Why Do You Trade?
I believe that a prime ingredient for success in any endeavor is the right motivation. One question I like to ask new students early on in class is why they want to trade. This question is very important because so many people fail in this business partly because they lack the drive to persist through the inevitable tough times that are derived from trading.
The obvious answer to this question of why someone would want to trade is to make a lot of money. My experience with traders that focus all their attention on money, however, is that their drive to make money causes them to be lax in their risk management principles. They cling to their losers in an effort to avoid them because profits will only come by holding on long enough for the trade to work; or so they think. This attitude will no doubt have devastating consequences to their trading accounts over time, and many will wash out before they learn that focusing too much on money is not the answer.
My view is that rather than paying attention to the money aspect of trading (which is good, please don’t misunderstand), we should center on what the monetary rewards of successful trading can bring us. These are different for everyone. For some, it may mean not being beholden to any one person or corporation for their livelihood, and that translates into freedom. This may mean time with family, friends, or simply doing things that we enjoy. For others, it may be sending their kids to a good school, or perhaps, traveling the world. Philanthropy, giving something back, is always a fine motive.
A misguided notion about why people pursue a trading career is the belief that because there is no boss to report to, a trader can do as he or she pleases without being accountable. This cannot be further from the truth as successful trading can only be attained by hard work, diligently following rules, and often times, stepping outside of our comfort boundaries. When this reality finally sets in for traders, many will fall by the way side as the short-cuts and easy money schemes are quickly dispelled.
Profitable traders are very competitive individuals who also enjoy being challenged. And believe me when I tell you, being consistently profitable in trading will probably be one of the most challenging undertakings you will ever pursue. This has always been one of the allures of trading for me. Also, the fact that there are no limits in trading — in terms of the monetary gains possible — has a great appeal. Most jobs or careers have some type of limitations, but not so in the trading arena.
Another aspect that can motivate someone to start trading is the gambling component of speculating in the financial markets. This provides excitement to those that need the “action.” The thrill of a “big score” keeps these individuals funding their depleted futures accounts time and again until the trading capital simply runs out.
Here at Online Trading Academy, our motto is that we trade for a better life, not to make trading our life. This statement pretty much encapsulates all the good things trading can provide and what should be avoided.
So, what excites you? What gets you out of bed every morning? What activities do find joy in? What makes you happy? This is where true motivation comes from. Trading should be a means to an end. That end has to be individual, but it must be rooted in something pleasurable or else it won’t work.
Putting money at risk is not easy, but focusing on the reward can change the reasons you trade. So find your positive motivation, set some goals, build a road map to get you there, and go after it.
Your Ego Can Get Your Trading Into Trouble
By Dr. M. Woodruff ("Woody") Johnson, Online Trading Academy Mastering the Mental Game Instructor
Have you ever heard someone comment on another person's behavior by saying that they have a big ego? What does it mean? Generally speaking when someone is saddled with this label it means that the individual is perceived as conceited, self-centered, perfectionistic, having to always be right, having difficulty accepting criticism, self-absorbed or arrogant. Of course they may exhibit all or none of these negative traits, but more than likely they may have an inflated opinion of themselves that gets between them and healthy relationships; one of which being their relationship with the market as they trade. The person in question may be a good guy overall, it's just that they may be so caught up in self-protection (defense mechanisms that thwart an honest interaction with the environment) or self-promotion (inflated notions of one's importance over others) that they become distracted and begin to distort data. Often, the individual that suffers from ego inflation issues also has a part of themselves that is not only aware that there are issues, but actually attempts to override the self-sabotaging behavior that develops as an outcome of self-defeating emotions like anger, fear, anxiety, stubbornness and impatience. It's tantamount to having different parts of yourself show up in challenging situations that make mindful execution of the trade all but impossible causing impulsive entries, chasing trades, moving stops and other unwanted rule violations.
Don't you have to be mentally ill to have different personalities reside in your body? Actually, it is quite normal to have various "parts" of yourself emerge at different times depending on what is going on at the moment. If fact, these parts of the self speak different languages and see different things as well; which is why you may have wondered how you made a glaring mistake after becoming seduced by your illusions of what the charts were really showing in the wake of a loss. This kind of personal and emotional volatility can wreck your trading account. Similar to the market, personal volatility is a direct reflection of the emerging emotions of the masses as they trade furiously, impulsively, compulsively and at times capriciously. The market is continually sending messages; messages about volume, momentum, and volatility. But, those messages are best captured by first attending to your own volatility so that you can see the charts as they are.
The financial markets are neutral representations of all the hopes, fears, and decisions of everyone executing a trade. When you trade you slip metaphorically into the skin of the market and see yourself in its reflection. And, of course every blemish, character flaw and weakness that you have is in that reflection, because you "express yourself" while in the markets. The successful trader can "feel the markets" through insight and intuition that has been developed through countless hours of observing market charts; but she does not get lost in those feelings. The successful trader has an intimate understanding of the delicate balance between emotional intelligence, i.e., managing emotional volatility through protocols, routines and habits and tracking the mechanical data of the markets. They focus on doing the "right" things habitually (following trading plans, rules, money management and position sizing) as if their life depended upon it...and their trading life does depend upon it. In this way they set themselves up to get the right results habitually. They know that consistent successful execution is intimately related to mastering this process of focusing on what matters most. It becomes a Zen of trading by losing the ego attachment and using mind management tools that engage the subconscious to work "for" them rather than against them. This is accomplished by redefining the relationship to the trade. Your relationship to the trade becomes accentuated as in a business transaction with another human being; the objective is to be in the flow. Being in the flow means that you develop a detached interaction where you are not attempting to get each and every tick of a move, but on the contrary aiming to come away having executed well with a good return. To be and stay in the flow you must be self-aware and "watch" what you are doing. You want to activate your "internal observer" and this is accomplished by relaxing at every opportunity and creating the habit of "being in the moment; fully present and in the Now of the trade." In this way you can maintain a fierce focus on what matters most and promote a shift from fear, frustration, irritation, and stressful tension to relaxation, mental clarity, and self-confidence. Doing this you will be better positioned to do the "right" thing in the trade. There are many, many internal resources that you have, some of which you may not even be aware. Internal resources like for instance, the ability to discern chart details, see the big picture of the trade, initiate a mindfulness regarding supportive beliefs and others. But, it is very difficult to access and activate internal resources without first ensuring that your internal observer is online.
Activating the internal observer can be accomplished by doing the following:
Change your physiology, stand if sitting or sit if standing
Straighten your body
Take a good stretch
Take a few deep breaths, in this way you are initiating the parasympathetic nervous system.
By engaging the parasympathetic of the Autonomic Nervous System you dilate blood vessels and increase oxygen to the brain and muscles, slowing things down and initiating a "Relaxation Response."
When ego investment and emotion rise, trading becomes a reflection of the ego, in other words defensive reactions to neutral events and inflated self-seducing illusions that really distort reality. Overly-invested egos create a sort of delusion, and consequently, what you thought was a great trade was in reality a "fake out" or something that came from internal bias not the objective reality of the charts. For example, Jack, a novice trader, while in a position on the YM E-mini futures, violated his rules and failed to maintain a hard stop. It was on a day when the YM lost over 300 points. The second rule that he violated was to "think" that the ATR (Average True Range) had been breached and that since its average daily range was violated, it would "come back." The third rule he broke, after finally closing out of the trade for a significant loss, was to believe that increasing his position size and essentially "doubling down" would bring him back to break-even in another trade attempt. Now this is a prime example of delusional, ego-fueled thinking. The analysis was distorted by the emotional upheaval taking place after incurring the original loss.
So, your ego is not your amigo. You'll want to get the internal observer involved early and often by being self-aware and wary of ego driven tendencies that come from unsupportive thoughts and emotions. Trading with your highest and best interests in mind is critical to your success. This hinges on promoting a mindset that uses mental and emotional tools and techniques that are designed to shake you out of that self-sabotaging delusion. Remember, as you trade it is important to identify what part of you is showing up to trade your account. Is it the strong, healthy, grounded, centered and focused part; or is it the fearful, frazzled, and fragmented part that is torn by ego-driven thoughts and emotions? Monitoring your ego can keep you from getting your trading into trouble.
The Professional Suite is both an intra-day and swing trading technical research service designed to give you an edge and help you make quick and intelligent trading decisions daily.
Written by Gabe Velazquez , Online Trading Academy E-mini Futures, Technical Analysis Strategies and Personal Trading Plan Instructor .
Gabe got his start in the markets as a broker trainee for Paine Webber, a mere 3 months before the market crash of 1987. He witnessed the gut wrenching fear of investors during that time period and the wild speculative euphoria of the late 90′s. That experience brought to light the importance risk management plays in trading and investing. In fact, it’s greatly influenced the way he trades today.
He spent 15 years as a stock and commodities broker, conducting technical analysis seminars through-out Southern California. After many years of managing other people’s money, Gabe now concentrates full time on trading his own portfolio and teaching. Students will benefit from his first hand experience of daily involvement in the market. He brings with him an acute awareness and understanding of how the markets really work. Articulating this knowledge clearly, succinctly, and with enthusiasm is something students can appreciate. This gift for communicating was honed through many years of public speaking.
