The Enemy Within

In these lazy summer days I’ve had time to think in-depth about many things that go into becoming a successful trader. Part of this started when I was at a get together and the conversation turned to what we all did for a living. “ I like to ski steep and deep powder and mountain climb to keep alive ” and added with a smirk.” but for the daily grind, I’m day trader”

“Oh, we’ve got a real risk taker here” one piped up.

To paraphrase my reply, I said no, I don’t put my nuts on the line too often and if I do only then for a short time after taking in the odds of my surroundings. I do however live the probabilities during both activities.

I’m not the worlds most extreme skier or climber by a long short but I relish the feeling that challenging myself physically and mentally by reaching out as far as I can. Excitement, sheer terror, occasionally survival are emotions that make me feel more alive than at any other time.

Conversely, when trading I am Mr. Bland. I do the same thing trade after trade, day after day.

Probabilities exist in both of those worlds. Will it avalanche and kill me, will a rock fall on my head and kill me, will I misstep and fall to my death, will I break my leg 15 km from civilization and succumb to the elements. Will the markets reverse and hit my stop.

Anything can happen and does happen on a regular basis because both nature and the markets are unpredictable. But safety steps can be put in place to mitigate risks or disaster from affecting you.

In both worlds it is better to survey the possibilities of danger to yourself and/or account and meet them head – on. You must make preservation of your life or preservation of cash priority number 1.

Why is it so hard then for traders to follow time tested rules such as not adding to their losers? Even though the markets are not logical some or most times, it is logical to quickly sell a loser rather than holding it longer or worse adding to it. Think about it. It is going down. Your money is tied up. Your focus is compromised. Is not a smaller loss easier to take now? Well not if you are misguided and let your expectations rule you. Unsuccessful traders have a hope/dream/wish that the losers will reverse back to the original entry price just so they can get out and break even. Whew! I was lucky there! Talk about an emotional roller coaster.

What they need to do is confront the loss before the trade is entered. That is the price at which your reason for buying the stock will be proven wrong. Kiss that money goodbye. Monetarily it’s a cost of doing business. Emotionally it’s called trading your plan.

Truly accepting the risk is a huge step forward. Maybe it shouldn’t even be called risk. It’s more like an entrance fee or the price of admission that may or may not be taken. When you really, truly, deeply accept that $ amount may be taken from you, it is then very easy to let it go.

Which brings me to a second point I’d like to make. Having a trading plan that works for you is something that takes time to develop. Many factors need to be weighed; your responses to many conditions need to be factored in. What are your goals as a trader? How much time do you have? What is your personality? What drives you? Do you have mental agility, to name a few on the emotional side. That’s not even delving into the technical side. Trading is a never ending learning experience, what you think you know now is nothing compared to the future. A trading plan evolves into your roadmap/checklist. Its conditions are not arbitrary, ready to be broken one moment to the next. A plan can’t be called that if it’s deviated from, that’s called a free for all. It can’t be said that you are following the plan of principals if you break your rules. That’s being dishonest with yourself. And that will led you to your demise as a trader because it will become easier and easier to lie to yourself and justify breaking your own rules.

How can you defeat this enemy within? It takes the realization of the following:

You have no control over what the markets will do. Any joy, anger, disgust, mistrust or fear you have is just your own interpretation of the market information. Because…

Expectations you have about market direction add up to nothing more than dreams based on fairy tales.

Your hopes, dreams, wishes or black magic voodoo mean nothing. The market will do what it will do, with you along for the ride or not.

So if you can’t control the market , how do you make the jump from only seeing the moves to capitalizing on them? Control your interaction with it in such a fashion as to stick with your trading plan and let the probabilities work themselves out. You actually do need an edge that has demonstrated it works more often than not. Your edge is something you have discovered as being a high probability move that gives both an opportunity and protects you from fear and greed-i.e.yourself. It is something that you have comfort with and confidence in. It is developed by way of honest observation of the market and yourself. Regardless of chart patterns, it’s how you interact with the market. How true you are in sticking to the winning principals.

The most important thing is having to face all sorts of problems and situations that you don’t face normally in your life, It helps you to know yourself much better. And when you truly know yourself, an edge with confidence and a winning attitude will bring you the positive results. You have to believe in yourself. It is all up to you whether you will win or lose in this game. I could even say the market has almost nothing to do with it.