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The Helpless but Determined Trader

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Following is an article I recently wrote for the Your Trading Edge Magazine

The Helpless But Determined Trader

Luke: “I can’t believe it” Yoda: “That is why you fail”.

If you stop to think about your trading right now, how do you feel? If you’re honest with yourself, do you really believe that you can make a great income trading full time and enjoy an abundant life style for you and your family?

Or do you believe it is possible for others, but not for you? That perhaps you don’t have the education, or the support, or that you’re just not lucky, smart, old, young, experienced, deserving enough?

Or are you certain you will eventually achieve trading success -… if only you could figure out why you always sabotage yourself?

It’s a tough time, maybe you are feeling overwhelmed and exhausted, are disappointed in yourself and your inability to succeed in your quest for financial freedom. Or maybe you even feel like a fraud and secretly ashamed that you are still struggling after you told all your family and friends that you will be a successful trader?

If you’ve been through tough times, or if you’re currently going through tough times, you know exactly what I mean.

After struggling for years, deep down many traders start doubting that trading success is possible for them, they get stressed out, working long hours at nights and on weekends trying their hardest to get on top of the challenges they have with trading. And when success finally does appear, it is exhilarating but never long lasting.

This stress adds so much pressure, clouding any ability to make good trading decisions. The cycle goes on and on, until one day they resign to the fact that they just can’t have what they want, willing to give up on their passion of trading and their dream of a better future.

 You are not alone! Don’t give up!

The Dalai Lama preaches that suffering comes from unfulfilled expectations. Many traders feel upset, helpless and fail partly because they have unrealistic expectations.

If you consistently create losses, yet already talk about your goal of making $10,000 / month, this kind of thinking is setting yourself up for failure, not for success. It causes you to over-leverage, because you are focused on the outcome, hunting the big dollars, whilst your mindset and skillset is still tuned into survival mode.

This kind of goal setting is more like writing a wishing letter to Santa Claus, rather focusing on improving your processes with a detailed performance improvement plan. At some point, you just have to let go of what you thought should happen and accept what is actually happen.

Your trading bank won’t grow until you do, and the way to grow is not to shut down and run away from challenges, wishing you wouldn’t have to deal with losses ever again.

Letting your profits run and cutting your losses short is a skill. Letting your losses run and cutting your profits short is also a skill. Your income as a trader is determined by your strongest skill and your longevity as a trader is determined by your weakest skill.

The extent of you being fully aware of your strengths and weaknesses determines your ability to derive a long term income from trading.

Interestingly enough, every trader, no matter their cultural and social background, seem to have the same challenges in trading, they all make the same trading mistakes: impulsive entries, exiting winners too soon, hoping losers will turn around, and hesitating to enter a trade.

The thing is, if you were ready to make $10,000 netprofit / month, you would be making $10,000 netprofit / month right now.

So, how can you uncover and remove the hidden blocks to achieving the trading results that would give you and your loved ones the freedom to live the life that you desire?

What does it take to be this kind of trader?

The challenge is that you constantly deal with incomplete information and conflicting data and therefore have to make decisions under uncertainty. Most are not used to having to perform in an environment of uncertainty and pressure, yet your ability to handle it is crucial for trading success. That’s why athletes often make the best traders.

We naturally try to avoid uncertainty and regret, avoid feeling bad, so if it’s a loser you ask yourself, why you didn’t get out sooner or if you should have stayed in longer to recoup some of your losses.

Whichever level you trade at, if you are a beginner or a professional, every single trader goes through phases where you ask yourself: “Why on earth did I do that again? What’s wrong with me?” Feeling utterly frustrated and disappointed in yourself.

Our emotional responses get triggered by our subconscious minds whose purpose is to protect us and help us survive. They just try to do what we think we want done. And, they are powerful.

As Mike Tyson said: “You can have the best boxing plan - up until I punch you in the nose.”

It is almost inevitable that you will be feeling regret more often than happiness: If you make the decision to let the trade run further, you risk that it reverses and you lose some of your profits. If you make the decision to get out of your profitable trade now, you risk missing out on more profits, and if you make the decision to close out your losing trade now, you risk it turning back into profits without you. No matter where you exit a trade, you are going to feel bad.

Your ability to shake it off and keep looking forward determines your chance for success. Because, it is not your past that determines your future, it is your repeated actions in the right now, that determine your future.

Ultimately most traders fall flat on their face when they are in a trade, not because their trading strategy is not working, but because THEY are not working.

Impulsive behaviour for example, is usually simply an emotional response to a painful situation in life the trader wants to escape from, such as a job they hate, a boss who dictates their life, income limitations etc.

Marianne Williamson said, “It takes courage to endure the sharp pains of self-discovery rather than the dull pain of unconsciousness”, but the moment comes for every trader, where they either have to give up or start taking a good look in the mirror.

Because no trading strategy will ever be enough with a mind that is lacking in trust and self-confidence, locked in by the boundaries of your own thinking and what you believe is possible.

The sad reality is that most kids don’t make it to adulthood with their self-esteem intact. As a result, your ego tries to make sense of your life by making you believe there is something wrong with you.

All of your adult life, you will keep gathering evidence why you can’t succeed. Unconscious to most, toxic shame and guilt is often what causes lack of discipline, impatience, impulsiveness etc. So, no matter how hard you are trying to use willpower to be disciplined, it will not work in the long run. If you want to succeed not only in trading, but in life, you need to start gathering evidence of why you CAN succeed.

Trading is not a game of perfect.

One experience many traders carry into adulthood is that they have to be perfect to avoid being judged. They develop the subconscious belief that perfectionism is safe and makes them loveable.

Perfection is an illusion! Perfect doesn’t exist! Trading is a game of excellence, and excellence is relative to which level you are at.

Aiming for perfection is what most traders do, if you haven’t held a winner right to the top / bottom, you get annoyed with yourself. No matter what, you will find a way to prove to yourself that you are not good enough. Crazy huh?

This need for perfection is often the result of growing up in a judgmental environment. So when we reach adulthood we continue the judgmental behaviour of our parents.

Progression in excellence, not perfection is what makes a good trader.

A very small hinge can swing a big door. A small change can have a significant impact on your trading performance.

Instead of needing it to be perfect, ask yourself “How can I be better today than I was yesterday? How can I improve by 1% today? What is the one thing that I will do differently in my next trade, which if I had done it in my last trade, would have allowed me to perform better?”

So, if you are a trader who let’s losses run too far, excellence is not ‘not having losses’, excellence is ‘reducing losses by 1% at the time’.

Progression is sustainable, whereas perfection is the fast road to ruin.

Let me illustrate this on the experience of a trader I recently worked with:

Trader Story:

“As soon as my trade moves into profit, I am so worried it will turn around on me back into a loss, that I have a strong urge to take the few ticks that I am in profit and run.

Then after having exited a few winning trades too early and having missed out I would start cancelling my exit order for fear it would continue then watch the market pull back again.

But as soon as a trade moves offside and I see how many dollars I am in a loss for, I get angry at myself and regret taking the trade, doubting myself, telling myself that I stuffed up. I feel a strong impulse to exit before it gets worse, even though my strategic exit point has not been reached as yet.

For losing trades that I exited out of fear just to see them come good and turn into what could have been a nice profitable trade without me, the next losing trade I didn’t stop out even though my exit has been triggered, for fear it would reverse again as soon as I got out.

It seems no matter what I decide to do, the market does the opposite. I lost so much money, it hurts.

I am beating myself up, feeling guilty for having lost all that money, feeling angry and frustrated, thinking I should have done better.”

One of his downfalls was, that he wanted to be in control, wanted to be right at all costs and get quick results which actually caused him to feel a strong fear of regret and only made his trading worse. No matter how hard he tried, he just didn’t seem to improve.

What he didn’t realise is, that the market is often a reflection of our experience with the first authority figures in our lives, which are usually our parents. And right there you can find the key to your behaviour today. Now, please keep in mind that our parents just as we are, were always doing the best they could with what they knew.

As a child we develop strategies to deal with our environment the best we can. Now, they might work within our family environment, but are not so useful for trading.

 After some reflection into this trader’s teenage years, we found out, that a common experience for him was that even though he was in the top of his class, his parents still asked why I didn’t do better. So, one of the decisions he had made about himself and the world was that he had to be perfect to be loved and gain the approval of his parents.

His wanting to be in control showed his need for certainty, wanting to be right at all cost, because if he wasn’t, it meant for him that he would lose love and acceptance. That’s why he was trying the impossible: making every day a lot of profits in a short period of time. It was a reflection of an unconscious and unhealthy need for significance and feeling good about himself through achieving external results, so that he didn’t need to endure the pain of his parents judging him.

The context of feelings, the meanings about himself, trading and the markets this trader brought to trading was a reflection of how especially his father expectations and perceptions of him, and he then continued his father’s legacy by having the same expectations and the same way of communicating of himself in the form of his self-talk as an adult.

Bringing the unconscious experience to the conscious and understanding the context of his feelings around trading, helped this trader to learn to notice and recognize as soon as they get triggered.

Simply by bringing the unconscious experience to the conscious and understanding why he used to feel the way he felt, it lost it's power over him and the feelings of helplessness dissipated, replaced by a sense of certainty and confidence.. It is hard work, but so worth it..

The No 1 Thing Successful Traders Do Differently

"The fear of losing money is the number one reason people lose money'' John Templeton.

2010 was a challenging year for me - for personal reasons, and it had a harrowing affect on my trading performance. One of the best tools my mentor Steve Ward from High Performance Global gave me in 2010, was introducing the concept of critical moments into my performance analysis.

You see, losing trades don’t happen just out of the blue! They are usually preceded by a series of trades that didn’t work out the way you wanted and triggered the dangerous Feeling - Thinking - Acting (FTA) Loop.

You might have analysed a setup correctly, but felt unsure, you overthinkthings, second-guessing yourself,  and then you didn’t take the trade (acting = consequent behaviour) because in that moment you felt afraid to take a loss, or you had exited the previous profitable trade too early and then you saw the market running away without you and those uncomfortable feelings still affected you.

Critical Moments 

Unresourceful emotions can destroy wealth. Dr. John Demartini said: “Anything that you are infatuated with runs you and anything that you resent runs you. If you get elated and depressed about things, it runs you. It’s a vicious cycle.”

Critical moments are situations when you feel frustrated or angry or even tired, thirsty or hungry, and as a consequence of it you are prone to a lack of discipline, impulsive trading, etc. Once you identify that you just had a critical moment incident you can be pro-active and stop the vicious circle from getting set off at all, by either trade smaller positions and you will find it easier to step away from the trading desk altogether, as you know you are at a heightened risk of stuffing up.

Example: You have a good run, with a series of profitable trades, until one trade doesn’t work out the way you envisioned it. You notice you are feeling a bit tired after having focused intensely for the past few hours, and you know you shouldn’t get into the next trade. But somehow the last loss feels like an imperfection in the otherwise beautiful run, thoughts creep in that maybe you can make your money from the last loss back before you call it a day. Before you know it, you have entered a new trade, that trade turns into another loss, and now you feel compulsion, you need to get your money back, but you promise yourself, as soon as you are at break-even again you stop. Of course, it never works and usually ends up in what I call ‘binge’ trading.

And then, at some point you wake up, you are completely shocked at the havoc you have caused, and you’ve got no idea what came over you.

What happened was that the feelings cloud your judgment, the memory of the previous losing trade creates the frustration and the urge of wanting the money back. If the following trade is a loss too, it happens not just once but over and over again before it hits you, you’ve got to quit!

Once you started recording your emotional and thinking processes that create certain trading results, and you are tracking your performance, you will realise how you keep repeating the same mistakes over and over again.

If you investigate what happens just before you are having unnecessary losses due to a lack of discipline in trading, you will notice that feelings play a key role in consequent perception, judgment, decisions and actions we take in trading as they precede thoughts.

Even winners can lead to negative feelings. Most of the time, you either get out too soon or too late. Rarely does the exit of a winning trade occur at the top / bottom of the move. And unless you have mastered yourself, you will end up in some version of regret, totally missing the point of trading and thinking that you could have done better.

This experience triggers a feeling of regret and frustration which triggers impatient and impulsive behaviour ‘jumping’ into the next trade.

The first impulse trade you take doesn’t mean anything, if you knew how to get yourself back into balance and cut it immediately, it would have a small if no impact at all on your end of month results.

But it is what you do with the impulse trade that has the greatest impact!

Without even realising you will have rules around losing, such as a losing trade has to be made back instantly, with the next trade, in the same contract. And this leads to more undisciplined behaviour and more losses.

So the cost of untaken or poorly executed trades is not just missed out profits; worse, they are setting the stage for undisciplined behaviour and a vicious cycle of emotionally triggered losses on the back of it.

The best action you could have taken is to resolve the emotional gridlock before looking for the next trade setup. Otherwise after you made a stupid trading mistake fuelled by impulsive behaviour you are likely to punish yourself with more unnecessary losing trades.

Fear doesn’t feel good nor does anger, but that feeling that you made a mistake and there isn’t anything you can do about it, you can’t go back in time and change it. You are powerless to change the past and feeling powerless either leads to feeling depressed (fight response) or to the urge of trying to get your power back by putting on more trades (flight response).

If you are mad at yourself and you are not releasing the energy by articulating those feeling, getting clear about what is going on internally and then releasing it with trading unrelated activities, such as going for a run, playing computer games, going to the gym to release the physical energy of the frustration, you will release the energy of feeling bad about yourself by taking it out on your trading account.

The question however beckons, was it really your ‘bad’ feeling that was proven right or, did your feeling bad, turn into a self-fulfilling prophecy and cause the losing trade?

How would the trading day have turned out if you had taken a moment right at the beginning when you started noticing the slightest feeling of discomfort, dealt with it until you feel balanced and complete again, maybe that trading day would have turned out to be a super profitable day?

Examples of critical moments that lead to self-defeating trading behaviour:

  • When I considered to get onto a trade, but didn’t and it then turned out to be a great trade – sense of regret, having missed out.
  • When I was in a profit that turned into a loss because I followed my rules.
  • The magic number seems to be 3. I can take my losses 3 times and the fourth time I let it run into the abyss.
  • When the market rallies up without me and I missed out on the move. Driven by the feeling of having missed the first big move, I will start looking for short entries, put my stop outside the reversal candle just to be taken out because the strong rally continues.
  • Got out of a trade and it keeps moving, I calculate in my brain how much more I could have made and feel the bitter pinch of regret because I missed out on profits.
  • After a string of profitable trades I get Superman syndrome and start getting sloppy.
  • When I have a disagreement with someone I care about.
  • When I am feeling out of integrity because I didn’t keep my promise.
  • When I or a loved one have health concerns.
  • After sudden financial pressure with an unexpected expense.
  • Seeing trades setting up but not taking them because they are not ticking enough boxes of my trading system and then price moves exactly how I expected it. Once again bitterly counting “the dollars that could have been in my pocket but aren’t”.
  • Trading when I am tired. I know I am tired and know I shouldn’t trade, but hey there is this great setup, or hey I need to make money because I have bills to pay. Even though I know that being tired makes me take on more risk. And once I dug myself into a hole, being more tired and annoyed, I start making even riskier decisions. I overtrade.
  • Trading after having had an unresolved disagreement with someone or even the phone company. Makes me feel powerless because ‘they don’t want to see my viewpoint’, and so I try to gain my ‘power’ back by entering a trade, which of course is just an illusion of power that fades very quickly when I realise the trade is most likely to end up in a loss.
  • Losing traders have the belief that trading losses have to be made back not just eventually but immediately, preferably in the same contract at similar price levels and in one trade (because they want to stop feeling bad).
  • Successful traders are aware that their brain is naturally wired to think this way and take charge by consciously taking the account balance as the new starting balance to make profits from, stay away from contracts they have recently incurred a big loss in, and keep reassuring themselves that losses don’t need to be made back straight away, that there are plenty of opportunities over the coming days, and to only take the profits the market offers, instead of hoping for a single winning six trade where they recuperated the whole loss and more. That would be trading a fantasy, but they know they have to be realistic..

Eventually, the information you gather about your own personal FTA loop can be read like technical analysis on a price chart. Once you understand it, you have developed the self-awareness to notice the slightest shift in attitude long before it could become detrimental to your trading; you will be able to read yourself, your feelings and thoughts so accurately that you can inoculate yourself from the likelihood of bad trading decision and so reduce the amount of losing trades. It dissipates the urges and temptations, leaving you free to choose if you should trade or take a break, if you are a high probability setup for profitable trading behaviour in that moment or not.

Mark Fenton O’Creevy on What Makes A Good Trader

Funny Tom Dante Parody..

One of the coolest guys in the industry...