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Great journal and some very valuable ideas you have so generously given. I , like many other traders, am a work in progress in terms of working on fear and self confidence in myself in trading. All of what you have posted from Mark Douglas is very useful and can benefit any trader and I appreciate you sharing it here.
Any thoughts on preparation as it applies to trading? Any thoughts on how the ideas in this TED video may help one in preparation for and during trading each day?
“You can act your way into the right thinking, but you can't think your way into the right action.”
“Act as if…”
“Fake it till you make it.”
As Amy says in her TED presentation, “Our bodies can change our minds. Fake it till you become it.”
Thank you, Wolf, for posting this excellent link!
When I think about times in my life when I overcame my negative thoughts and feelings to end up with a desired outcome, it generally involved “pretending” to be that which I wasn’t…yet.
In high school, I wanted to be a rock star (this was the 70’s mind you). I’d attained a certain crude level of proficiency as a guitarist and saw an ad in the paper one day: Working rock band needs guitarist. I really wanted to respond to that ad, but the thought popped into my head, “I can’t do that, I’m not ready.”
I showed the ad to my Mom and she said, “You can’t do that. You don’t have any experience to play in a working band.” (What’s the most effective way for a parent to get a teenager to do something? Tell them they can’t do it.)
So of course I immediately called the number in the ad and was told they already filled the guitar spot, but were in need of a bass player because their lead singer no longer wanted to do both. “Can you audition on bass?” I’d never played bass guitar, but I knew someone I could borrow one from, and without even thinking (notice I said “without thinking”) I said, “Sure!”
I faked it. I borrowed a bass, acted like I knew what I was doing and got the job. While with the band I asked the lead guitarist to show me some of his licks and I practiced then each day. A few months later he was sacked and I took over his spot, again "faking" it by playing his canned licks until I eventually developed my own style and became comfortable with it.
Now, I’d love to be able to say that the “fake it till you make it” method worked for me in trading, but it only worked as well as my trading plan, which as a beginner was one-sided. I had a plan for entries, but my plan for exits was “Hold position until it has a pretty decent profit showing”. I had an amazing run of profitable trades going long-only during a nice uptrend in the overall market between February and July 2008. So there I was faking it, pretending I was a good trader because I was putting on trades and making money. I was confusing luck with success.
Much later I learned about price action and positive expectancy methods and eventually developed my own basic trading plan based on extensive analysis. Yet I still struggled to trust it and take good advantage of the market's daily offer.
If you're at this point, then I think Amy's recommendations would be fantastic to try out. I look forward to hearing from anyone who gives it a go!
The "fake it till you make it" motivation is very profound in human behaviours in many ways. Dr B has suggested this in his writing more than one time..........which essentially refers to "consolidation" of behaviour patterns, internalising them through repetition.
"Motivated acts are fragile. If you have to motivate yourself to do something, it really isn't a part of you. Lasting changes become automatic, like brushing your teeth in the morning or driving your car while carrying on a conversation. If you create a desired state and enter it with sufficient frequency, always in the same manner, it will crystallize and become part of you"
Now, before we all think is applies to trading as powerfully as it does to lifelong habits......he also adds this hammer of a wrinkle.......a wrinkle that we know well.
"Trading is a seemingly unnatural activity, one in which one needs to do the very act that creates emotional stress. The very solutions to people's trading woes are apt to induce anxiety, and they are likely to invoke all sorts of defences as a result."
The fake-it-till-you-make-it approach.....and practice makes perfect analogy applies only when old emotional behaviours that caused damage are faced again (on purpose and with control) and produce different outcomes that previously and prove internally to us (and not just by reading it but by living it personally), that those behaviours are capable of being overcome.
Only then can new habits be practised and internalised such as suggested above. Otherwise, under future stress, traders are likely to repeat old patterns, again and again.
He goes on to say "Just as what does not destroy us makes us stronger, as Nietzsche asserted, the crises we successfully face provide a sense of mastery that cannot be induced by mere conversation"
This is s great thread, one that should be frequented more often.
The subject of high, low, open and close (HLOC) values has recently appeared as a subject in one of the subscribed emails I often read. At first is seems like a straight forward concept; derive these values based on the on the NY open and close times. But when you get into futures, specifically the 6E, I think things get complicated. Yes there is an official way to consider the HLOC values based on the contract specifications, but what about the different market time frames? Wondering what your thoughts are on HLOC values? Do you view significance say to the German time frame HLOCs, London time frame HLOCs, NY time frame HLOCs, etc... with respect to the 6E?
My personal trading plan doesn’t involve a daily chart so I don’t pay attention to a given day’s HLOC; however, if your plan does use those levels, my recommendation would be to find out what institutional traders of that instrument are paying attention to.
There’s a problem solving method that elementary school children often use called “Guess & Check”. It involves making an educated guess based on what is observed or known, then applying the guessed answer to the problem to see if it checks out.
This can be a useful method of putting a trade idea to the test, and possibly ending up with an entire trading plan.
Suppose you observe something in the market that seems to repeat a lot. You can describe this pattern or signal or event in precise terms, then apply the description to every instance of it over, say, 50 to 100 trades and log the results (maximum favorable and adverse price moves from entry) for analysis. You’re guessing you’ve found a high odds idea, then you’re checking it out through careful backtesting, followed by forward testing (sim or replay).
Here are several things I noticed as a beginner that I ended up trading off of, starting with the event that sparked my first trade ever:
1. When a fundamentally sound and strong stock is dragged significantly lower by news that doesn’t affect its fundamentals, it’s likely to bounce nicely.
2. When a company raises guidance and its stock jumps higher, it’s likely to continue higher for at least a couple days.
3. When a stock hits a 52-week high and trades higher for a few days, it’s likely to pull back nicely.
4. When a heavily shorted stock announces any kind of news that’s better than expected (even a huge loss that’s less bad than expected), it’s likely to continue higher during the day of the news.
5. When a stock hits the hi ticker or low ticker more than 80 times, it’s likely to end up hitting it more than 100 times that day.
What happened with these ideas is I noticed a pattern, then decided to trade the next time I saw a similar signal.
I had amazing successes with each of these ideas; unfortunately, I never developed a robust plan, meaning I skipped the careful analysis and risk management end of things, and eventually ended up traded a lot based on my opinion instead of a specific plan. Needless to say, I went from profitable to quite unprofitable in no time at all.
When you see something happen in the market and think to yourself, “That seems to happen a lot” or “I see that all the time”, define exactly what that is, and check it out thoroughly by analyzing a series of 50 to 100 appearances of that. If you come up with something that works more often than not and nets you a profit after accounting for slippage and commissions, you likely have the beginning of a viable trading plan.
Just came across this thread for the first time... incredible advice and wisdom here (I believe). Thanks for your contribution @rubyslippage, it is much appreciated.
I am a student specialized in behavioral finance. I have been studied finance for almost 10 years by now, but I never feel that I am ready to be a trader. I think that I might be too risk-aversion, but right now I really feel like to put what I learnt into practice. Is there any suggestion that you would like to share, such as how to get things going in the very beginning, or nice tools/platforms for trading? I am really grateful for that!
As for tools/platforms, fortunately you can register for free trials of many of these and find out what you're most comfortable with.
As for how to get things going in the beginning, I recommend studying price action, because price action reflects the sentiment of the majority at any given point in time and there are certain price action patterns that occur in certain price action contexts that offer better than average odds of profitable trading.
Big Mike's has excellent resources for price action trading ideas. I also recommend reading the material of Al Brooks, Bob Volman, Alan Farley, Jack Schwager, and Lance Beggs.
