1. The four trading fears
95% of the trading errors you are likely to make will stem
from your attitudes about being wrong, losing money, missing out, and leaving
money on the table – the four trading fears
2. The proverbial empathy gap
You may already have some awareness of much of what you need
to know to be a consistently successful trader. But being aware of
something doesn’t automatically make it a functional part of who you are.
Awareness is not necessarily a belief. You can’t assume that
learning about something new and agreeing with it is the same as believing
it at a level where you can act on it.
3. The market doesn’t generate happy or painful
information
From the markets perspective, it’s all simply
information. It may seem as if the market is causing you to feel the way you do
at any given moment, but that’s not the case. It’s your own mental
framework that determines how you perceive the information, how you feel,
and, as a result, whether or not you are in the most conducive state of
mind to spontaneously enter the flow and take advantage of whatever the market
is offering.
4. The flaws of fundamental analysis
Fundamental analysis creates what I call a “reality gap”
between “what should be” and “what is.” The reality gap makes it extremely
difficult to make anything but very long-term predictions that can
be difficult to exploit, even if they are correct.
5. A good trader is a confident trader
I've worked with countless traders who would spend hours
doing market analysis and planning trades for the next day Then, instead
of putting on the trades they planned, they did something else. The
trades they did put on were usually ideas from friends or tips from
brokers. I probably don’t have to tell you that the trades they originally
planned, but didn’t act on, were usually the big winners of the day. This
is a classic example of how we become susceptible to unstructured, random
trading—because we want to avoid responsibility.
6. Anything could happen
The best traders have evolved to the point where they
believe, without a shred of doubt or internal conflict, that ”anything can
happen.” They don’t just suspect that anything can happen or give lip
service to the idea. Their belief in uncertainty is so powerful that it
actually prevents their minds from associating the “now moment” situation
and circumstance with the outcomes of their most recent trades.
They have learned, usually quite painfully, that they don’t
know in advance which edges are going to work and which ones aren't They
have stopped trying to predict outcomes. They have found that by taking
every edge, they correspondingly increase their sample size of
trades, which in turn gives whatever edge they use ample opportunity to
play itself out in their favour, just like the casinos.
7. Most people are obsessed with being right
Why do you think unsuccessful traders are obsessed with
market analysis.They crave the sense of certainty that analysis appears to
give them. Although few would admit it, the truth is that the typical
trader wants to be right on every single trade. He is desperately trying to
create certainty where it just doesn’t exist.
The typical trader won’t predefine the risk of
getting into a trade because he doesn’t believe it’s necessary.
The only
way he could believe “it isn’t necessary” is if he believes he knows
what’s going to happen next.
The reason he believes he knows what’s
going to happen next is because he won’t get into a trade until he is
convinced that he’s right. At the point where he’s convinced the trade will
be a winner, it’s no longer necessary to define the risk (because if he’s
right, there is no risk). Typical traders go through the exercise of convincing
themselves that they’re right before they get into a trade, because the
alternative (being wrong) is simply unacceptable.
If he exposed himself to conflicting information, it would
surely create some degree of doubt about the viability of the trade. If he
allows himself to experience doubt, it’s very unlikely he
will participate. If he doesn’t put the trade on and it turns out to be a
winner, he will be in extreme agony. For some people, nothing hurts more
than an opportunity recognized but missed because of self-doubt. For the
typical trader, the only way out of this psychological dilemma is to ignore the
risk and remain convinced that the trade is right.
8. Trading has nothing to do with being right or wrong on
any individual trade
For the traders who have learned to think in probabilities,
there is no dilemma. Predefining the risk doesn’t pose a problem for these
traders because they don’t trade from a right or wrong perspective. They
have learned that trading doesn’t have anything to do with being right
or wrong on any individual trade. As a result, they don’t perceive the
risks of trading in the same way the typical trader does.
9. We have to be rigid in our rules and flexible in our
expectations
We need to be rigid in our rules so that we gain a
sense of self-trust that can, and will always, protect us in
an environment that has few, if any, boundaries. We need to be flexible in
our expectations so we can perceive, with the greatest degree of clarity
and objectivity, what the market is communicating to us from its
perspective.
10. Market losses are simply the cost of doing business
When I put on a trade, all I expect is that something
will happen. Regardless of how good I think my edge is, I expect nothing more
than for the market to move or to express itself in some way. However,
there are some things that I do know for sure. I know that based on the
markets past behavior, the odds of it moving in the direction of my
trade are good or acceptable, at least in relationship to how much I am
willing to spend to find out if it does. I also know before getting into a
trade how much I am willing to let the market move against my position.
There is always a point at which the odds of success are greatly diminished in
relation to the profit potential. At that point, it’s not worth spending
any more money to find out if the trade is going to work. If the market reaches
that point, I know without any doubt, hesitation, or internal conflict that
I will exit the trade.
The loss doesn’t create any emotional damage, because I
don’t interpret the experience negatively. To me, losses are simply the
cost of doing business or the amount of money I need to spend to
make myself available for the winning trades. If, on the other hand, the
trade turns out to be a winner, in most cases I know for sure at what
point I am going to take my profits. (If I don’t know for sure, I certainly have
a very good idea.) The best traders are in the “now moment” because there’s no
stress. There’s no stress because there’s nothing at risk other than the
amount of money they are willing to spend on a trade. They are not trying
to be right or trying to avoid being wrong; neither are they trying to
prove anything. If and when the market tells them that their edges aren’t
working or that it’s time to take profits, their minds do nothing to block
this information. They completely accept what the market is offering them,
and they wait for the next edge.
Source: http://ivanhoff.com
