The Trader’s Couch Series explores trading psychology and behaviors that undermine trader performance. Tips, tricks and techniques are offered as potential solutions to overcome these roadblocks to consistent profitability.
The Trader’s Couch
Shut up and Stop Thinking so much
Our friend at Zen Essentials shines a light on universal wisdom that can help us both in our trading lives and our lives outside the charts.
Stop engaging in mindless chatter
In the Twitter Universe of “look at me and what I have to say” a very high value is placed on talking and the louder the better. In the age of social media it is so easy to get drawn into controversies that have little to do with trading and more to do with protecting egos and positions than anything else. While this behavior often seems benign and harmless on the surface, it can easily morph into behaviors that undermine performance. A simple example. You take the bull side ( because you have a bullish position ) of a controversial stock and enter a furious debate with the bears. Your public position puts your ego out there for inspection and ridicule. As price heads lower, instead of quickly closing out to protect capital, you begin reaching for scenarios to support the bull case and to counter the bear case. As price heads lower still, the bear ridicule and humiliation continues. Finally at some point, you capitulate after having lost much more than had you honored your initial stop. In addition to the monetary loss, there is the completely unnecessary psychological damage done to your trading ego. I see this scenario play out over and over again. I want you to consider these questions: “Have my interactions on social media truly helped me in my trading?” “What can I do to to keep the best of what social media has to offer and let the rest go?”
5 Things to consider before talking
- Factual and True?
- Beneficial and helpful to others?
- Spoken with kindness and good will ( hoping for the best for all )
- Endearing? ( spoken in a way that others can hear )
- Timely? ( if all of the above is true, is this the right time to say it? )
If you use the above as criteria for speaking, you’ll soon become someone who is regarded as a beacon of light and someone who should be carefully listened to. For yourself as a trader, much of the mindless chatter will disappear which will open up space for more productive dialog among your trading circle and social media interactions. You’ll be much more apt to engage in uplifting conversations than the destructive ones of the past.
Think less; Keep it simple
At its essence, trading is very simple. It’s we traders that make it far more complicated than it need be. It is a well-known fact that highly- intelligent, book-smart people are often horrible traders. They see a “junk stock” advancing but instead of buying it, they offer 47 reasons why the advance is fake, stupid, or dumb. They may even want to prove how smart they are by trying to short the stock and show all the “idiot bulls” how dumb they were. You see, from an early age we’ve all been programmed to believe that gathering more and better information coupled with correct interpretation of said information is a path to success. This paradigm works great in the real world but works against you in the trading world. In the trading world stocks often do the opposite of what they are “supposed” to do. Furiously gathering more information only serves to frustrate the trader more and solves nothing. Technicians on the other hand get derailed by looking at 8-10 indicators than inevitably give conflicting signals. Contrast all this with pit traders in the open outcry era. Most with only high school educations, making great livings reading the tape. No computers, no indicators, no interference from outside information. Trading in it’s purest form. Sensing supply and demand in real time. Further evidence that not being book smart is an advantage in trading
Trading and price movement is all about supply and demand. These areas of support and resistance can be easily identified on any chart in under 5 minutes. What if we boiled down our trading to buying support and selling resistance? Sounds simple, and it is, but we often can’t or wont do it. How come? Evidence is piling up that we would be much better off emulating the average 5th grader in our trading. Why? Because an average 5th grader’s thinking is unadulterated, uncluttered, and pure.
- No fear of success nor of failure.
- No overlay of comparisons to other traders whom promote their last “killing” but fail to mention getting “run over”.
- No relentless gathering of information that often only clouds our judgement with conflicting signals.
- No association between trades and money gained or lost
Do you have any whisper of doubt that if you showed a 5th grader support and said “BUY HERE ” and resistance and said “SELL HERE” that they would not be able to follow that instruction? Of course they could do it. In fact they could do it and would do it over and over again. Yet we can’t or don’t because we overlay that decision making process with a ton of nonsense that doesn’t have anything to do with trading.
Trade like a 5th Grader
- Elevate your trading by thinking like a 5th grader. If a stock is going up its bullish; if a stock is going down it’s bearish. To many that may sound stupid but you’d be surprised how many people try to short rising stocks and try to buy stocks that are falling. Don’t be one of them.
- Can a 5th grader understand my trade? If they cant understand it, it’s too complicated. Refine it further without all the what-ifs and what-fores you’ve layered on.
- When facing buy / sell decisions, Ask yourself “What would a 5th grader do?” A 5th grader will not go through mental contortions to either stay in or to exit a trade. If you can answer the question, do what a 5th grader would do. My bet is that it will be a better answer than we could come up with.
Pulling it all together
We traders often let destructive outside forces enter our trading space that knock down performance . Going forward seek to simplify your trading. Talk less but when you do talk, be committed to adding value and helping others. Understand that the relentless search for more and better information is hurting you, not helping you. Understand that there isn’t a secret indicator out there that will unlock a fortune for you. Establish yourself a simple, mechanical trading process that a 5th grader could follow; then execute. Everything you need to know about a security is on the chart in front of you. Every layer of complication you add to a simple process works against you, not for you. While these ideas couldn’t be simpler, don’t underestimate the work you’ll have to do to accomplish this paradigm shift. The upside however is huge; It’s a game changer
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