Posted by: Bevan | July 15, 2012

Mindset

There are a lot of interesting blogs and message boards where traders vent their angst, and express their frustrations and challenges.  These are really useful places for those interesting in entering the markets to learn the reality of trading rather than the over-hyped nonsense on a lot of the so-called trader education sites or broker promotional material.  Whilst bearing in mind that every trader is different and has a unique character (I now understand what Ed Seytoka meant in Market Wizards when he talked about “everybody gets what they want out of the markets”!) this psychological research is more important than any research into companies, technical analysis or economics.  This is because from my experience you have to know yourself and understand fully what you want from trading before you start.  This allows you to find a method that suits your temperament and objectives, and gives you a framework to keep evaluating your performance.

As an example I quickly fell into the trap of seeking fast profits, taking big risks by moving my stop away from price etc.  After losing quite a bit of money I took a pause then returned to the markets.  I continued seeking new strategies however, and would try out intraday trading strategies, even while working a fulltime job.  I realised eventually that my main objective in the market was a desire for excitement, action and variety, not profit making.  Once I did this I was able to modify my approach and find techniques that enforced discipline and routine on me, and removed situations where I would fulfill these desires.  Intraday trading to me was like hanging out in a bar for an alcoholic.  I also intellectually connected with longer term mechanical trendfollowing, understood and appreciated where it found its edge and felt it gave me the structure I needed.  It also suited my lifestyle as an ‘after hours’ trader.

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My psychological work (see this post) was largely informed by the early chapters of Van Tharp’s book Trade Your Way to Financial Freedom which gives some great ways of looking at yourself and what you’re trying to achieve with your trading.  It let me put myself in a position where my negative psychological aspects couldn’t rear their ugly heads, and allowed trading to become a part of my life that was increasingly easy to compartmentalise and execute.  It has even meant that I can enjoy reading and debating economics and the markets without influencing the way I carry out my trading plan.  As I begin re-evaluating the next twelve months of my trading (portfolio decisions, risk size etc) I can see how the profits I have produced, and surviving the worst drawdown of my trading career over the past few months have been possible.

Although I humbly submit my early posts recording my progression to the reader, there are a couple of well written blogs I highly recommend for their discussion of the realities of trading, and the challenges with acquiring a successful mindset.  I don’t like to be negative, but many people might like to consider that they do not actually have a psychological makeup compatible with trading, or the drive and dogged determination to continue trying through all the tough months or years (and I’m talking about parts of your entire trading career, not just the first few months) ahead.

One is Rogue Traderette who is an Australian intraday forex trader.  I have to say that intraday forex was just such hard work for me in terms of discipline and I didn’t ever see the rewards I would have liked from apparently random price action.  Perhaps she is suited to it though!

The other is Robert Sweetman’s blog.  He’s also on the journey, and really expresses well the different stages and challenges he goes through.  He also earns my respect for having the guts to show his results on his blog.  I started doing this right at the start as it gives me a sense of accountability.  A lot talk the talk, I’m proud to show the good, bad and often ugly realities of trading.  Good on you Robert!

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