Traders Mind

• “Intelligence is a function not of your brain but of your character.  Independence, skepticism and emotional self-control are the keys to investing success.” – Benjamin Graham

Who I am:  I am not good at trading.  I suffer from extreme fear and greed, buying at the exact wrong times, and then panicking and selling at the exact wrong times.  Because of this – I do not trade Momentum stocks, Commodities, Forex or Short stocks.  Understanding my limitations is one of the best ways to improve my overall success.

Because of who I am – some ideas for how to deal with Biases, Stress and Mental Overload:

• Preparedness.
• Rely on your own work.
• Maintain a simple documented process.
• Limit the number of positions and spend time prioritizing the to-do list.
• Be humble, and have discipline.
• Trade small – no larger than 2% on any individual trade.
• Admit (and accept) losses and mistakes – don’t be stubborn.
• Never, ever add to a losing trade.
• After taking a loss, take a break. Do not try to get back to even with another trade.
• You need to use patience – and only trade actual set-ups from Z Option’s preferred strategies – using solid risk management.
• Assume every trade is going to fail. Focus on protecting the downside and minimizing risk.
• Focus on self-improvement instead of outcomes – don’t Anchor on the high point in your portfolio.

People who lose money consistently in the markets over time all do exactly the same things:

• They overtrade, or trade way too frequently.
• Constantly swing between greed and fear – buying high and selling low.
• Use too tight stops (their fear of loss is so strong that they don’t even give the trade a chance to work out).
• Trade with too much leverage (better off trading small).
• Have one big loss that wipes out a big chunk of their Account. 

Once Traders learn to trust themselves, they can then free their minds to focus on the market opportunities that present themselves: 

• Focus on developing their own trading skills – keeping emotions in check and having the discipline to follow the setups.
• Most of trading involves waiting. First, for the proper setup.  Then wait for the proper entry – then for the proper exit (either loss or gain).
• You must execute the same way every time to evaluate your progress – keep a trading journal.
• Don’t personalize the market. The market does not know who you are or care how you feel.  Don’t fall into the trap of trying to be right rather than trying to make money.
• Just because you lose money does not mean you made the wrong decision, as long as you stayed true to your investment discipline.

From Trading in the Zone by Mark Douglas: 

1. The four trading fears – 95% of the trading errors you are likely to make will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table – the four trading fears.
2. The proverbial empathy gap, you need to believe in your system – Awareness is not necessarily a belief. You can’t assume that learning about something new and agreeing with it is the same as believing it at a level where you can act on it.
3. The market doesn’t generate happy or painful information – It’s your own mental framework that determines how you perceive the information, how you feel, and, as a result, whether or not you are in the most conducive state of mind to spontaneously enter the flow and take advantage of whatever the market is offering.