Here’s a few –

  • Plan the trade, trade the plan.
  • 3 losers in a row and stop for the day.
  • Make just $500 ($5000, $50,000) every day.
  • Control your emotions.

Each one of these is really about the mental game of trading. But each and every one reduces your odds of being a successful trader.

1. Markets are uncertain and human brains have uncertainty detectors. What this means is that just watching price action unconsciously compels you to DO something. That compulsion turns into an innate INABILITY to follow the part of your plan that is about how you enter and exit trades – and isn’t that what 99% of traders’ plans are about?

2. The three loser thing is really about interrupting your feeling so frustrated that you act out the frustration in more trades. It is about stopping to clear your mind and not trade until you FEEL better. But what if you are the professional hedge fund guy I know who is constantly buying a little on the bid and selling a little on the offer to test what is there. He takes bunches of small losses in his research process.He would never make a dime if he followed this rule.

3. $$ per day is 100% a piece of advice about psychology. It’s meant to make it seem easy and meant to step up breaks. But here’s the problem, some days the market is doing nothing and you are trying to squeeze blood from a turnip and some days the market is doing a lot and you can make $2500. Many of the pros I work with try to break even most of the time. Yep you read that right – they try to break even most of the time. Then, when they see the rhythms change and a real move coming, they pile on.

They can tell the difference because most of the time they are just researching and keeping their powder – fiscally and psychologically – dry.

4. Control your emotions ~ this is just one of the pieces of advice that gets passed on and passed on with few people ever questioning it. It is an absolute scientific fact that you CANNOT make a decision without emotion. How do both control your emotions and have them to make a decision? How do you know how much emotion is the right amount?

But here’s the real rub – logically, you only have to control your actions!!

And what is the right or best way to control your actions? Ironically it is to work WITH your emotions in totally new and ironic ways. If you are controlling them you don’t have a chance in the world of doing this. And they will always win anyway.

Research shows that we are really only capable of making one or two good decisions in a row. This means that 1) you have to take breaks (this is where your plan should concentrate), 2) you need to get exercise (the best antidote to a losing trade) and that 3) putting anxiety (or any other feeling) into words actually reduces it.

Net:

1. Plan not exactly how to exit your trade but how to set yourself up for the best judgment calls.

2. Plan for lots of breaks and lots of tactics that change how you feel about your performance but do not be arbitrary. Maybe you can only handle one loser and then you are off? Maybe you are my client and have 8 before you figure out what the market is up to. This is individual.

3. Plan to take what the market is giving in the context of your ability to stay fully psychologically engaged. This however can only happen if you make getting away from the screen just as important as staring at it. It also means you should never try to force $500, $5000, $50,000 out of a market. You won’t make the money and you will have to recover the losses – both financially and psychologically.

Have you read about how important SLEEP is to intelligence and judgment? Smart traders (and risk officers) will work through whatever it takes to get both exercise and naps during the trading day!

4. Control your actions. Feel your emotions. Verbalize – out-loud or in writing – whatever you really feel. Don’t say “stop trying…” or “don’t do that …” or any other cognitive/intellectual directive. Express your exact feelings as they are and wait to see what happens.