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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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The main reason he is not making the kind of money he wants is because he cannot control his emotionsTHE TALE OF TWO TRADERS Our first trader is Ned. Ned is an off-the-floor trader who day trades the S&P 500 Futures. Hes been trying to be consistently successful for the last six months. Unfortunately, it hasnt worked out very well. But its not because of his methods that hes having so much trouble. No, the main reason Ned is not making the kind of money he wants is because he cannot control his emotions and consistently act in his own best interest. From the very beginning, Ned was confident he would be successful day trading the S&Ps. Hed been very successful in his previous business. Ned owned a retail printing company and hed learned to make good sound business decisions that helped him become very successful. He almost never made any major mistakes that were detrimental to the business. In fact, in over the nine years he owned the company, he really prided himself in always looking at the big picture and keeping his business moving forward. On the rare occasion when something did go wrong, Ned worked at lightening speed to fix the problem, and many times he turned the crisis into an opportunity. Because of the smart decisions hed often made, Ned was sure he could carry this into his new career of commodity trading. At least thats what he thought would happen. So, when Ned received a generous offer from a corporation to buy his printing company, he decided this might be the time to take the money and run. It wasnt that difficult for him to decide to sell. He definitely loved having his own business and, of course, it was that much more rewarding because he was successful. But for the last two years, hed been so busy that he was working about 65-70 hours a week. That left very little time for him to spend with his family. This made the decision to sell very easy for him. Another thing that made Neds decision easy was that he wanted to try a new business. He had learned as much as he could about commodity trading. Hed read as many books and magazines he could get his hands on. He definitely thought he could transfer his successful business practices to commodity trading. Thus, he could trade from home and be able to spend a lot more time with his family. He was quite confident he would be a success in this endeavor too. Boy, was he in for a surprise. The second trader in our story is James. James also wanted to day trade the S&P 500 Futures. His background is a little different than Neds. James has spent the last four years working at the Chicago Mercantile Exchange where the S&P 500 Futures are traded. But James was not a trader at the CME. He had basically worked his way up from a runner. He was working for a retail commodity firm as a phone clerk. His job was to put in buy and sell orders for customers using hand signals. From the first day James had started working at the exchange, he had always wanted to be a trader. He knew he didnt have enough money to buy a seat on the exchange (which costs about $200,000). He thought his best chance to become a trader was to learn all he could from the various floor traders and other people on the trading floor, and then trade from off-the-floor where he wouldnt have to own a seat. James spent as much time as possible trying to learn how people in the commodity business made money. He was sure there had to be some very specific techniques only the real successful people were using. He certainly knew, like everybody else, that 80-90% of the people lost money trading. He was determined to learn what he needed to know so he could be successful when he started trading from off-the-floor. He wanted to start trading as soon as possible. James made a point of trying to meet as many successful traders (both on and off-thefloor) as he could. He was lucky enough to be exposed to all these successful people on the floor and in the various offices at the Chicago Mercantile Exchange. He thought if he could figure out exactly what the successful traders were doing, he could model his own trading off of them. He spent every free moment talking to the various traders that hed met and tried to find out the secrets of their success. He learned a lot. He learned all kinds of different technical methods that the various floor traders and off-the-floor traders used. James had never traded a futures contract in his life. But the more he talked to different traders, the more his confidence grew. He was sure with the experience he was getting he would surely be a successful off-the-floor trader. But he still needed one more important lesson. Ned began trading. He started with $15,000 in his account and decided he would only trade one contract at a time until he was sure he had the hang of things. Things actually started off fairly well for Ned. His first trade made 320 points ($800 before commission charges). Obviously, Ned felt very good about his start. Unfortunately, things went downhill from there. On his next four trades, he lost on all four. The problem was that Ned had good profits on two of those four trades, but he failed to take them because he would look for a lot more than the market was offering. So, in his first week, instead of making a small profit or breaking even with the four trades, he ended up losing the original $800 and even another $1,200 more. This was very frustrating and confusing to Ned. He obviously needed to do a lot better if he was going to be successful in this business. But not to worry, it was only the first week. He certainly didnt make a fortune his first week in the printing business. The next week started basically the same as the first. His first trade (on Monday) was another nice winner of 280 points ($700), but the downhill slide started again. Ned did his next trade on Tuesday of that week. He got in and the market went his way about 120 points. Ned knew if he could make 200 points on this trade, he could get back to even. So that is what he decided to look for in this trade. He put an order to get him out of the market with a 200-point profit. The problem is the market only went 150 points his way and Ned did not trail his stop order to lock in a profit or at least move his stop to break-even. He really wanted to get that 200-point profit so he could be even, but the market came all the way back and not only took away the 150 points in profit it was offering, but also took away the amount he was originally risking when the market hit his stop order. Ned ended up losing $400 on this trade. Now Ned was very frustrated. Sitting at his desk, he considered throwing his empty ceramic coffee cup across the room at the wall. Luckily he resisted doing this as the thought of getting the broom and dustpan to pick up broken glass didnt seem like it would fix his losing trades. Nevertheless, Ned was extremely frustrated and needed to come up with a way to fix things. One of the most important things you can do is to set a daily, weekly, and monthly goal for yourself. James was getting some advice from one of the most successful off-the-floor traders he knew. This particular off-the-floor trader had made over half a million dollars a year for the last four years, so James knew he was getting good advice. The way to be successful is to have measurable goals for yourself, the off-the-floor trader continued, and then you have to continually visualize yourself reaching those goals. James understood about setting goals, but he really wasnt sure what the visualization part meant. He knew he would need to find out what that was all about. James continued to talk to as many successful traders as he could. They all seemed to say the same things. Goal setting was extremely important. Just trying to make money each day (without a goal) was a road to failure. It seemed like almost every trader James talked with really stressed the daily goal setting idea. In fact, it seemed the more successful the trader the more they stressed goal setting. James made a strong mental note that if he were to be successful, he would need to have very specific goals as to how much he wanted to make each day, as well as how much he was willing to lose. James found another fairly successful floor trader named Bob. Bob was nice enough to give James some advice. Yes I agree with you, you do need to set specific goals, Bob said, but I would say just as important, you must visualize your success each and every day. You must see yourself very clearly as a successful trader. If you cant see yourself in your minds eye as a success, there is no chance you will become successful. Bob told James about a book he should definitely read. Get the book PsychoCybernetics, it will tell you everything you need to know about visualizing your success. Its the same method professional athletes use, but its really no different in our business. To be a successful trader, you must see yourself as a successful trader, even if its not true yet. James did not hesitate following Bobs advice. He went out and bought a copy of Psycho-Cybernetics. He began studying immediately. James learned the different visualization techniques and began to use them on a daily basis. Even though he had yet to start trading, through his visualizations, he had already started to see himself (in his minds eye) as a successful off-the-floor trader. This would play a big part of why James would become successful. Ned thought about the difficult time he was having. He needed to come up with a way to get better results. He thought that maybe the indicators and methods he was using were the problem. Ned decided to find some new methods to trade with. He bought various books and courses on how to trade the S&P 500. Each time he went through these materials, he was sure he would start having better results. The ideas and examples seemed to make a lot of sense to him. Ned decided to use some of these new methods in his trading and get rid of the old methods he was using. He was sure it was the techniques he was using that were causing him to lose money. Unfortunately, it was not his methods that were causing his losses. |
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