Traders seem often to be more struggling with the market or with themselves than celebrating their success. The media talks of the glamorous financial world and most people think these speculators make tons of money.
The reality looks different. Trading is mostly a zero sum game and the larger players have generally advantages the small private trader has not. Most small traders are fighting to not make a loss.
Trading can be demoralizing. You have probably already experienced such feelings while looking at your monthly statements or thinking about your last trading year. And that is fueling a self-fulfilling prophecy, an autocatalytical process.
So, how to break this circle of negativity? At first you should find out which kind of problem you have:
You don’t have a working trading system or you are not sure whether it really works.
The trading system is there and you are sure it works, but you don’t follow it closely enough.
Money management? What’s that?
It is clear to you how a proper money management would look for your chosen market and trading strategy, but you don’t adhere to it.
These four points overlap to a varying degree and at other times I would have differentiated the trading problem universe in a different way. Trading and investing mistakes and their categorization is a subjective subject. But the above scheme is a good starting point.
We find that there is a trading system and a money management needed and that a trader has to be able to execute both. Trading discipline is a virtue that is not given to everybody.
Naturally problems with the “trading mind” have more to do with the execution of a system. But before you dissect now your trading psychology and its shortcomings, you must at first be sure that the trading system and money management you actually use are okay.
Think about that! If you have difficulties to do that, because you feel that you already know exactly what there is to know, just trick yourself with this perspective flipper:
Others are also intelligent, but they are doing things differently. Why?
The very first reason why you may be unable to stick to your plans and to execute your system is that you feel that there is something wrong with them. It is better to assume that a trading life long than to stubbornly stick to something that doesn’t work. On the other hand, jumping around with what you are doing, won’t give you conviction and mental trading strength either.
So, the first thing is to find an investment or trading approach that is valid and may fit to your trading mind. Try these questions:
Is there any contradiction in the logic of the system? A trading system should have no contradictions.
What do I like the least about this system? That will be probably the thing that puts you off the discipline track.
Try to think outside the box and assume that some of your most-cemented assumptions about the market, your system or yourself are wrong. Here are three examples:
The classic contradiction is the mixing of cyclical and anticyclical trading patterns. If you want to be an investor and you buy cheap, any price-related stop loss doesn’t make sense. You would get stopped out even cheaper. If you are a trend trader and plan to ignore using stops, you will find yourself to be a trend reversal rider. Unfortunately your horse is riding backwards at times.
The classic psychologic point has to do with buying high and buying low. If your inclination always has been to buy low, then you are probably a value investor and you may have difficulties to be a trend trader. If you are not patient and want to see results fast, investing is not for you. Try trend trading or news trading.
Some time frame that seems to be wrong may nonetheless fit your overall goals. For example, entering longer-term trends with day trading techniques may still require you rarely to conduct a trade. Perhaps this combination yields the trend riding investor you always wanted to be.
Having a trading system that looks plausible and seems to fit to your trading mind is the basis for keeping the trading demon in check.
But what if you still have difficulties to do what your system and money management rules suggest?
Start over with either the same or a different trading system. Make consciously a new attempt.
Use a trading diary to express your feelings in conjunction with the market situation. Write down what you thought and what you did.
Try some sort of meditation before making trading decisions, for instance before the trading session starts.
Consider the membership of a trading room with live advice from others that feel and act more confident.
Trade more mechanized.
The last two points are at the core of Penny Stock Alerts’s future plans. Mechanizing the trading process can be done with a signal service or an autotrading software.
The poor man’s autotrader is the stop order. Get into the market and exit it by means of a stop buy or sell order. This trick alone may assure that you
implement a calm decision process and
be able to stick to your decision.
However, this is mostly suitable for day trading or entering the market for trend trading with day trading methods. If you are more after end of day operations for swing trading a trend, a real trading automaton may be right for you.
This neural trading robot seems to deliver astonishing good results. It is worth a try, especially if you combine it with trend trading systems from this site.