of it). Ultimately I need to be a trader….

A) ….who is able to COMFORTABLY take a loss. There is nothing to “get over”. No anguish or moping around and negative self-talk. Instant amnesia follows.

B) ….who wants the money ….really wants it; more than I care about the risk of a measured loss. The last part of that sentence is key. Some people say you should look for reasons NOT to trade. I guess so, if you’re a careless gunslinger by nature. I know who I am, and I should NOT be looking for reasons not to trade. More trades, not less.

Most fears of all types are groundless. I think almost all of us would agree with that statement if we think about our own situations over the years. Most of what we worry about will never happen. A little fear can be a good thing … but only at the right time. But it can’t be allowed to gain irrational status. A long time ago I first heard the saying, “If you knew how much fear controlled your life -- it would scare you.” Emotions will always be part of trading because emotions are part of being human. It’s a fool’s game to pretend we can become machines, IMHO. To change those emotions to my BENEFIT is my goal. In one of my first posts I said “You are only as good as the chances you take”. I’m taking too few chances. I need some greed. Yes, I need the GREED!

Facts don’t lie (i.e. my extensive record keeping). So I need to quit lying to myself by letting imagination (negative thoughts about the outcome of a potential trade) override the logic of what is reality. And so I am starting some mental exercises that emphasize those facts as presented in points 1-3 above so that REALITY can then become points A & B. It will take a LOT of repetition because I’ve read enough about trading psychology (and have lived long enough in the real world) to know that between imagination and reality, imagination is the one that wins out almost always. It’s time to get rid of the stinkin’ thinkin’. There is too much at stake here.

As to what I’ll specifically do isn’t important because there’s no magic in it, just like there’s no magic indicator. It’s some symbolism combined with a heck of a lot of drill-like repetition designed to re-wire my brain so that logic and imagination are team-mates and not enemies. I need to press that accelerator.

(P.S. This is my 2nd post today. If you are interested in health then check out the one just prior to this one). Have a great weekend all.


  1. Quick comments:

    1. If you are ready to go LIVE and believe in your "system" - you must take every trade without fear of what will happen or what already happened on the previous trade. Otherwise all of your previous calculations to give you a statistical advantage are not working for you...

    2. I have been trading LIVE for awhile and will show you my trades this week in points, perhaps there is a lesson in it.

    Monday: - 1.5, + 3
    Tuesday: -3, -.75
    Wednesday: +4.50, +15.50
    Thursday: +7.75, - 2.75
    Friday: -3, +4

    So the point is, first two days could of installed fear in me of rethinking or double thinking entries on Wednesday. I did take the trades and therefore I am a Winner.

    Market will do what market will do - there is no logic to it.
    Kick the fear away and take every trade if you believe in your is the only way to find out if your system works...

    Market will do what market will do - there is no logic to it, so

  2. Excellent post and I completely agree! Eliminating/controlling the fear is critical to reaching your true potential.

    Automation has helped me in this area. I always use an automatic 2-point hard stop in the ES. My potential loss is always predefined, and I don't even think about it when entering a trade. OCO bracket orders are automatically placed with each entry. This doesn't mean I'll sit around and wait for the 2-pt stop to get hit, but that is my Maximum loss on any given trade and just knowing the exact maximum loss is a good way to curb the fear/anxiety.

  3. Chuck,

    I just now noticed your comments on some of my older posts. Just wanted to say thanks for taking the time to share some insight.

    Good trading to you.

  4. YM, E-Mini player, are you all OK?

    It has been awhile...if you need words of wisdom, let me was tough no volume trading last few days for all....

  5. driven, all's well. YM-Trader will be focusing 100% on the markets and trading which means no time to write on the Blog.

    I'm busy with school/work but do keep up with the markets and continuing my own learning.

  6. driven... thought I'd check in so I don't leave anybody hanging. My last post here explains my situation where I need to really focus in order to get to the next level. Blogging, I've found out, is a lot of work. I was spending a lot of time trying to make my thoughts "blog worthy" and that was taking me away from the whole purpose of why I'm trading. I thought it would be fun when I started. And it was. But it became hard to keep up a regular posting schedule. As for the market, its fine. I just needed more "me" time.


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