Trade Less To Make More Money

A good post from tradeciety.com on how overcome overtrading. The suggestions:

1. Every weekend analyze your markets and create trading plans.
2. Identify the most important price levels for the week ahead.
3. Set your price alerts at those levels.
4. Wait for price to get there without watching the market.
5. When your price alert goes off, check the chart and evaluate whether you have a trading entry or not:
    a)  Yes? Great, enter the trade.
    b)  No? Set yourself a reminder to check back in a few hours or take the instrument off your watchlist if price movements made your trade idea invalid.
6. Let the set and forget approach do the rest for you and don’t interfere with your trades again.

Dr Brett Steenbarger - Three Powerful Techniques for Changing Your Trading Psychology

This is a great video, a lot of useful stuff on trading psychology.

Syncing with the markets

This is a great post by Brett Steenbarger on how trading time frequency can impact our performance. The key point is that the trading frequency or the chart we trade must be in sync with our speed of decision making. 

Changing Your Trading (or any) Psychology

Trading problems often caused by bad habits that time to time hijack our thoughts. There is a great post from Brett Steenbarger on how to change those bad habits. The key points are:

1. Identify when our "automatic routines no longer serve a useful purpose, when yesterday's solutions, carried forward to a new reality, become today's problems."
2. Exit the comfort zone.  "That means standing outside our patterns and actively viewing them as problems."
3. "Change begins when we view our problems as our problems."
4. "Actively rehearse that pattern in your mind--visualize it, feel it--while you remind yourself of all the ways that it has hurt you." "Imagine how many times you've flushed money down the toilet, how many ways this problem has stood in the way of your success."
5. "Visualizing old ways of thinking, feeling, and acting that now bring us pain and allowing ourselves to fully feel all the disgust, guilt, remorse, and anger associated with the consequences of those patterns completely changes our trading psychology.  We no longer fall into comfortable habits, because we no longer feel comfortable with those habits.  We have turned them into enemies.  That is powerful."

25 things to improve next year

1. Be comfortable with being uncomfortable in trading. The best trades are the most difficult to make.
2. You have to have an edge that you can explain to your mother.
3. Making money is important and not being right.
4. Profit is the objective, but not the sole measure of trading quality especially when drawdowns are taken into account.
5. Maintain your mindset after a row of losing trades.
6. Trade aggressively when you do well and modestly otherwise.
7. Don't only watch the markets be participant even if with very small position size.
8. Stop thinking about the market being cheap or expensive.
9. Be very flexible in changing your opinion if market tells you so.
10. There will be opportunities every day. 
11. Prices very often lead the news. 
12. Trade the reaction but not the news.
13. Be patient with winning trades and enormously inpatient with loosing trades.
14. One or two trade in a month make up the profit, but you must do the rest to be able to do these winners.
15. Try to keep your charts as naked as possible focusing on the support and resistance zones.
16. Try to anticipate the right side of the chart and do not be bogged down in the left side.
17. Study chart to figure out where traders are lining up to buy or sell and where people are stopped out.
18. Before entering into a trade you must know exactly where (Profit Target) or how  (Trailing Stop) you will exit. 
19. Don't try to pick tops and bottoms.
20. Stop loss must be wide enough to absorb the chart noise.
21. Be patient with entries to improve payoffs.
22. Improve self talk. Talk as a trading coach talks to a novice trader. This should improve responsibility and help detach from thinking about money.
23. Focus on making a lot of small profits rather to find the big trade.
24. Focus on fine tuning the daily and weekly routines and tasks, define each task in details and also their timing.
25. Don't even think to fight the trend, fight the sideways only!

Frustration

I do believe that the biggest psychological enemy in trading is frustration. Frustration comes hand in hand with perfectionism as it is triggered by the conflicts in our expectations and the achieved results. Frustration is that can quickly derail us and push into either an under-controlled or and over-controlled state of mind. When frustration shifts into anger that could result in really stupid decisions we would never ever make in a controlled and balanced state of mind.. 

Handling frustration is one of the most valuable tool a trader might have. There are a number of very useful posts on TraderFeed  by Brett Steenbarger on this topic. 

Perfectionism

This is a great post by Brett Steenbarger on how perfectionism can hurt your trading. 

"In a very important sense, perfectionistic traders are not seeking to make money.  They are trying to not lose money.  Their intolerance of loss keeps them moving from method to method in search of a certainty that markets cannot provide."

Cognitive Biases

It is a must to understand how cognitive biases work in trading. This is a great article by Allen Cheng on Cognitive Biases in general.

This post by Galen Woods is particularly about biases in trading.

Interview with John Carter

This is a great interview with John Carter by Aaron Fifield. 

For me the key points are:
- Difference between good and bad traders is patience.Patience to wait for the right setup and patience to sit in a winning trade. "I promise you that the markets are gonna be open tomorrow and there's gonna be another opportunity.
- "When you get emotional and you chase (a missed trade) you get yourself into a mindset that you really miss what's going on, when a real opportunity comes along you're just not ready. You're chasing and emotionally vested in something that really wasn't a setup. You usually end up to be the last to get in."
- "I went from 10k to 100k so I thought wow I could go from 100k to 1m. Instead of focusing on trading I started to focus on the 1m. That changed the trading approach. I can't afford  taking this loss I have to make it to break-even.'" This was distractive. Don't try to make 1m!
- Books: Mark Douglas The Disciplined Trader and Trading in the zone. 
- The biggest problem with being too fearful is that you wait for the confirmation. The problem with waiting for the confirmation in trading is that by the time something is confirmed and all the indicators are aligned that is usually the time to take profits. Everybody is looking at the same chart and if everybody thinks that it looks good than everybody is in position so nobody else is left to jump into and move the prices in your way. That coincide with the saying that the best trades are the most uncomfortable to make.
- "Sooner you get to the point when you focus on probabilities and you let go the emotional attachment to the outcome the sooner you become consistent."
- There are three type of trading: scalping/day trading, swing/position trading and investing. "The best thing I've done I took my 5min charts and throwed them away."
- "The best traders I've met they don't care what's going on, they don't watch the news, the don't look at the latest tips", they just focus on their setups. "The less information you have the better you will do." 
- "You don't do the same trades all the time. Markets are changing. There are three positions to have, you can be long, short and flat. Longer I do this I more realize that flat is one of the best positions. Because if you are flat your mind is neutral. If nothing you can do go away and just do something else, be patient. If you can be patient in the course of a trading year, there is gonna be one or two days in a month where if you are focused and you have a neutral state of mind you can dive in and have a larger than normal position and make a killing. Then get out and go flat again. Don't trade just to get read of boredom.
- "Out of the money options are designed to expire worthless."
- "I don't look at a chart more than a split second." Good setups are right there in front of your face. You look at a chart longer it means you're trying to force something onto that. 
- I would rather have three or four larger positions than 18 smaller ones. "Diversification is for people who don't know what they're doing." If you see something you like get in and focus on it instead of shotgunning an hoping for the best. Focus is the key.
- "In early years I had a pressure to make a  big trade. The main difference now is the confidence in my skills."If I don't make money today that's fine, markets are gonna be here tomorrow". 
- "This is the only profession on planet where you have to develop confidence in a situation where the result is always uncertain. When you feel comfortable to be uncomfortable then you are there. "

Dynamic Risk Taking

This is a good post on TraderFeed how to achieve trading consistency by taking small risk.Once you grow your confidence you can increase the risk you're taking. I time to time do this exercise when:
- I have a break in trading and I need to sync with the markets,
- after a loosing stake I loose a little bit my confidence.

It is important for me to be in the market. Watching the charts or trading a demo account is just not like opening positions with real money even if the risk I take is small. The risk level is to be determined way before making any trading decision.

Trading Discomfort

This post sheds light on this very important subject. It does not seem to offer a feasible solution, but it at least brings up this issue. Discomfort is often a source of cognitive biases or lets these biases prevail.

Why perception is the key in trading (and in any) performance

This is a great post on New Trader U: Transform Your Market Performance With This Simple Shift.

The key points: 
- Life is a mirror that casts back to us our own reflection!
- An openness to challenge what we think we already know about the world.

So we continuously have to challenge the way we perceive say the same price action in different market circumstances. Perhaps the best way to start is developing competitive scenarios based on the same setup. The challenge is to treat those scenarios independently. In other words you have to have at least three independent mindset and you have to treat them or let the exist without influencing each other. You have to be able to thing bullish, bearish and believing that market is in a sideways mode.

How Learning To Deal With a Loss

There is no doubt that my biggest psychological enemy in trading is the fear from losses. Handling losses properly could be the first step overcome this fear. 

There is a great post about the issue on www.newtraderu.com. Some key points:

"Recognizing your reactions is the easy part. The hard part is recognizing the part between the triggering event and your reaction."

"To become successful as a trader, you must put yourself into situations that will bring pain, suffering, and loss."

"So how do you stop this invisible force that seeks to protect you at the expense of financial disaster? You can’t."

"So if can’t we defeat ourselves or those defense mechanisms, what do we do? You learn to be aware. Sometimes, just being aware of what we are thinking and the feeling is enough to stop our reactions from hurting our trading. This is difficult for people to do, to be aware."

How to Train Your Brain to Be More Optimistic

A good article on CNBC that has very useful thoughts for traders as well. The five key points:
1. ‘TRY ON’ A POSITIVE LENS 
2. TAKE NOTE OF THE COMPANY YOU KEEP
3. TURN OFF THE NEWS
4. WRITE IN A JOURNAL FOR A FEW MINUTES EACH DAY
5. ACKNOWLEDGE WHAT YOU CAN — AND CANNOT — CONTROL

Obviously the turning off the news is not feasible for a trader, but acknowledging what we can and cannot control is vitally important.

Flipping the trade

Sometimes shortly after entering into a trade the price action suggests that I'm on the wrong side. Sometimes the feeling of being wrong is very strong. I have such a conviction that I rarely experience when not being in a position. The best one can do in these cases is to reverse the trade with no hesitation even if it requires realizing a loss. I need to put my ego aside by quickly admitting that I was wrong.

Brett Steenbarger's video

The video is on vertical split in personality and trading.

Brett Steenbarger: Overcoming Boredom and Overtrading

This is really a great post from Brett Steenbarger that sheds light on perhaps the most important point about trading. 

Trading for me is not about the excitement of entering and exiting from positions or making money. Though, the latter is the final goal of the whole exercise. The point is that if I do everything well, if I continuously improve myself and try to be more and more professional, it must be profitable at the and of the day.

Trading is about continuously feeding my intellectual curiosity. Finding out the real cause and effect relationships behind price moves and try to project or feel what is to come is the goal. I like the video How The Economic Machine Works by Ray Dalio. It is a good example how we should think about the economy and the markets. We should try to find the main cause and effect relationships, positive and negative feedback loops and create a simplified model of the issues we try to understand. Each model has a great deal of simplification as our word is extremely complex. But, having a simplified model that covers at least a few very important relationships always better than just tossing a coin. This makes trading so much different than "pulling the levers on slot machines".