Trading Psychology 2.0 from Brett Steenbarger, Phd.

I've been so busy over the last six months that somehow I missed that Dr. Steenbarger released a new book.  He is one of only a few authors that are on my list to buy whatever they release, without question.  His work is also on the short list of material that I can say absolutely has been instrumental in helping me learn how to be a profitable trader.  It's on amazon here.  

T.G.I.N.F.

Yes, Thank Goodness It's NOT Friday. Why do I not like Fridays? Most traders dislike Friday because they know they have to wait through the weekend for the markets to open back up. While I feel this way as well, there is a much better reason that I don't like Fridays..at least when it comes to trading.

I cannot stand to have a bad Friday tradingwise because then you get the whole weekend to stew over your mistakes and what you should or should not have done. This is not fun. I had a bad trading day this past Friday. After the market closed, I was writing in my trading journal and doing other end of day activities related to trading when it hit me...I did not have a good Friday last week either. And then I checked my trading journal and realized that I have not had a good day of trading on a Friday in at over a month, and even the good Fridays that I've had were mediocre at best!

After having this little break through, I pulled up my trading reports and looked at a report that breaks down trading performance for different times and more importantly, different days. This really put things in perspective for me. The day of the week that I have the highest win ratio (batting average) is Monday with a 60% win ratio. Not bad for the type of intra day trend style trading I do. My absolute worst day (drum roll) is the dreaded Friday with a win ratio of only 28%..ouch.

So what does this tell me? Either to not trade at all on Fridays or at the very least, reduce my trading to a little while in the morning and keep very tight risk control measures...like quit for the day after 2 losing trades or 2 winning trades. So why are Fridays so bad? I don't really know but I have a few ideas that pertain specifically to me..it will be different for everyone I'm sure.

For one, after having had a bad Friday once and thinking about it all weekend, I began going into Fridays thinking, "don't have a bad Friday, don't have a bad Friday." It's funny how when we tell ourselves not to do something or that we don't want such and such to happen, we either do it or whatever it is happens. A weird phenomenon that some chalk up to the subconscious and it's inability to comprehend the negative phrasing. Thus, we say, "don't do such and such" but our subconscious only hears "do such and such." So this could be a factor explaining bad Fridays and it is also the reason that positive self talk is so important.

Furthermore, I tend to go into Fridays with the mind set of, "it's the last trading day of the week, better make some money." This tends to screw up my open mindedness with trading as I'm now expecting something from the market that may or may not happen. Having expectations that don't match up with the market in trading can lead to a disaster, especially if you're stuck in your expectations and fail to change your trading based on what is unfolding in front of you through out the trading day. Every dip in an uptrend begins to look like a buyable dip and the thought never crosses your mind that this could be the end or even a late day reversal. You stop looking for or even ignoring evidence that supports or conflicts with your ideas. As you can imagine, this is not a profitable trading mindset.

Then note that Mondays for me tend to be the opposite. I'm refreshed, open minded and ready to see what the market is going to offer for the new week. This leads to great trading days. Imagine that. It doesn't take a genious in psychology to figure this stuff out but it does take a discplined trader that is both open and willing to change in order to take the necessary action involved to improve on these problems. As for me and my discipline and willingness, we'll give it a little time and then I'll do a follow up post on my progress or lack thereof.

Okay, that's enough for one post..I didn't mean to sit down and write a book, I just needed to get all of this down in written form.

I hope eveyone's having a great weekend.

TLT

Trading Is A Game Of Confidence

I love books that apply to trading that do not directly have anything to do with trading. These types of books tend to be about achievement and quite often about achievement in some type of competitive sport. The best are usually about the psychology of playing a competitive game, The Inner Game Of Tennis is a great example. Another great book that I've been slowly working my way through is Golf Is A Game Of Confidence by Dr. Bob Rotella.

In this book, Dr. Bob walks you through 18 stories about different golfers that encountered and overcame some sort of challenge, generally a psychological challenge, in their golf game. Some of the players are professionals while others are just amateurs. To demonstrate how applicable some the principles of this book are to trading, I will show you an excerpt paragraph in its original form and then show it again but with a few words changed.

Original excerpt from the book:

The second constant is the game plan. I want professionals to make their decisions about par fives on Tuesday and Wednesday, during practice. That way, their decisions are more likely to be coolly taken than they would be in the heat of competition. Of course, a plan has to have some flexibility, taking into account such things as the presence or absence of favoring winds. But in general, a player who thinks she is executing a plan is morel likely to be decisive than a player who walks onto a tee wondering what to do. And decisive players, by and large, hit better golf shots.

Changed version adapted to trading with changes in bold:

The second constant is the game plan. I want professionals to make their decisions about trading scenarios (setups) before or after market hours. That way, their decisions are more likely to be coolly taken than they would be in the heat of the trading day. Of course, a plan has to have some flexibility, taking into account such things as the presence or absence of favoring market conditions. But in general, a trader who thinks she is executing a plan is more likely to be decisive than a trader who watches the market wondering what to do. And decisive traders, by and large, make more profitable trades.

Very interesting. Sounds like a paragraph straight out of a trading book. I've only read about half of this book but from what I've read, I would highly recommend it. Dr. Bob Rotella also has another book that I'd like to read called Golf Is Not A Game of Perfect, which I'll probably get after I finish this one.

I hope everyone's having a great week so far.

TLT

A Good Potential Trade and Some Psychology

Sorry, I was really busy this weekend and didn't have time to post the TLT Trender signals...will try to post them some time tomorrow. Here's a potential trade...one that I'm currently in. Short the Eur/Usd. Yes, it rallied, and then it failed to achieve higher highs. Now's the time to jump in. I've got two targets right now: 1.27 and 1.25...we'll see if it makes it that far down. Here's a chart:
This trade may or may not work out, but it's the best currency trade that I see right now. Second best is long the Cad/Jpy...an oil play. We'll see how it works out.

I did put on a good continuation trade on Friday but unfortunately, it got stopped out. The only reason (or not really as you'll read about below) that I was stopped out was because the spreads were raised to ridiculous levels by my broker...like 20-30 pips on the Eur/Usd! Although this chaps me, I must also realize that it's my fault...my stop was not wide enough and I've even mentioned on this blog that setting wide stops going into the weekend is important, so it really does come down to me.

The sooner you learn to take complete ownership and responsibility for the outcomes of your actions, the sooner you can become a winning trader or a winner at anything else. When it comes down to it, everything in your life is the outcome of your own actions...whether you like it (or agree with it) or not. So make the best out of every outcome, whether good or bad, and either learn from an undesirable outcome or enjoy and grow from a desirable outcome.

So what does all this mean? For me, it means overcoming my natural feelings of wanting to blame external factors (my broker). What ticks me off is not the loss, as it was somewhat minimal, but the lack of profit because the Eur/Usd dropped down to my profit targets that I had set. Now, instead of just a loss, I have to deal with a loss plus a lack of profit. However, I will not dwell on this because I am taking ownership for the outcome and realizing that I should either accept the loss or just stop trading because blaming external factors does not lead to success...only learning and self improvement does. I'll stop preaching (ranting) now.

Hope everyone's doing well and is ready for a great trading week.

TLT

Why Prayers Are Usually In Vain

Something a little different for today. Here's an excerpt about Joseph Murhpy, who was a former monk, psychotherapist and he specialized in Consciousness and the Subconsciousness. The excerpt below was taken out of the book 50 Self Help Classics by Tom Butler Bowdon and it is discussing a section from Murphy's own book entitled The Power of Your Subconscious Mind...both of which are excellent books.

Our universe is one of law and order, [Joseph] Murphy wrote, therefore there should be nothing “mystical” about getting answers to our prayers. It is a process no more mysterious than the erection of a building. One who knows the workings of the subconscious mind will learn how to pray “scientifically.”

What does this mean? Prayers traditionally consist of earnest utterances to God followed by “hoping for the best.” Logically, however, such prayers will carry little weight or power because they are framed in doubt. It is the great irony of conventional prayer (the pleading, wishing, hoping variety) that it involves no faith. Real faith is simple: the knowledge that something is happening, is being provided, present tense. When prayers become occasions to give thanks for the fact of
assistance (even if it has yet to materialize), they cease to be a mystical ritual that we hope God will notice, and become a co-creating process with definite ends.

Okay, so you're probably asking what praying and trading have in common. Well, the point of the excerpt is that prayers are in vain when the person praying "hopes" but does not believe that something is happening or will happen. How about when you're trading or even planning your trades. Do you "hope" the trades will work according to your plan or do you "know" they will. The point is: Have faith in your trades and your trading plan. Not having complete faith could be wreaking havoc on your subconscious and you might not even be aware of it. Just a little food for thought.

Good luck out there.

TLT

Buy in Eur/Gbp and a Word on Trading Psychology

I had previously been short the Eur/Gbp but now I've reversed my position...I was probably a little early with my short anyway. Part of trading is being nimble. You have to put the ego to the side and close or even close and reverse positions when your system or indicators tell you to. I'll be the first to admit that this is much easier said than done and I still don't claim to not fall for the "ego trade" every now and then, but I'm working on it by staying conscious of my self and my trading.

This Eur/Gbp trade is an excellent example of what I'm referring to. I was short and was short before my system gave me a full blown sell...a little ego and probably some greed were the root causes of this decision. Now, the pair has broken out into a full blown buy and I closed my current trade and entered a new one in the direction of the signal. Like I said, it's hard to put the ego aside and place trades only for profit and not to "feel good" or be "right" but it is a worthy goal to strive for at all times. Here's a chart of the pair that shows the buy signal:Do you ask yourself why you put on each and every trade? Do you again ask yourself why you have each and every open trade open? Do you reflect on past trades, both profitable and unprofitable, and ask yourself what your reasons and motivations for each trade were? These are tough questions but it is critical to learn how to be absolutely honest with yourself and answer these questions to the best of your ability.

Good luck out there.

TLT

Temporary Trading Insanity

First of all, I previously stated that I'd post about my "crazy impulse trading" that I did yesterday morning. Unfortunately, the past 2 days have been too hectic for me to post and by now, I'll just summarize the situation. I started trading, took a couple of small losses and then I upped my trading size trying to make up my losses, which created a bigger loss because I got spooked when my position went against me just a little...something that would not have shaken me if I had been trading a proper size. One thing led to another and I had traded both sides of the same market at a loss! That alone is insanity. Anyways, I finally realized what I was doing and I forced myself to close out my open positions and even exit the trading account and spend a half hour away from trading.

Once I cleared my head, I could objectively formulate an opinion on the market and that allowed me to put on a couple of trades that made up for the losses and then some. It's nice to have a small reminder that, as traders, we are very vulnerable to self destruction. Although I didn't self destruct...not even close due to risk management rules I follow...my actions were very similar to what occurs when a trader is about to blow up their trading account.

Morals to take from the short story:

• Don't over trade
• Don't up position size when losing
• Tap into your internal objective observer (easier said than done) and recognize when you need to take a break
• Risk control measures are very important...probably even more important than most of us can comprehend
  

There you have it, hopefully this will serve as reminder to others in the same way it worked for me.

Tomorrow I will have a good post on how to trade economic news releases in the forex market...a setup that helped me trade the unemployment rate announcement this morning.

Good luck out there.

TLT