Last night we were at a round table discussion with some experienced traders at the Traders Expo in Las Vegas.  We were exchanging trading philosophies and experiences in the market.  It was really interesting to hear stories of victories and battle wounds.  That inspired me to write this post about some of things I’ve come to learn about trading.

1.  Day Trading Is NOT Easy – Human beings seek out the path of least resistance.  And the reality is that trading requires many people to “re-engineer” the way they process market information.  For some, trading comes effortlessly.  For the majority of us becoming a trader is a grueling process.  And the reality is that few traders push through to become consistently profitable.

Over the years I’ve been fortunate to talk with some highly skilled traders.  And no matter what market, time frame, or strategy they use it always comes down to discipline and perceiving yourself as a professional manager of risk.  After all, there are only two things you can control in the market: your trade selection and trade management. As Mark Douglas explains in Trading In The Zone, that you must truly be able to accept risk and boldly move forward in spite of an unknown future.  People with that innate ability typically have a better chance at succeeding compared to someone who’s terrified of losing money.

2.  You’re not a robot - I once heard someone say, “Top traders think and act like robots”.  At face value that sounds like an intelligent statement, but the fact is that you’re human, and humans have emotions!  The only way to “turn off” your emotions is to die or use a completely automated system.  So instead of trying to completely eliminate emotions from trading, it’s more practical to learn to control them.  The first step is awareness.  Become aware of your emotional triggers, then become proficient at keeping them at bay.

For example, I can get frustrated if the market isn’t filling my trades, stopping me out, or starts whipsawing around.  My instinctual behavior pattern is to “lash out” and start revenge trading.  And if I don’t walk away or refocus my energy on staying disciplined, I will likely lose money.  So the idea is to figure out what your weaknesses are, and take quick action so they don’t destroy your trading confidence.

3.  The market will punish undisciplined trading - Have you ever thought you could “outsmart the market” by guessing what was going to happen next?  If so, you may have found that chasing price will give you a lucky trade every now and then, but over time you’ll get run over.  Unlike many of us would like to believe, profitable trading doesn’t happen over night.  You must work to develop consistency, even if you’re using a rules-based trading strategy.

So how do you stop chasing the market?  Especially since we’re in a business with no guarantees and a constantly changing landscape.  The answer is actually quite simple, but easier said than done.  Instead of attempting to force the market to move at your command, why not pre-define your setup and wait for the market to tell you when it’s ready for your participation?  That might be a complete paradigm shift for you.  In other words, think in terms of “hunting for grade A trades”.  You know, trades that you’ve seen play out a thousand times and you know has high profit potential.

This entry was posted on Friday, November 18th, 2011 at 9:47 pm and is filed under Psychology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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