Trading Tip #8: Avoiding Mental Sabotage

[SpearPointTrader 10]

Specifically, can you give an example of an edge?

 

I can...knowing how to properly trade a Bollinger Band Squeeze would qualify.

[TheNegotiator 13]

Specifically, can you give an example of an edge?

 

Yeah of course. Come on over to the E-mini thread and we can chat about it...

[joshdance 10]

Yeah of course. Come on over to the E-mini thread and we can chat about it...

 

lol sneaky sneaky!!!

[SunTrader 10]

Market truism: We learn more from failure than success.

 

Stops tell us when we are wrong. Nothing wrong about that.

 

Once I started to accept my losses, my trading improved.

[SpearPointTrader 10]

Market truism: We learn more from failure than success.

 

Stops tell us when we are wrong. Nothing wrong about that.

 

Once I started to accept my losses, my trading improved.

 

You should know you are wrong, and get out long before you ever hit your stop.

[SunTrader 10]

You should know you are wrong, and get out long before you ever hit your stop.

Maybe you. I let the market tell me.

 

Works for me because I'm not smart enough to know I am wrong. Price is never wrong though.

 

I used to believe that I was but the market proved me wrong soooo many times.

 

And everyone else I know that believed they were smarter.

[Tradewinds 12]

I read a book over the weekend (the power of habit - Charles Duhigg -- . . . . . . . in it they talk about a section whereby casinos rig the slots so that the "near" miss has a profound effect on people.

 

Excellent point. Price constantly goes right to a previous support or resistance, then stalls. Or price will break a price level, stall, look like a reversal, then continue in the previous direction. So effectively, it's extremely difficult to make an assessment in real time.

 

I have felt the psychological effect of near misses many, many times. Price will go to a favorable price, I think to myself, "Okay, the price hit this level, it will come back in a few seconds, I just need to be patient and wait another 30 seconds." Then the price chops around, going nowhere. Then I start to hope. I mean, the price is just a couple ticks away from the price I want. I might as well wait. All my indicators tell me that things are not in my favor, but I ignore them and hope my indicators are wrong. So at some point, my decision making ability breaks down.

[smlcap 10]

.

 

I rarely make more than a couple hundred a contract. It seems the more I go for, the more often I lose.

 

Yes...This more often than not the case. The more you go for the more often you loose. I try to set a goal. $150. per day, combined from as few trades as possible on a given day. Of course, I hope to make that $150. in a single trade. The goal is a minimum of $750. per (5 day week.) Or, $150. per day average. Get the $150, hit and run, don't go back. Don't even look back. Greed is a killer.

[smlcap 10]

Preventing losses, and having more reasons NOT to trade, than to trade is more important that how much you make on winning trades.

 

Amen!.....I'll drink to that.

[SunTrader 10]

...... Greed is a killer.

That is not greed. That is fear.

 

You can limit how much you can lose - with stops. The market determines how much you can make by price movement or in your case but not letting your profit run.

[SpearPointTrader 10]

.

 

I rarely make more than a couple hundred a contract. It seems the more I go for, the more often I lose.

 

Yes...This more often than not the case. The more you go for the more often you loose. I try to set a goal. $150. per day, combined from as few trades as possible on a given day. Of course, I hope to make that $150. in a single trade. The goal is a minimum of $750. per (5 day week.) Or, $150. per day average. Get the $150, hit and run, don't go back. Don't even look back. Greed is a killer.

 

I don't even care how much I make in a single day. I just take each legit set up, and follow it to it's conclusion, or I pass my average win. If I have very clear signals, I stay in longer, but more often than not, the signals get blurry after the first initial swing on the intra day chart anyway, so i take what I got and run.

[MightyMouse 12]

Spearpoint, if you wouldn't mind, I would like to explore what you are saying a little further.

 

I've been trading for almost 10 years, mostly very unsuccessfully. After blowing out a small futures account, blowing out several paper accounts, moving on to stocks and seriously damaging that acct. (20% loss over 4 years), I am at the point of either giving up or doing something different - obviously. In my stock acct., I have never taken a loss on any single trade greater than 1% of my equity, and usually, it has been less than that - .5% for example. Thus, I've never had the "big" loss that wipes an acct. out. My losses have been a very long, slow bleed. I usually use a stop that appears to be at a logical point of S/R. When I use a bigger stop to give it "more room", the stop invariably gets taken out anyway. When I use a tighter stop, either it was correct and I am stopped out before a much bigger loss would have happened, or I get stopped out only to see the market run in the opposite direction. The end result is a "relatively" small loss wither way. The problem is that those small losses add up to big losses. Unfortunately, I have not had consistent or substantial gains to offset those.

 

Now, to your point, I would be interested in hearing further about how you avoid losses by your mindset. I have often had that thought, but have never done it because of the huge amount of trading info. saying to set your stop at logical points, give the trade room to work, don't take small profits, etc., etc.

 

Thanks for any addl. help you can offer.

 

It is just as hard to always lose as it is to always win. Are you moving stops? are you getting out with small gains?

 

IMO your losses from your stop outs are not your problem. Everyone gets stopped out of trades. No mindset will prevent you from getting stopped out.

 

I see nothing wrong with getting out of a trade with just a few ticks profit or just a few ticks loss without hitting your stop if you feel that conditions have changed substantially to warrant a change in plan. The change in plan would be something i would do 1000 out of 1000 more times if the circumstances presented themselves in a similar manner.

 

Your gains are probably more the issue than the losses if you are not moving your stops. I am guessing but I suspect that you are getting out of your winners too early for fear of them becoming losers.

 

MM

[robm 10]

I've been trading for almost 10 years, mostly very unsuccessfully. After blowing out a small futures account, blowing out several paper accounts, moving on to stocks and seriously damaging that acct. (20% loss over 4 years), I am at the point of either giving up or doing something different - obviously. In my stock acct., I have never taken a loss on any single trade greater than 1% of my equity, and usually, it has been less than that - .5% for example. Thus, I've never had the "big" loss that wipes an acct. out. My losses have been a very long, slow bleed. I usually use a stop that appears to be at a logical point of S/R. When I use a bigger stop to give it "more room", the stop invariably gets taken out anyway. When I use a tighter stop, either it was correct and I am stopped out before a much bigger loss would have happened, or I get stopped out only to see the market run in the opposite direction. The end result is a "relatively" small loss wither way. The problem is that those small losses add up to big losses. Unfortunately, I have not had consistent or substantial gains to offset those.

 

Assuming your initial stop matches what capital you are willing to risk (e.g., 1%), have you tried changing what profit you are willing to risk once the market gives you a profit on a particular trade? As soon as you make the initial decision to enter a position, you will be getting additional information from the market. If the information you get is that the market agrees with your position, you will have a profit. Put it in the bank and treat it as capital. In other words, move your stop loss or take some portion of that profit out of your position. Don't give it all back.

 

I'm with SpearPointTrader. Protect what the market gives you. That mentality should not stop with your initial risk; it should continue as the market develops after your entry.

 

Rob

I think this may be my first post here. Been lurking for quite some time. Refreshing to find a site with serious, civil discussions.

[Rande Howell 10]

Yes, I can agree with that. Although accepting the risk, is different than allowing a mindset where you accept losses.

 

The mindset that you bring to the trade is neither about winning or losing. It is about performing the trade so that you execute it in excellence. Winning or losing occur afterwards. It is the mindset that you bring to the performance that determines the capacity to manage probability.

 

Rande Howell

[gosu 10]

The mindset that you bring to the trade is neither about winning or losing. It is about performing the trade so that you execute it in excellence. Winning or losing occur afterwards. It is the mindset that you bring to the performance that determines the capacity to manage probability.

 

Rande Howell

 

Exactly how do you "manage probability"?

 

Do you know the probability when you enter the market?

 

Yes?

 

No?

 

What about when you are in the market? Does the probability change from moment to moment while you are in the market?

 

I am guessing that the "probability" you are referring to is that of "winning."

 

 

What is the probability of a nontrader knowing the proper mindset of a trader?

 

Do you know what "anticipation" means?

[robm 10]

The mindset that you bring to the trade is neither about winning or losing. It is about performing the trade so that you execute it in excellence. Winning or losing occur afterwards. It is the mindset that you bring to the performance that determines the capacity to manage probability.

 

Rande Howell

 

Nice philosophy, but the devil is in the details. For example,

 

- It's about performing which trade? The entry trade, the proportional exits, the final exit, the stop loss?

 

- Winning or losing occurs after what? The final exit trade?

 

- Can you really manage probability? I've always thought the probabilities are what they are. You can recognize them, understand them, take advantage of them, but not change them. Maybe you meant the same thing, i.e., manage how you deal with probabilities.

 

- Can you manage trades? Sure. You can decide to exit when your trading plan would say otherwise -- usually not good.

 

As soon as your entry trade prints, you start getting more information about whether you have a winning or losing position; or even that it's not clear which. I've always thought a good trading plan takes advantage of this new information. That way, you can deal with the inevitable emotion that arises from the winning/losing feedback. A trading plan that does not account for the additional, post-entry information, leaves you only with a stale prediction about the market and emotion. The prediction, of course, is your set of targets and stops. The emotion, of course, can lead you to ruin.

 

So, performance excellence is a great mindset when the trading plan has an answer for changing conditions between entry and exit.

 

FWIW,

Rob