Anything Worth Having...

"I've missed more than 9000 shots in my career.
I've lost almost 300 games.
26 times, I've been trusted to take the Game Winning Shot and missed.
I've failed over and over and over again in my live.
And that is why I succeed."

Michael Jordan

How Many Ways to Mess up Trades - Let Me Count the Ways

It seems there are countless ways to make trading errors. And countless combinations of ways to make trading errors. Everything from missing trade setups to letting a profitable trade turn into a loser, to early exits, order entry errors, you name it and it can be done to mess up trading.

When you think about trading errors and how many ways there are to make errors and compare that to just the few simple steps needed to do what you are supposed to do in trading, it is remarkable.

Here is all you need to do;

1. Identify setup (your edge)
2. Have patience for setup to develop
3. Place entry order
4. Place stop loss order
5. Take profits or take stop loss

Thats it, of course you may be trailing a stop loss or adding on in a trend, but its pretty basic. So how can it be that the trading errors outnumber the "do the right thing" category by such a wide margin?

Maybe its possible that because in essence what we are supposed to be doing is so simple and basic we just have a hard time leaving well enough alone and give into the have to have something to do to feel productive mode. Of course the outcome will usually be on the unproductive side in the way of losses.

My suggestion is to review what your trade plan and trading setups are the you will look for the next trading day and make a commitment that you will simplify your life and trade only that. If the urge to do anything other than that comes along, take a nap until it passes.

And instead of counting the ways of making trading errors, count the trades that you did the right thing.

Exposure and Trading

The following excerpt is from the book, ‘Be The Pack Leader’ by Cesar Millan. I am a great fan of his and have used his techniques to train my German Shepard puppy, ‘Gartley’. I came across this part on fear in this book and could not help but notice the profound similarity to trading. I hope that you enjoy this as much as I did and find it helpful.

This excerpt is when Cesar Millan asks his friend Dr. Alice Clearman to explain how exposure works as a technique for dealing with fear.

“Exposure is all about reinforcement in the brain. Whenever we engage in a habitual behavior in response to something we fear, we reinforce that fear. If we are afraid of spiders and back away from them, we reinforce that fear. Imagine a great fear of spiders. You see one in the bedroom. You run out of the bedroom and get someone else to kill it. Or you spray half a can of pesticide in your room. Or you call a pest control company. I’ve known one person who refused to sleep in her bedroom for three months after seeing a spider there!
The way it works is that they become more and more anxious as they approach the feared object or situation. In the case of spiders, if I’m afraid of them and I have to kill one, I become more and more afraid as I approach it. Maybe I have a shoe in my hand, poised to smash the creature. My heart is pounding, my pulse is racing, I’m almost hyperventilating. I’m terrified! I get closer and closer, sweating bullets. I suddenly decide that I can’t handle it! I turn heel and flee from the room, calling my neighbor and asking her to come over and kill the thing. The moment I run away, how am I feeling? Relieved! My pulse slows and my breathing returns to normal. I wipe my brow with a shaking hand. Whew! That was close!
Look at what I did to my brain. I had increasing anxiety as I drew closer and closer to the spider. Then I decided I couldn’t do it. I fled the scene and I had an enormous sense of relief. That relief – that feeling – was a reward. I rewarded myself for fleeing from the spider. I’ve taught myself, quite literally my brain, that spiders are indeed very dangerous creatures. I know this because of the feeling of relief I had when I left. The result is that I actually increase my fear. I have made myself a little bit more afraid of spiders every time I exit.”

Please feel free to post your experiences relating to this and any tips for traders they can use to manage fear in trading.

Mind Gym!

It getting to the end of the year!

Part of my Trading Plan involves periodic review of old books and materials. At year end, I have a ritual to browse my trading library; dust off some old technical books. With each passing year, not only do I get a greater insight into the markets, (and myself for that matter,) but also read old materials with a fresh perspective. I am always surprised how differently I can discern the writer’s points with each annual review. Experience enables me to review the same materials and yet come away with different nuances I didn’t perceive from previous “reads.” Seeing old ideas and concepts in a new light is all part of the journey of trading. Like the Nike’s slogan, “There is no finish line” in trading either, but just higher levels of objectiveness, perspective, awareness and clarity.

Recently, I pulled a book from the psychology section of my library that I highly recommend if you haven’t read it.

Mind Gym by Gary Mack

Instead of providing an overview of this book in sports psychology, I thought I would just provide some excerpts. (Especially poignant for those of you that often, at times, are hesitating when pulling the trigger, or are not taking profits when they present themselves.) Review a brief sample below and think for yourself how useful they may be in your trading.

“More than 80% of professional athletes in a study, in describing their greatest moment in sports, said that they had no fear of failure. They weren’t thinking of the performance. They were immersed in the activity. They were ‘in the zone’. The probability of achieving the outcome you want increases when you let go of the need to have it.”

“Everything gets interpreted. Pressure is in the brain of the beholder. Learn to view pressure as a challenge to meet rather than a threat of defeat.”

“You can’t control your performance until you are in control of yourself. What you’re thinking. How you’re feeling. “

“Seek progress, not perfection.”

“Motivation gets you going, Discipline keeps you going.”

“You have to learn how to be comfortable with being uncomfortable.”

“Learn from the past, prepare for the future. Perform in the present.”

Hope everyone had a great 2007, keep some of these quotes in mind as you do your trade plan for 2008!

Turkey's in the Rain

I thought this story might be appropriate since we are only a couple of days away from the
Thanksgiving Holiday. Turkey's are not the brightest creatures. They have been known when it is raining to stand out in the rain looking up at the sky with mouths open and drown.

You might wonder how this relates to trading. Trader's also at times can be like Turkey's in the rain, when a trade is put on and a profit target is reached, they sort of look up at the sky and wonder if more is coming, don't take the profit and let a profitable trade turn into a loser.

This whatI call the "Turkey in the Rain Syndrome". Traders have to always remember they are trading to make profits not to prove to the market that they can guess where it is going. There are many profit opportunities available in the markets every day.

It seems like whenever we try and stretch for that little bit extra, the market seems to know our intentions and reminds us to trade our plan.

The only reliable method that i know to avoid the 'Turkey in the Rain Syndrome' is to plan profit targets and then take them when they are there, no sense drowning on a sunny trading day!

Have a Happy and Safe Thanksgiving!

Leslie

Trade What You See (Was that an 800 pound Gorilla?)

One essential skill in trading to develop is to be in tune with what the market is doing. This sounds simple in theory. This one skill can be responsible for success or failure in trading. This comes down to beliefs a trader has. If a trader has beliefs that the market is going to go up,as an example, then they will filter all information to support that belief, regardless of what the market is actually doing.

I have heard of traders blowing out of accounts due to beliefs like this. They just can not seem to "see" the real information the market is conveying. If they had it would not have been possible to blow out an account.

I saw a fascinating film that was shown to 200 people in a room. The moderator said before the film that there were two basketball teams, one in white and one in black. We were to focus only on the team in white and count how many times the basketball was passed between the players.

Everyone focused intently on getting the count correct. After the film, about 3 minutes, we were asked how many passes. The answers ranged from 8-20. Even with that you wonder how so many people saw it so differently. Then we were asked to watch it again with the same instructions. This time many people changed their counts. Then we were asked to watch the same film one last time except we were asked if anyone saw the "Gorilla", yes, Gorilla. The film was played again and lo and behold a large guy in a gorilla suit had walked through the center of the court, stopped, pounded his chest, and then walked off.

No one saw this the first viewing! Sounds incredible doesn't it, but this shows you the power of our brains when we are locked into believing something, we just do not see or hear all the information, everything is filtered to support our beliefs.

Next time you struggle with the markets, look back on the charts when your mind is clear and fresh and see if there wasn't an 800 pound gorilla that walked across your screen!

Leslie

Fear in Trading

Fear is a common problem for traders. It can be debilitating for some traders who can not pull the trigger. For others they can not get out of a bad trade, similar to deer in the headlights syndrome.

Learning to think in probabilities is certainly a step in the right direction. However, that is using intellect versus emotions; most likely the emotions will win out unless the trader develops other methods to deal with fear in their trading.

Science has done an enormous amount of research on the subject. Understanding how our brains operate and why we experience those emotions in trading can go a long way in improving negative reactions to fear.

Below is a recent article published on the subject of fear.

WASHINGTON - Science is getting a grip on people’s fears.
As Americans revel in all things scary on Halloween, scientists say they now know better what’s going on inside our brains when a spook jumps out and scares us. Knowing how fear rules the brain should lead to treatments for a major medical problem: When irrational fears go haywire.
“We’re making a lot of progress,” said University of Michigan psychology professor Stephen Maren. “We’re taking all of what we learned from the basic studies of animals and bringing that into the clinical practices that help people. Things are starting to come together in a very important way.
About 40 million Americans suffer from anxiety disorders, according to the National Institute of Mental Health. A Harvard Medical School study estimated the annual cost to the U.S. economy in 1999 at roughly $42 billion.
Balance is keyFear is a basic primal emotion that is key to evolutionary survival. It’s one we share with animals. Genetics plays a big role in the development of overwhelming — and needless — fear, psychologists say. But so do traumatic events.
“Fear is a funny thing,” said Ted Abel, a fear researcher at the University of Pennsylvania. “One needs enough of it, but not too much of it.”
Armi Rowe, a Connecticut freelance writer and mother, said she used to be “one of those rational types who are usually calm under pressure.” She was someone who would downhill ski the treacherous black diamond trails of snowy mountains. Then one day, in the midst of coping with a couple of serious illnesses in her family, she felt fear closing in on her while driving alone. The crushing pain on her chest felt like a heart attack. She called 911.
“I was literally frozen with fear,” she said. It was an anxiety attack. The first of many.
The first sign she would get would be sweaty palms and then numbness in the pit of the stomach and queasiness. Eventually it escalated until she felt as if she was being attacked by a wild animal.
“There’s a trick to panic attack,” said David Carbonell, a Chicago psychologist specializing in treating anxiety disorders. “You’re experiencing this powerful discomfort but you’re getting tricked into treating it like danger.”
These days, thanks to counseling, self-study, calming exercises and introspection, Rowe knows how to stop or at least minimize those attacks early on.
Scientists figure they can improve that fear-dampening process by learning how fear runs through the brain and body.
The fear hot spot is the amygdala, an almond-shaped part of the deep brain.
The amygdala isn’t responsible for all of people’s fear response, but it’s like the burglar alarm that connects to everything else, said New York University psychology and neural science professor Elizabeth Phelps.
Emory University psychiatry and psychology professor Michael Davis found that a certain chemical reaction in the amygdala is crucial in the way mice and people learn to overcome fear. When that reaction is deactivated in mice, they never learn to counter their fears.
Fear is kingScientists found D-cycloserine, a drug already used to fight hard-to-treat tuberculosis, strengthens that good chemical reaction in mice. Working in combination with therapy, it seems to do the same in people. It was first shown effective with people who have a fear of heights. It also worked in tests with other types of fear, and it’s now being studied in survivors of the World Trade Center attacks and the Iraq war.
The work is promising, but Michigan’s Maren cautions that therapy will still be needed: “You’re not going to be able to take a pill and make these things go away.”
When it comes to ruling the brain, fear often is king, scientists say.
“Fear is the most powerful emotion,” said University of California Los Angeles psychology professor Michael Fanselow.
People recognize fear in other humans faster than other emotions, according to a new study being published next month. Research appearing in the journal Emotion involved volunteers who were bombarded with pictures of faces showing fear, happiness and no expression. They quickly recognized and reacted to the faces of fear — even when it was turned upside down.
“We think we have some built-in shortcuts of the brain that serve the role that helps us detect anything that could be threatening,” said study author Vanderbilt University psychology professor David Zald.
Other studies have shown that just by being very afraid, other bodily functions change. One study found that very frightened people can withstand more pain than those not experiencing fear. Another found that experiencing fear or merely perceiving it in others improved people’s attention and brain skills.
To help overcome overwhelming fear, psychologist Carbonell, author of the “Panic Attacks Workbook,” has his patients distinguish between a real threat and merely a perceived one. They practice fear attacks and their response to them. He even has them fill out questionnaires in the middle of a fear attack, which changes their thinking and causes reduces their anxiety.
That’s important because the normal response for dealing with a real threat is either flee or fight, Carbonell said. But if the threat is not real, the best way to deal with fear is just the opposite: “Wait it out and chill.”