by Terry Macartney
A Trader’s Journey
“The realisation that you are responsible for the results you get is the key to successful investing. Winners know they are responsible for their results, losers think they are not.” – Van Tharpe
When I first started trading and had done the obligatory online trading courses, I was lucky enough to find a trading mentor, a seasoned trader who had some well-established strategies and techniques, and managed a private fund for a number of investors. His style and methods were “rules based discretionary” and these became (and still largely are) my default trading methodology.
However, this did not instantly make me a profitable trader; far from it. I basically applied his rules, but my own discretion. Not a good combination as it turned out!
By doing that, I was putting “me” in the trading equation, but with little conscious awareness of what I was doing. I was, though, very diligent at reviewing my trades each week, and kept coming up with,
“If only I had done such and such in that situation….” or “What I could have done to maximise profit/minimise loss was….”
I saw again and again that exactly the same trade set-up and entry, but different management strategies, would have created greater profit, or minimised loss, or opened up scale in/out options.
This was very much hindsight trading, but it did show me that “I” was a part of the trading equation, and how “I” responded to a trading context and applied appropriate strategies was the key to profitable trading, not the actual market movements.
The next stage was to bring awareness to what actually motivated my trading behaviour. What beliefs, biases, and emotions were there in the equation? What discretionary values was I applying, and were they valid and useful?
In addition to beliefs and biases, what sort of personality strengths and weaknesses were I bringing to the game? What were my lifestyle conditions that dictated what and when I could trade? What were my primary motives and visions around trading in the first place? Where was “I” in the whole trading equation and context?
A Belief in…..
At this stage, I need to state clearly that my belief (just another belief) is that even traders who claim to be totally mechanical in their approach are still subject to beliefs and emotional biases on some level. Perhaps an EA can be a purely mechanical trading system, but even they are designed by people with unavoidable mental and emotional biases.
Far more powerful and effective is to acknowledge the influence of our human-ness and to work with that, rather than deny it or try to suppress it.
Conscious Awareness is not Enough
Bringing conscious awareness to my trading process was, of course, a big piece of work, but just knowing my personal tendencies did not necessarily equate with automatically being able to do things better. There had to be an integration of new patterns, a letting go of beliefs that weren’t useful, and an internal game plan for the best response to a fear or greed trigger. There had to be effective behavioural change.
I was fortunate at the time to be part of several Mastermind groups for small businesses. Even though these groups were not specifically trading-related, the brainstorming of new ideas and ways of doing things, and the accountability to implement goals that is a major component of Mastermind groups, were very useful and effective resources to have.
For me, my own discipline and will power to make changes was often not enough!
Fortunately, as well, there are many surprisingly simple physical “tricks” to help with behavioural change.
One great example of this is a client I coached who wanted to work on cutting losses short more quickly.
One of his strengths was that he was a very good analyst of market conditions. So, using a strength he already had, I suggested that if he was in a long trade and it was not looking great, set up the same trade on a demo account with a slightly different display and see if he had a good set-up for a short trade. If his entry criteria were met for shorting, then it was definitely time to look at exiting his long trade, thus potentially saving a full stop-out. This exercise has also opened the door for him to start exploring stop-and-reverse trades.
Being IN the Trading Equation
In the above example, our trader is well and truly part of the trading equation.
The market is doing what it is doing, and He applies one of His strengths to a slightly differently displayed price chart, to increase perceptual variety. He is now looking at short potentials, rather than long. This is a reframing of His former analysis bias to be long. He is also not emotionally invested in a possible trade on a demo account, in contrast to the emotional investment He almost certainly has in His long trade on the live account.
By putting himself in the trading equation with “fresh” eyes, paying attention to his known strengths and reframing his existing biases, he is allowing a clearer and more realistic assessment of the actual market conditions as they currently are.
Potential benefits to his bottom line are cutting a losing trade short to minimise loss and possibly getting into a short trade that he was not aware of because of his bias about being long. This is a better potential outcome because HE is very much part of the trading equation. The market then does what it does, and his bottom line has probably been enhanced.
Over to You
How actively and consciously have you put YOU into the trading equation?
Is your lifestyle fully factored into the time frames and markets you are trying to trade?
Are your trading goals realistic and achievable?
Are you aware of personality profile characteristics that may aid or hinder your trading expertise?
Have you looked at or become aware of biases, emotions, and beliefs that get you into or out of trades that are in conflict with your set strategies and trade criteria?
How much is your discipline to follow through (or not) on your trading strategy affecting your profitability?
Have a good look at where YOU are in the trading equation.
About the Author
Terry Macartney is an FX and indices trader based in northern NSW, Australia. He is an Accountability Coach for traders and has established Fxcellence as a coaching platform for working with traders and small businesses. Contact can be made here: http://fxcellence.com/
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