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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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The biggest problem traders have is in controlling their emotionsSUMMING UP THE TRADING PLAN Eric put a lot of thought into his plan, and, as a result, he will not be staring at the markets each day wondering what he should be doing. This mental flailing around is what initiates most of the mistakes all amateurs tend to make. If you are a new trader without a plan remember that you are going to be trading directly against Eric, and other people like him who have put a lot of thought into their trading plan. For every hundred traders who are out there, fewer than five have a plan as detailed as this. Who do you think stands a better chance of winning more consistently over the long run The fun in trading comes from the ihrill of the hunt, the anticipation of the kill. AH the research, all the work culminates into a single moment in time when a trader makes a decision to pull the trigger and is shortly thereafter presented with the results. A trader who con string together enough consistent winners opens the dour to a whole new fife of independence. The lure of this challenge draws people of ail ages and from all walks of life into the markets. Those who can face up to the challenge of drawing up a phtti to pave the way will have the odds of success in their favor. TIPS AND TRICKS FOR WHEN IT'S NOT WORKING FOR YOU, NO MATTER WHAT YOU DO Do not blame God for having created the tiger, but thank him for not having given it wings, INDIAN PROVERB WILL CRY FOR FOODUSING YOUR EMOTIONS TO MAKE MONEY The biggest problem traders have is in controlling their emotions. I see it all the time. Traders know the setup they are supposed to follow, but they get swept up in their emotions and blow the trade. By stepping back and examining this process in more detail, traders can learn to use their own emotional reactions as indicators. Properly tuned, these emotional iindicators, instead of leading to mistakes, can create great triggers to enter and exit a mar- ket. This is part of the transition from amateur to professionalinstead of getting sucked into a trade because of emotions, use the emotional triggers to fight back and do exactly the ;opposite of what they are signaling you to do. THE FOUR SEASONS HOTEL TRADE When I am in a trade that is going my way and I start to feel overly excited and the urge to add lo my position, I instead use this as my trigger to set up a double stop order As an example, let's say I'm long 10 E-mini S&P contracts. The market is screaming higher. ] find myself thinking of how many nights I could live at the Four Seasons on Maui with the day's profits. I recognize this feeling and immediately take the Four Seasons Trigger and place a trailing two-point stop for 20 con tracts, double the size of my current position. What happens is that I will slay in the trade as long as it is moving higher, but once the market turns, not only am 1 out of my position for a nice profit, but I also simultaneously get short 10 contracts. This process takes advantage of the market dynamics of human emotion in a very clean fashion. The selloff that occurs will be from other traders who succumbed to their emotions to buy at the top, because of fear of missing a move or the euphoria of having a current winning position. Once the market does reverse, it will be these traders who provide the fuel for the move down as they start dumping their positions once they can't take the pain of losing any longer. This is one example of how to get your emotions working for you instead of against you. THANK YOU, SIR, MAY I HAVE ANOTHER? When I'm in a trade, I visualize what a newer trader would be doingor what I would have been doing when I first started out. If I entered here, where would my pain point be? I've found that on the S&Ps a move of six points without any meaningful retracements is the maximum uncle point for most traders. When I see a six-point move without a retracement, I picture new traders and try to imagine the pain they are feeling. After about six points, I know they won't be able to take the pain any longer, and I step in and take the opposite side of this move, just as they are bailing out of their position and throwing cabbage at their screen. As a professional trader, you will always be using a stop so you will no longer find yourself in this very real, very frequent, and very unfortunate position. Use your emotions to feel other traders' pain and figure out when they are going to throw in the towel. WHEN I TICK, YOU TICK, WE TICK A more technical way to measure emotion is to watch the ticks. This is the same setup we talk about in Chapter 9. This time, however, if you are sitting there and the market is running away from you, instead of blindly jumping in, look at the ticks. Are they approaching +1000? They are probably getting close, as pools of amateur traders continue to buy at the markei and tempt the goddess of good luck. The ticks are a great emotional balancing mechanism. A frequent surge of adrenaline that comes from watching a market move without you can be quickly tempered by a quick look at the ticks. My trading partners and 1 run an Internet-based trading room where people log in from around the world. One of the things we all like to do is watch how the newer traders react to the market action. There are noises that the people in the room can use. One of the classics is when the market is falling, falling, falling, and one of the free trials in the room posts that he or she is going short and initiates the submarine dive, dive, dive noise. Immediately upon hearing this, I know it is time to cover my shorts and go long. The experienced traders in the room also know this, and we all jump in and take the trade. The market usually reverses quickly, and once newbie traders say they are stopped out of the short trade, we cover our longs. It's emotion-based trading at its finest. Of course we then share this information with newbie traders. Once they catch on, we just have to wait for the next free trial to show up. As a trader, if you find that you constantly short the lows and buy the highs, picture newbie traders getting so excited that they are about to literally push the dive, dive, dive button, Do you want to be trading with or against these people? HIGH FIVE, BABY Whenever traders I work with, or myself for that matter, start slapping one another on the back as the result of a good open trade that is racking up profits, I immediately snap alert and close out my position. This is the result of extreme emotion, and extreme emotion is not sustainable. I call this the high five sell signal.*1 Any time you actually utter a noise or pound on something as the result of a trade that is going really well, it's a wake-up call for you to turn back into a professional trader. DISCOVER YOUR PERSONALITY TYPE AND FIND OUT IF IT'S HOLDING YOU BACK |One of the themes I've discussed in this book is the importance of finding the right markets and the right setups that best fit a trader's personality. People view the trades they are taking through one of the three dominant personality traits that all human beings share. Some of these personality types are naturally hetter suited to the world of trading than others. Unfortunately, there are also personality types that will not win at trading no matter what they do. However, there is a silver lining here. The reason these personality types lose is that they are unaware that their personality is the very thing responsible for their mounting losses and continued frustration. Once a trader learns about this, he or she can then use this information .to turn their trading around.The following 20-question quiz will help determine your dominant personality type. There is no right answer, and on some of these questions it may seem that there are two right answers. Just pick the one that makes the most sense in how it relates to you. Don't think about these too long. The faster you can move through this, the more accurate the readings will be, and the better information you will have to improve your trading. This is one of the personality profiles I have traders take when they come and work with me, so I can get a better idea of who they are and which markets and setups are best suited to their personality. Here we go; 1.When you think back to one of the best vacations you've had, what part of the vacation do you first remember? a.The sights and how the place looked, b.The different sounds you experienced c.The way you felt while on vacation there. 2.When you think back to a person who captivated your interest, what is the first thing that really attracted you to them? a.Their appearance and looks. b.What they said to you, c.How you fell being around them. 3.When you are driving, how do you get around? a. I look for road signs or follow a map. bv 1 listen for familiar sounds that point me in the right direction, c. I follow my gut and get a sense of where I am. 4.When 1 play my favorite sport, 1 really enjoy: a.The way the sport looks, and the way I look playing it. b.The way it sounds, like the bang of the bat hitting the ball, or the cheering fans. c.The way the game feels, like holding onto a tennis racket or the feeling of running around the court. 5.Making a decision is easier when: a.I can see all the choices in my mind's eye, b.I can hear discussions from both sides in my head. c.[ can sense how I would feel if either option came to fruition. 6.From the following list, 1 would say my favorite activities are: a.Photography, painting, reading, sketching, and films. b.Music, musical instruments, the sound of the sea, wind chimes, concerts. c.Ball games, woodworking, massage, introspection, touching. 7.When I am shopping for clothes, after seeing the item for the first time, the very next thing that I do is: a.Take anoiher really good look at it or picture myself wearing it. b.Listen closely to the salesperson and/or have a dialogue with myself giving the pros and cons of buying it. c.Get a feeling about it and/or touch it to see if it's something I'd enjoy wearing, 8.During the times J find myself thinking of a former lover, the first thing that hap pens is T; a.Visualize the person clearly in my mind. b.Hear the sound of their voice in my mind. c.Start feeling a certain way about the person. 9. When 1 am at the gym. or working out, my feeling of contentment comes from: a.Seeing my reflection in the mirror improving. b.Hearing compliments from people around me about how good I look, c.Feeling my body get stronger and sensing it's more in shape. 10.When I'm doing math. 1 check my answer by: a. Viewing the answers to see if the numbers look correct, h. Counting the numbers in my mind. c. Using my hands and fingers to get a sense of whether or not I am right. 11.When I write out words, I verify the correct spelling by: a.Seeing the word in my mind's eye to see if it looks right. b.Pronouncing the words out loud or hearing it in my mind. c.Getting a gut feeling about the way the word is spelled. 12.When I love someone, I get an immediate experience of: a. The way we appear with each other through the eyes of love. b* Hearing or saying 1 love you c. The warm feeling toward that person. 13.When 1 do not like someone, I immediately experience dislike: a.When 1 see them coming toward me. b.When they start talking to me. c.When 1 know they are around. 14.When J am at the beach, the initial thing that makes me happy to be there is: a.The look of the golden sand and the beautiful sun and placid water. b.The sound of the thrashing waves, the howling winds, and whispers from afar. c.The touch of sand, the salty air at my lips, and trie feeling of calmness. 15.In regards to my career, I know I'm on the right path when: a.I see myself clearly in one of the executive offices. b.I hear the president say, You are one of the company's stars c.I feel satisfaction in getting a promotion. 16.In order for me to get a good night's sleep, it is critical that: a.The room is dark with little or no light coming in from outside. b.The room is quiet without any distracting noises. c.The bed feels incredibly soft and comfortable. 17.When I gel anxious, the first thing I notice is: a* The world seems slightly different to me. b* Various sounds and noises start to irritate me. c. I no longer feel a sense of ease and calm. 18.When I get focused and motivated, I immediately: a.View things from a brand new and positive perspective. bvTell myself that this new state of being is going to open up new doors. c.Feel my body and mind getting excited. 19* When someone tells me, I love you. my first reaction is: a.To form an image of us being together or that person loving me, b.To hear my soul saying something like, 'This is amazing. c.A feeling of great satisfaction and contentment. 20. Dying, for me, is closest to: a.Seeing no more or seeing things in a brand new fashion. b.Hearing nothing ever again or hearing things in a brand new fashion. c.Feeling nothing ever again or feeling things in a brand new fashion. Once you have completed this test, add up how many times you answered A, B, or C. For example, you might have A:6, B:4, C:10. These results will give you an idea about your dominant personality type. People generally react to and interpret the world around them through this filter. Get your scores together and we'll move onyou'll want lo have taken the test before we proceed so your answers aren't influenced by what you read nexL The goal here is to get an honest assessment of your personality traits and then learn how to best utilize those traits in your trading. PERSONALITY TYPES AND TRADINGWHAT YOU DON'T KNOW ABOUT YOURSELF CAN HURT YOUR TRADING Nearly 60 percent of the population will have A as their highest scoring trait. This indicates that a person's dominant way in which they view the world is visual. It's not really known why this is so, but experts feel it has to do with sight being our strongest sense, and that, for the majority of us, we were taught from birth to depend on our eyes in order to make our way through life. Also, in today's world, our input is largely through television, movies, computer screens, and printed copyall of which are heavily dependent on the eyes. Visual people like daylight and are extremely mobile, and it's easy to find them in professions that allow them visual expression. Nowhere is this more observable than in the entertainment industry. Visual people are generally movers and shakers and like to move fast. Visuals are drawn to this industry and its related fields as a natural expression of who they are. These types of people naturally gravitate to professions such as painting, photography, and design. They also make great marksmen, firefighters, and pilots. In terms of trading, visuals adapt quickest to this profession, as they depend largely on what is happening visually in front of them on the computer screen to make decisions. It doesn't mean they will make the right decisions, but they are most naturally adapted to the world of trading. If they are untrained in how the markets work, they will make the same mistakes as everyone else. Once they get some experience, however, they tend to be good at waiting for the charts lo setup before taking their entries. Yet, only experience teaches them how to manage their exits, A visuals biggest weakness is watching the P&L fluctuate throughout the trading day. It would be better for them to cover that up (a business card taped to the corner of the computer screen works good) and just focus on the setups. Also, visuals tend to laser in on a price chart and ignore everything else, which can be a detriment to their trading. This is why it is helpful to have auditory alerts on things like high tick readings as well as listening to pit noise in the background so visuals don't get sucked into the extreme price action they are seeing on the charts. If your highest score was B, then your dominant personality trait is auditory. My accountant is highly auditory, and I've noticed that the sounds around the office occupy most of his attention. Auditory personality types relate to the world through the way things sound and in many respects are more sensitive to sounds than visual people are to sight. Auditory people can be easily distracted by the most inoffensive sound, which makes it seem like they are not paying attention to you during a conversation. In reality, though, they are strong verbal communicators-it's just they hear every sound coming their way and sometimes it distracts them. They enjoy talking with others as well as just talking out loud to themselves. Because of their innate ability internally to put thoughts into dialogue, experts believe most loners have this dominant personality type. Because of their heightened sensitivity to sound, auditories don't tolerate harsh or disharmonic noise as well as others do. Fire or ambulance sirens are major offenders, and you can spot an auditory easily by observing who on a street corner is holding his ears as an ambulance screams past. Also, they have an incredible ability to listen so thoroughly and with such intent that data is absorbed and processed in their minds very quickly, without needing to be translated into pictures. Because of this enhanced ability, auditories tend to gravitate to areas in life that permit the use of such superb listening and communicative talents. In regards to trading, this personality type has one strong advantagethe ability to sit alone in front of a computer for days at a time without going crazy. That is an important part of trading, and this ability to be patient and wait and not feel isolated is a necessary trait to have. The downside of this personality type and trading is that a chart isn't really much use to them, and they frequently miss setups from simply not paying attention. Whereas a visual can stare at a chart for hours because the red and green lights are fascinating, an auditory personality needs additional input. Audio alerts and pit noise are important tools for auditories, and 1 know some of these personality types who don't even look at price charts. They just listen for audio alerts and then place their trades. If your highest score was C then you relate to the world around you by how you feel. People with this dominate personality trait long to be understood and respected for being so in touch with their feelings. They tend to like a person because of how they feel when they are around them, or like a movie because of how it made them feel when watching it. When they laugh, they let themselves go and really feel the laughter, giving the person they are talking to a sense that they totally understand and agree with what was so funny. Type C personalities are able to translate visual images and acoustical data into feelings that are pertinent to them and those around them. Type Cs enjoy conversations but not for the same reason visuals or auditories do. They use dialogue to translate words, sounds, and images into feelings. While visuals and auditories are busy communicating with pictures and sounds, this type C personality is busily running through his vast storehouse of feelings and attaching sensory meaning to what the other person has just said. Because of a heightened ability to feel, you would assume that type Cs are introverts. However, the opposite is true. Moreover, because of their superior sense of touch, type Cs make superior athletes. Any occupation that requires manual tasks is just plain easier for these types of personalities. Typical occupations thai are tailor-made for them usually have hands-on or feeling parameters. Psychologists, woodworkers, potters, surgeons, actors, all types of mechanics, and other feeling- or sensory-based work are common callings. For traders, this type of personality has the biggest struggle and usually doesn't make if until they figure out how their personality is working against them. A type C personality trader will wait until they sense when things are good or bad, or wait until they get a sense about whether what they are doing or are about to do is good or bad. They literally get into trades when it feels good lo do so, and gel out when they feel bad. This almost always puts them in just as a move is ending, and gets them out just as it is turning. For a type C personality, it feels bad to buy a market thai is selling off into a pivot level. They would rather wait to see a bounce so that they can feel good that the trade is going to work out. Of course, by the time this happens, they should actually be closing out a position instead of initiating a new one. The solution to this is hard yet simple. If you are a type C, then just acknowledge that your feelings need to be faded. If you are excited and feel good about going long, then you should be looking at the short side and vice versa. If you are a type C don't despair. A type C who masters this will have a distinct advantage over other traders. A type C who is unaware of this will always face an uphill battle when it comes to trading. In terms of personality, no one is going to be 100 percent anything. I am primarily visual, then feeling is not far behind, and finally auditory makes up a small portion of my overall personality profile. I've learned 10 set up my charts to take the best advantage of my dominant visual personality, listen to my feeling!* to get an idea of what the amateur traders are doing and thus fade my feelings. and set up audio alerts to make sure my eyes aren't the only thing that are responsible for my trading decisions. Learning this about myself made me a better trader. TRADING REALLY ISN'T FOR EVERYONEALTERNATIVES TO CONSIDER The harsh truth is that trading isn't for everyone, but the problem is you won't know whether it's for you or not until you give it a shot. It takes guts, courage, and years to become good enough to do it for a living. My advice is to start out small. Whatever account you start with is your tuition moneyyou are going to lose it, and that is your educational fee for entrance into this world. Do yourself a favor and trade small until you start getting consistent with your setups. If after a few years it still isn't working out and you are getting ulcers or you figure out that you'd rather be playing golf, there are other options. For me, 1 had to spend time and sit side by side with other traders before I turned the corner to consistency. In sitting beside these traders, it was helpful to hear them talk about what they were doing and why. but that was only about 40 percent of what I learned. The rest of it had to do with what they weren't saying or doing. They weren't getting upset if they missed a move. They weren't answering the phone when it rang. Also, there were many things and habits they did that they weren't even aware of until I pointed it out to them. It was these unconscious trading habits that 1 picked up that really helped me out as welljust observing and absorbing how a professional trader spent his day. To that end, if you really want to do this, I would encourage you to find an experienced trader and just spend a week sitting next to them. It was what turned the corner for me. If you can't find anyone, there are a few times a year when we will hold week-long ''men tors hips at my trading office John Carter (outset) and Hubert Senters (closest in) showjng Bill Shugg [center) how they trade. Traders can sign up to come and spend time side by side with myself and some of the other traders I work with and just watch what we do. After a few days we will then have the visiting traders start making trades while we observe and make comments. If they do a good job following their own rules, we'll let them make some trades in one of our various funds that we run. Part of their homework while they are with us is to develop a full trading plan like the one 1 shared earlier. The goal is that when they leave, they will never have to wonder again what they should be doing when they are starting at the charts. They will have a plan to follow, and they will just wail for specific things lo happen according to plan. There are also programs available in which specific setups can be auto-traded by a number of brokers. There are brokers who do this with my own setups and newsletter plays. However, the setups I use are shorter-term in nature, volatile, and not appropriate for everyone. (Our latest fund focuses just on currencies, and we continue to look for opportunities in this area as China looks to float its Yuan on the open market.) There is no shame in throwing in the towel when it comes to trading. For many, quitting trading is the best trade they ever made. They are not stressed out, they let someone else manage their accounts, and best of all they understand what is going on because they have already been there themselves. |
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