LET'S THINK ABOUT TRADING

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RicG
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Postby RicG » Sat May 31, 2014 4:34 pm

Deleted - double post.
Last edited by RicG on Sat May 31, 2014 7:48 pm, edited 1 time in total.
(Disclaimer - This post is for educational purposes only. Always consult a licensed investment professional before taking any trade. Any trade you take is at your own risk.)

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RicG
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Postby RicG » Sat May 31, 2014 4:42 pm

Hi all,

The following are some of my thoughts about, and excerpts from Chapter 3 of "Golf is Not a Game of Perfect" by Dr. Bob Rotella. Quotes from the book are in bold font, as to clearly separate them from my writing.

This first quote gives an excellent example as to why some traders can make solid, consistent profits trading on SIM, but when they go live they either lose money, or can't even pull the trigger. It's all about perception and fear. Fear of failure, amongst many others, is one of the main reason traders, athletes, and others don't win. The psychological hurdle one must overcome, is shown by this great example:


"If you lay a four by four inch beam on the floor and ask people to walk from one end to the other, it's easy. Most people will instinctively focus their vision and attention on the far end of the beam, their target. And they will walk confidently and causally until they reach it.

Now mount the beam forty feet in the air, with no net underneath. Physically, the task remains the same as it was when the beam was on the floor. Mentally, though, it has changed dramatically. Mounting the beam high in the air introduces a strong fear of failure.

Most people, in such circumstances, will respond by starting to think about mechanical things they didn't worry about when the beam was on the floor. How, exactly, does a person keep his balance? And how does he put one foot in front of the other? Toes in or toes out? Body sideways for facing straight ahead? Eyes on the beam or on the feet? Arms limp or extended to the sides? Their goal will become not falling, rather than getting to the end of the beam. They will stop trusting the body's ability to remain balanced as they negotiate the distance. Thinking that way causes the muscles to tighten and the movement of the body to grow spasmodic and jerky rather than rhythmic and graceful. If you actually conducted the experiment, many people who successfully negotiated the beam when it was on the floor would fall off from forty feet."



When you are trading on SIM, you are, in effect, walking on the beam that's laid on the floor. When you go live with real money, your hard earned money, you are now walking on that beam that's mounted forty feet in the air with no net underneath! Your perception of price action, time passed, what might happen next, etc., while in that live trade, is now completely different than when you took the same trade setup on SIM. This is one of the main reasons why most traders get out of live winning trades far too early, which completely blows their TP/SL ratio.

Dr. Rotella continues with the subject:


"In much the same way, a golfer who fears failure, as most amateurs and many professionals do at least some of the time, tends to think about how he takes the club back, how far he turns, how he cocks his wrists, how he starts the downswing, or other swing mechanics. Inevitably, he will tend to lose whatever grace and rhythm nature has endowed him with, which leads to inconsistent shot making with every club, from the driver to the putter.

This suggests a most important principle:
You cannot hit a golf ball consistently well if you think about the mechanics of your swing as you play.

A golfer must train his swing and then trust it.

When great players are playing well, trust becomes a habit. The golfer executes his shots without being aware that he's trusting his swing. He simply picks out a target, envisions the kind of shot he wants to hit and hits it."


This explains perfectly the absolute importance in trading psychology. It's the most important, but least talked about portion of what makes a financially successful trader. Why? Because it's the most difficult part to understand, dissect, and "fix". Winning methods/strategies are easy to find or develop yourself. Money management is easy. Risk/Reward concepts are easy. Discipline is more difficult, because it's connected to the psychology portion of the trading puzzle. Fear of failure, fear of success, greed, anger, anxiousness, etc. are difficult for most of us, because those emotions are part of our personal psychological makeup, which have developed over an entire lifetime and are solidly ingrained in the brain. Figure out how to deal with your emotions, and you figure out how to successfully trade. That's the holy grail.

Regards,
Ric
(Disclaimer - This post is for educational purposes only. Always consult a licensed investment professional before taking any trade. Any trade you take is at your own risk.)

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Postby withnail » Sun Jun 01, 2014 5:33 pm

Nice post RicG thanks for sharing.

Zen and the Art of Poker: by Larry Phillips was a tip from pebbletrader in the past, nice book with lots of trading crossovers too.
1. Big loss, 2. Small Loss, 3. Big Win, 4. Small Win --- just prevent 1.

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Postby RicG » Sun Jun 01, 2014 6:22 pm

withnail wrote:Nice post RicG thanks for sharing.

Zen and the Art of Poker: by Larry Phillips was a tip from pebbletrader in the past, nice book with lots of trading crossovers too.


Thanks for your kind words withnail.

Funny that you mention "Zen and the Art of Poker", as it's in my list of "must-reads" for any current or aspiring trader. It certainly has some trading crossovers as you mention.

Whenever anyone who is starting out this trading journey asks me about books, I tell them that they need to read all four of these books, BEFORE they ever take their first trade:
1) Trading in the Zone, by Mark Douglas
2) The Disciplined Trader, by Mark Douglas
3) Golf is Not a Game of Perfect, by Dr. Bob Rotella
4) Zen and the Art of Poker, by Larry W. Philips

None of these books teach technical or fundamental analysis, trading strategies/methodologies, risk/reward, etc., which are the first things and unfortunately the only things that most traders spend countless hours reading and learning about. But, if one truly grasps the knowledge in the four books listed above, they'll have a much greater chance at becoming successful.

I'll try to post a few more quotes from the Dr. Rotella book, and my trading thoughts in reference to them, over the next several days.

Great trading to all,
Ric
(Disclaimer - This post is for educational purposes only. Always consult a licensed investment professional before taking any trade. Any trade you take is at your own risk.)

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Postby TheRumpledOne » Sun Jun 01, 2014 8:06 pm

"If you lay a four by four inch beam on the floor and ask people to walk from one end to the other, it's easy. Most people will instinctively focus their vision and attention on the far end of the beam, their target. And they will walk confidently and causally until they reach it.

Now mount the beam forty feet in the air, with no net underneath. Physically, the task remains the same as it was when the beam was on the floor. Mentally, though, it has changed dramatically. Mounting the beam high in the air introduces a strong fear of failure. "

RicG:

IMHO, it is not the fear of failure but the fear of the CONSEQUENCES of failure - BIG DIFFERENCE.

In SIM trading, you don't fear losing because there are no consequences.

It is not just semantics.

See the difference?

So the trader must master their ability to focus/concentrate on the process and not the consequences of the outcome. This is trusting your system/method.

Traders want to achieve profit when they trade but their goal/mission for each and every trade is to execute properly - no more, no less.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!

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Postby TheRumpledOne » Sun Jun 01, 2014 9:04 pm

ADAPTATIONS FOR TRADERS FROM GOLF IS NOT A GAME OF PERFECT by Dr. Bob Rotella

A trader can and must decide how they will think.

You can not trade consistently well if you think about the mechanics of the method as you trade.

A trader must learn their method and trust it.

You have to start replicating the state of mind you have on a hot streak as soon as you open your trading platform. No matter what happens during your trading session, you have to strive to maintain that state of mind. YOU HAVE TO STAY OUT OF YOUR OWN WAY.

Before entering any trade, a trader must pick out the entry and exit targets.

The foundation of consistency is a sound pretrade routine.

A trader must follow the mental side of the routine, which requires them to to dispel any doubt or anger from their mind before they trade. Even the best traders, the ones who have learn this principle, understand it, and have practiced it, have to work constantly at it. Everyone succumbs to the temptation once in a while and strays from the proper routine. The best traders recognize when they have done it and renew their commitment to trading only when they have executed each step in their mental routine.

You can't allow yourself to be rushed through your pretrade routine.

Attitude is what makes a great trader.

It is more important to be decisive about a trade than correct.

It's not hard to be decisive if the trades are making money for you. Anybody who makes profit on the first two trades is going to be decisive on the third. The hard part is remaining decisive even if the first critical trades of the day are losers.

The question you must ask yourself is not whether you're making money. The proper question is whether your attitude is giving your trades a chance to make money. If it is then you should be encouraged by losers. Sooner or later, since you're doing everything right, trades will start to make money. The law of averages, if you've just lost a few, suggest it will be sooner rather than later.

No matter what happens with any trade, accept it. Acceptance is the last step in a sound routine.

No matter how good you get at trading, a lot of funky, crazy things are going to happen. The better you get at accepting them, the better you're going to get.

Train yourself to accept the fact that as a human being, you are prone to mistakes. Trading is a game played by human beings. Therefore, trading is a game of mistakes. The best traders strive to minimize mistakes, but they don't expect to eliminate them. And they understand that it's most important to respond well to the mistakes they inevitably make.

The first thing to do is to throw away your expectations as soon as you open your trading platform and just trade. It's very difficult to do. But I have never worked with a trader who could trade anywhere close to their potential unless they shed their expectations before the first trade.

A trader can't force results to happen. A trader can only do everything possible to give those results a chance to happen. To become a really good trader, you have to learn how to wait. But you have to learn to wait with confidence.

Anyone can develop confidence if they go about it properly. Confidence isn't something you're born with or something you're given. You control it. Confidence is what you think about yourself and your golf game.

Trade the trade you know you can trade, not someone else's trade, nor the trade you think you ought to be able to trade.

You must trade every trading session with a trading plan.

A trader chokes when they let anger, doubt, fear or some other extraneous factor distract them while trading.

First, stay in the present and keep your mind sharply focused on the trade immediately in front of you.
Second, avoid mechanical thoughts. Instead, strive to become looser, freer and more confident. Third stick to your routine and trading plan.

To improve, you must practice. But the quality of your practice is more important than the quantity.

Traders who realize their potential generally cultivate the three D's ? desire, determination and discipline; the three P's ? persistence, patience and practice; and the three C's ? confidence, concentration and composure.

Confidence is crucial to profitable trading. Confidence is simple the aggregate of the thoughts you have about yourself.

A trader cannot let the first few trades determine their thinking for the rest of the trading session.

Traders need selective memories, retaining the memory of winning trades and forgetting losers. Selective memory help a trader grow in confidence as they gain experience and skill.

Patience is a cardinal virtue in trading. To improve, a trader must learn how to wait for practice and good thinking to bear fruit.

On the first trade, a trader must expect only two things of themselves: to have fun and to focus their mind properly on every trade.

Traders with great attitudes constantly monitor their thinking and catch themselves as soon as it begins to falter.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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RicG
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Postby RicG » Sun Jun 01, 2014 9:58 pm

TheRumpledOne wrote:"If you lay a four by four inch beam on the floor and ask people to walk from one end to the other, it's easy. Most people will instinctively focus their vision and attention on the far end of the beam, their target. And they will walk confidently and causally until they reach it.

Now mount the beam forty feet in the air, with no net underneath. Physically, the task remains the same as it was when the beam was on the floor. Mentally, though, it has changed dramatically. Mounting the beam high in the air introduces a strong fear of failure. "

RicG:

IMHO, it is not the fear of failure but the fear of the CONSEQUENCES of failure - BIG DIFFERENCE.

In SIM trading, you don't fear losing because there are no consequences.

It is not just semantics.

See the difference?

So the trader must master their ability to focus/concentrate on the process and not the consequences of the outcome. This is trusting your system/method.

Traders want to achieve profit when they trade but their goal/mission for each and every trade is to execute properly - no more, no less.




I do feel it's a semantical argument because consequences are implied. That's why people feel fear.

However, on the other point, I do agree with you that traders should "focus on process, not on outcomes." In fact, I have that posted on my office wall. :-)
(Disclaimer - This post is for educational purposes only. Always consult a licensed investment professional before taking any trade. Any trade you take is at your own risk.)

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TheRumpledOne
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Postby TheRumpledOne » Sun Jun 01, 2014 10:10 pm

RicG:

The consequences are DIFFERENT in SIM vs REAL MONEY, so it is NOT the losing but the CONSEQUENCES OF LOSING that invoke fear.

I hope that makes it crystal clear.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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RicG
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Postby RicG » Sun Jun 01, 2014 10:22 pm

TheRumpledOne wrote:RicG:

The consequences are DIFFERENT in SIM vs REAL MONEY, so it is NOT the losing but the CONSEQUENCES OF LOSING that invoke fear.

I hope that makes it crystal clear.

I already made that point in my original post, using the beam analogy........that traders in SIM might do fine because there's no fear (and "no consequences" are implied), but when they go to Live they don't trade as well because of fear (and "consequences" are implied).
(Disclaimer - This post is for educational purposes only. Always consult a licensed investment professional before taking any trade. Any trade you take is at your own risk.)

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Postby Humble » Mon Jun 02, 2014 2:19 am

TheRumpledOne wrote:ADAPTATIONS FOR TRADERS FROM GOLF IS NOT A GAME OF PERFECT by Dr. Bob Rotella


I feel another ebook coming on :)
Is price closing higher or lower than something? Simple yet powerful question. ..MO

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