For many traders, the negative emotions of anxiety, fear and even anger elicited by either trade uncertainty or outcomes is real. For some, these morph into panic or paralysis. Regardless of how this condition manifests itself, it has a detrimental effect on our psychological well-being and to our trading P & L. These emotions do not lend themselves well to someone aspiring to be a long-time market participant. It’s just not sustainable.
I have a powerful way to deal with these emotions that I’d like to share. As you’ll soon discover, this technique works both inside and outside the markets.
Back in the day, there was a person close to me that used to know how to push all the right buttons to upset me. I am quite sure that the behavior that elicited my response was not intentional, but never the less, it really bothered me. Encounters with this person left me feeling angry and upset. It got to the point of me being angry and upset BEFORE I ever saw the person. Many times, I literally felt sick.
Solve the Problem: Employ and Develop your Inner Observer
George, my counselor at the time, introduced me to a powerful technique to solve my issue. Visualize yourself as a scientist / observer hovering above yourself and the situation…. anticipating, thinking ahead, watching, jotting down notes but not personally involved. When the barbs from the other person come, they are directed to a third person……not you the scientist / observer. Because you have extracted your emotional body from the situation, it takes all the energy and resultant negative response / reactivity away. When I practiced this technique, I found myself able to interact with this problematic person very effectively……he no longer bothers me. Doesn’t mean we’re all buddy- buddy now, but I no longer let his actions throw me into a tail spin the way it did before.
Now, when I am in any situation that is causing me to feel anger, stress, resentment or any other unwanted emotion to take hold, I activate my inner observer. I remove my emotional self from the situation and let my inner observer take charge.
Now let's consider the situation many of we traders find ourselves. Becoming emotionally attached to stocks and trades. Attaching our moxy as traders to outcomes either good or bad. Experiencing that roller-coaster of fear, elation, depression, anxiety, insert your emotion here. Not a great place to be.
When you've had enough of the pain and suffering that comes with this trading lifestyle, read further.
How to use your Inner Observer in Trading
How can we use this in trading? Remember, you are an observer of yourself, the trader. Hovering over your right shoulder watching, taking notes, giving advice from a third - party perspective. Your new-found observer friend might make some comments like this…..
Become friends with your Inner Observer
Your inner observer will help keep you on the path of becoming the calm and confident trader you want to be.
I talk to my inner observer all day long. My inner observer looks at my trades. He reminds me not to get married to trades, to honor my stops, to fill out my trade plan. We talk about all kinds of stuff. When I get mad at a losing trade he asks if I would get mad at a mouse for turning right instead of left. He encourages me to follow my process and to develop new ones that are even better. Yeah, your inner observer can be a real help. With some development and nurturing, your inner observer will likely become one of the best friends you ever had. One who keeps your feet on the ground and eye on the prize, especially during rough patches. I encourage you to make your inner observer part of your winning team.
For Further Study
8 minute Video with simple ideas HERE
Inner Observer Practice HERE
What are Self-Observation and the Inner Observer HERE
The Inner Observer HERE
Let me know how it works for you. Drop me note and share your story at firstname.lastname@example.org
Thank you for spending time here; hope it helps!!
I gotta give credit to Boris and Kathy over at BK Forex for the Plato quote. It was included in their weekly Forex recap newsletter. It got me thinking......
One of the things that often frustrates aspiring traders is comparing their progress to that of other traders. How come I am not winning more? It comes so easy for Sally; what am I doing wrong? Looking at how others are progressing I wonder if I have what it takes to succeed at trading. We've all been there; you are not alone.
A couple of thoughts.....
Becoming a consistently profitable Trader is all about Perseverance
Trading is a craft. Like most crafts, gaining a level of expertise takes time and constant effort. There will be times of almost imperceptible progress and other times where you may take a step back. This is all normal and to be expected. It doesn't mean your are an idiot. It means you are like everyone else. The important part is grinding through it and not quitting in disgust. If you keep on persevering, you will be rewarded with regular break-throughs.
I think the graphic below summarizes it nicely............ we want instant and continuous progress. It feels like we're going no where. All the while, if we keep going, our competencies are improving as we grind away, Nobody becomes a black belt ninja trader just by showing up.
Path to Mastery
Are there other aspects to becoming consistently profitable? Sure there are; you know that. We will explore many of those things in future posts but none of that matters unless you're willing to consistently do the work.
I think some smart philosopher once stated that "a journey of 1000 miles begins with a single step". Accomplished trading is a long journey and one that is truly never finished. If you love markets, if you love learning, if you love trying while knowing you'll often fail, you can do it.
Plato's quote said another way "Don't be discouraged with your progress, no matter how slow"
Thanks for reading!
Good Luck and hope it helps!
This morning it was my turn to get the rug pulled out on a position that was doing well; Cal-Maine Foods ( $CALM ) This morning in my blog post, I noted that $CALM had been doing well. My long options position was up 11%. Not monumental, but green during the recent market turbulence isn't all bad. Not long after my post the market opened and the floor fell out of Cal-Maine. Down 10%. That's a lot for any stock. I still have not found any real news. #$%# happens!!
Holders of Drug Distributors ( $CAH, $MCK, $ABC ) and Drug Retailers ( $WBA, $CVS ) know what I am talking about. All those names got their rugs pulled out when Amazon entered the drug space with the purchase of PillPack. A fellow trader friend of mine was lamenting that he just entered $WBA a couple of weeks ago and the chart looked good. Rug Pulls don't consider chart patterns. Lots of value was destroyed today on that news.
Expect the Unexpected - Manage your Risk
"Expect the Unexpected" is one of those phrases that are often thrown out there almost as a throw away line. Everybody shrugs their approval then move along. When it comes to the stock market, the phrase speaks to risk. Unexpected news, flash crashes, Trump Tweets, drug trial failures etc happen and you never know when or from where it will come or how bad it will be. Daddy, where were you when the terrorists unleashed a dirty bomb on the doorsteps of the NYSE? And why do we live with Grandma now?
I learned my Lesson
Bad things don't always happen to someone else. A few years ago I had a tiger by the tail. Gilead $GILD was going to the moon and I was hitching a ride. I had a very over-sized position. Stupidly oversized. I was lovin' the ride. Then one day $CVS announced that it wasn't going to include Gilead's super Hep-C drug in their formulary due to it's price. Gilead dropped 20% in like 5 seconds. That stock has not been the same since. When #$%@ happens on an over-sized position it is a mortal wound. I lost body parts. When the unexpected happens with a 1%, 2% or even 5% position, it hurts, but you will get over it. Manage your risk! I learned my lesson. Cal-Maine hurt me today, but as a 1% position, all I will do is shrug my shoulders and move on.
Sidebar - Be wary of crowing about wins
Although posting about a suggested trade and subsequent winning position can hardly be called crowing, I've noticed something. Rug Pulls seem to follow folks who talk about their winning positions. Maybe a silly superstition, but its happened more than once or twice. It's happened to me and friends of mine. I don't open my mouth about anything. Do me and yourself a favor, if you feel the need to crow about a win, do it after you've closed it. Otherwise the market might close it for you. It's my responsibility here to report on wins and losses, but you wont hear me say much or tweet about it. I learned my lesson.
Happy Hunting and Good Trading
“In the beginner’s mind there are many possibilities, but in the expert’s, there are few.”
Suzuki Roshi Zen Teacher
First a Story..........
There was a time in my life when I played a fair amount of golf. Inevitably the season began the same way. The weather breaks, the guys call, we set a tee time, then we show up. Stiff muscles, no practice, no competition and no expectations except to walk in the fresh air and catch up with friends.
With an uncluttered mind and zero expectations, my golf swing was free, easy, and pure. The resulting ball flight was much better than usual. Any undesired results were met with “who cares” we’re here to have fun. Great shots were celebrated; bad shots ignored. My first - round scorecards were often the best of the year for me. A beginner’s mind and mind-set if there ever was one..
After that, the trouble begins. Take lessons. Read instructional books. Seek advice. Keep that head still; keep that elbow tucked in; rotate your hips and release. Wow! That Tee shot sucked! I can’t make a putt to save my life. How come I’m not winning? I know how to play this hole; why didn’t it work? I keep practicing but I’m getting worse; not better.
Have you had experience's similar to these? I bet you have.
Sometimes the “Beginner’s Luck” phenomenon is not the result of a statistical anomaly, but a product of approaching the problem with a “Beginners Mind”. A mind free of clutter, preconceived notions and known truths. Those that study trading and traders often see trader performance drop off significantly after their first year of trading. Why is that? As aspiring trader’s, we are often all to eager to clutter our mind as we hungrily gather information in a futile attempt to get “the edge”. We desperately want to learn. More knowledge means more competence. More competence means more success. We want to be sure we’re right. Unfortunately, that path often leads to down a dark alley. We don’t know. We'll never know. Once we recognize we don’t know and accept that, we will be walking toward the beginner’s mind.
This putting down and letting go of ideas is a terrifying place. Why? Because we’re left wide open, naked and vulnerable. We hide behind our concepts, calculations and hypothesizes. Information is a weapon. Data points collected – a badge of honor.
But here, with a Beginner’s Mind we’re presented with something that shatters that way of thinking. It breaks apart our solidified idea of who we think we are.
Zen Master Bon Soeng explains it this way,
“There’s all of this bias toward knowing. But we don’t really know. We have this radical teaching: How about admitting the truth that we don’t know and go from there. If we really live that, it changes everything.
A Beginner’s Mind doesn’t mean stupid. It means What Is It? Suddenly our eyes are open, we’re vibrating with energy because we wonder, ‘What?’…rather than, ‘Oh yeah, I know that!’
So this Not-Knowing actually gives us life. It gives vibrancy and energy to the world we live in. This kind of I-Know shuts everything down and we get stuck…
We fill our minds up with all this stuff, and it gets stale and dead. Not knowing is what opens us up and comes alive…
Clear it away. Return to zero. What do we see, what do we smell, what do we taste, what do we touch? Everything is truth. What we know blocks the truth. Returning to not knowing opens us up.”
Takeaways and Action Activities
“Zen Mind; Beginner’s Mind” by Shunryu Suzuki
Available at Amazon for $10.47 Find it Here
Take a deep breath Traders - A Long one with lots to think about
Most experienced Traders will probably agree that trading is a tough profession. Fierce battles are constantly being waged within the mind of the trader. Intertwined among many of these battles are the conversations we have with ourselves and the perceptions we have about ourselves. Even the best traders I know sometimes have thoughts like this…
"God I’m a #*@% 'in idiot!”
“Stacy is killin' it and she’s only been trading half as long as I have. What's my Problem?”
“I’d love to make a career out of trading, but I'm a moron;
I’ll never make it”
Some Traders even vocalize these thoughts out loud or project through social media. I’m very familiar with such thoughts; I am sure you are too. Its often very difficult to quiet these voices because many times there is a kernel of truth buried deep within them. To remedy the situation, we look for ways to build our self - esteem.
Efforts to increase Self-esteem do not lead to Confidence
Many Traders link their self-esteem to their trading results and the opinions of other Traders within their circle. Basing self-esteem on your P/L or the approval and recognition of peers escorts the Trader onto a devastating roller-coaster ride of emotional turmoil. At the very least, this roller-coaster ride isn’t productive. Self-Esteem hounds shout out the successes attempting to gain the approval and admiration of other Traders. During this process, the aspiring Trader often associates a bad trade, several setbacks, or lack of measurable improvement in the P/L as personal failures. Instead, what these occurrences really demonstrate are common and necessary things on a growth path. Trees don’t grow 24/7/365. In periods of drought they conserve themselves. In periods of bad weather, they may lose a limb or be otherwise scarred. Fast growing trees that have not experienced hardship are weaker than those that have. In the end, strength comes from weathering many storms.
Self-Compassion builds Confidence and Strength
Compassion is the act of empathy expressed for another person. An acknowledgement that life is tough, messy, not fair, and often filled with hardship and pain. We as aspiring Traders need to have this same sense of warmth and positivity towards ourselves.
Dr. Kristin Neff is an associate professor at the University of Texas Austin, and the foremost researcher on self-compassion. She defines the concept this way:
“Instead of mercilessly judging and criticizing yourself for various inadequacies or shortcomings, self-compassion means you are kind and understanding when confronted with personal failings — after all, who ever said you were supposed to be perfect?”
3 main elements of Self-compassion
While self-esteem is fixated on how you feel about yourself positively or negatively, self-compassion is about having understanding for wherever you’re at right now and embracing a full range of thoughts, emotions, and reactions — without judging them as right or wrong. It’s about recognizing that your inner voice is trying to protect you, and shifting your self-talk to be benevolent, not punishing.
Why build skills for greater self-compassion? Simply put, because it works. Self-compassion gives you greater confidence, makes you more resilient, and fosters authentic growth in your abilities.
3 Ways to Build Self-Compassion
Like any skill, learning self-compassion will take time to develop. Keep at it; Keep practicing. You’ll be rewarded by becoming the strong, resilient trade you aspire to be.
Credit: Although adapted for Trading, the inspiration for this post came from an article written by Melody Wilding. Certain passages / phrases were used without significant changes being made. If you’d like to reference her work, find it HERE
Reminiscences of a Stock Operator Ch 3 pg 27 p2
"I have heard of people who amuse themselves conducting imaginary operations in the stock market to prove with imaginary dollars how right they are. Sometimes these ghost gamblers make millions. It is very easy to be a plunger that way. It is like the old story of the man who was going to fight a duel the next day. His second asked him, “Are you a good shot?” “Well,” said the duelist, “I can snap the stem of a wineglass at twenty paces,” and he looked modest. “That’s all very well,” said the unimpressed second. “But can you snap the stem of the wineglass while the wineglass is pointing a loaded pistol straight at your heart?”
Ah yes, paper millionaires. We've probably all known a few; maybe we have even accomplished this achievement ourselves. As most have learned however, that fool-proof, no-lose system doesn't do so well when one places real dollars on the line. Once real dollars are involved, all the "system operator errors" like fear, greed, and indecision among many others filter into the results.
That said, paper trading can serve as a valuable tool to our real trading. Here are a few ways paper trading can be beneficial.
Happy Hunting and Good Trading
Managing Director, Trader's Profit Compass
Long / Short Equity Options | Trading Education | Market & Trading Psychology
Reminiscences of a Stock Operator Ch 2 pg 17 paragraph 5
"There I was, a mere kid, who had never before been away from home, flat broke; but I knew there wasn’t anything wrong with me; only with my play. I don’t know whether I make myself plain, but I never lose my temper over the stock market. I never argue with the tape. Getting sore at the market doesn’t get you anywhere."
Ok, so you've blown up your account. Sorry to hear that. You are not alone. It's happened to Market Wizards, often more than once. It's happened to me. It's often a right of passage in the trading world; nothing to be proud of nor ashamed of. But the real key is how you react to it. Don't blame the market. The market is never wrong; only our plays. You have the capacity to change your behavior; change your perception of the market; alter your trading style; and make progress. To be clear however, it is you that has to do the hard work to effect those changes.
Happy Hunting and Good Trading.
If you have any questions or get stuck, I'm here to help. Reach out any time.
email me at email@example.com
A true story I want to share.
About 6 months ago I re-connected with a childhood friend whom I had not spoken to for 25 years.
I’ve known my friend Guy since Kindergarten. We went through grade school, Jr. High, and H.S. together. Academically, he was as gifted as they come. What took me hours of study to accomplish or complete, Guy seemingly could accomplish in a third the time and get better results. He was in the National Honor Society in High School and was accepted at MIT in the fall of 1979.
After his first year at MIT, Guy secured a summer internship at a brokerage firm in Chicago at the CME. He started as a gopher in June, but by August he was trading on the floor of the exchange. Old school trading; hand signals and all. Guy’s effort, results, and promise led the firm to “make him an offer he couldn’t refuse”. His trading career was underway…..he never set foot at MIT or any other institution again.
He traded in Chicago for a few years, then the company moved him to CA where he traded on the Pacific Exchange. After about 5 years, he quit to start a winery in Oregon. It did not work out. Severely tapped out financially from the Winery Operation, he moved back to the Chicago “to make some money”. There he spent many years as a market maker / trader in a number of stocks. All told, he spent 25 years in the pits.
After some “googling” I caught up with Guy. I told him what I was doing and solicited his help as a trading mentor. ……I assumed he was still in the business.
Turns out he retired as a floor trader about 2 years ago and is now back in the Pacific Northwest. When asked why he quit, he said. “I really didn’t like what I was doing”.
He got his Real Estate license and now has a small real estate office.
I asked him why he didn’t just trade his own account from home. He said “I tried, but I wasn’t successful.” I was absolutely dumbfounded. Here is one of the smartest people I know with a 25 year track record of success as a trader failing as a stay-at-home trader. We talked about that and drilled down. Here are my conclusions.
Circumstance, Environment, Tools, and Attitude Play a huge Role.
So although trading from home seemed like a no-brainer, it turned out to be a problem in real life. From Floor Trader / Market Maker to ThinkorSwim platform in the basement, doing a job you don’t particularly like was a step down the food chain. Its doesn’t really sound appealing…..or a recipe for success.
Guy's story doesn't need to be our story. Guy made his mark on the floor and in the pits. We can make our mark in our own way.
Happy Hunting and Good Trading.
I recently listened to a segment on NPR's "Here and Now" where they interviewed Tony Bennett who just turned 90.
You can listen to the 11 min interview here if you like.
Bennett recounted how his career blew out of the gates in the early 1950's. He had multiple hits and looked unstoppable. After a sold out performance, he was met backstage by George Burns and Jack Benny. They wisely offered some sage advice based upon their own experiences. They told him "its gonna take a long time for you to learn what not to do". Robin Young, the interviewer asked Bennett how long it took. Bennett replies " 7 years "
If you pay attention you will be quite amazed at how often the " 7 year rule / cycle" pops up.
Ask almost any professional person ( artist, doctor, lawyer, engineer, carpenter etc ) how long it took them to become truly comfortable and capable in their profession and many will say 7 years. I don't think its a coincidence that the highest divorce rate among married couples occurs at or very near the 7 year mark of the marriage. Its a law of nature.
Read "Market Wizards". Nobody, not even wizards, hit the ground running and never look back. Most are beset by painful and humbling experiences; often more than once. Even the very best took time to become the best. Don't think that after a couple of years you'll reach hero status.
Tony Bennett was lucky. He was given a gift. But even for him, it took a long time to learn what not to do; how not to screw it up. For myself and probably most traders, learning to become consistently profitable traders is a long road. We need to learn not only what to do, but what not to do. That takes a long time.
For those relatively new to trading and even for those that have been at it a while, keep things in perspective. Rome wasnt built in a day and trading is no different. It's a long, tough haul. Dont be too elated with a few nice wins, nor depressed during a rough patch. If you're working hard on your process and keeping your focus on becoming a true craftsman, then you are making progress. You'll likely start becoming competent and self assured over time.... it's gonna take about 7 years.
The other day a trader reached out to me for a helping hand. He wanted to learn more about how to become a more confident trader. It’s a great question and one I have spent time thinking about and working on for my own trading. In my mind we are looking for the sweet spot (as defined by me) between lack of confidence and cockiness. Stereo-types however lead us to believe that the most successful traders are also the cocky ones. Confidence taken to the extreme. I don’t think it’s true. What is true IMO, is that cockiness can lead to eventual ruin because the trader can never envision true risk or imagine being wrong. For the purposes of this note, let’s define the sweet spot as “quiet confidence”.
Ideas on Building Self - Confidence
1. Transition from Seeking Shortcuts to putting in the Work
I think there is something deep within all of us that seek and relish a short-cut. Successful people push that urge down so that it really does not emerge into their actions or thought processes. Some of you may know that I enjoy cooking and seeing my family and others enjoying the fruits of my labor. The recipe is simple; Fresh ingredients and the willingness to put in the time. You’re not going to have great Mac n cheese out of a box. You need a solid process ( the recipe ) and be willing to put in the time.
Confidence in cooking or in trading stems from a willingness to put in the hard work. The hard work of sifting thru hundreds of charts, the hard work of creating, tweaking, polishing, and following a trading process. We’ve talked about owning ideas before; it’s critical to building confidence. There’s a bridge that must be crossed from idea origin to idea ownership. When I offer or you see a trade idea, take that idea and rip it apart. Dissect it and see if it makes sense for you. A blind follow is a trade gone wrong from the get go. Even if you make a lot of money from tagging along other folk's trades, no confidence will be built. I see a lot of people racing around frantically trying to find “good follows” on social media almost as if that is their edge… Finding the best traders to tail. Although I am not deep into it, it was a problem for me too. Less so now.
True success has no short cuts. Focus on your work. Put in the time. Good things will come your way. Your sense of accomplishment and confidence will grow.
2. Transition from Negative Self Talk to Positive Self Talk
When we focus on everything we could have done better and everything we did wrong, we create mini failure experiences for ourselves over time. Our self-talk reflects our relationship with ourselves. How can we feel confident in who we are and in what we do if we're constantly tearing ourselves down? When faced with a disappointing result from a trade, try to engage in positive self-talk and look for the many good aspects about the trade. Examples:
3. Identify, then play to, your strengths
Many traders attempt trading styles that don't match their personality and cognitive strengths. Over time that generates frustration and erodes confidence. Work hard at matching your skill set and personality to the trading style you employ. To a certain degree this is a trial and error process. For a while I tried to be a Swing Trader and be a Day Trader on the side. Didn’t work…….but I sure tried. In the end, the skill set and temperament for Day Trading does not suit me well. Swing Trading is in my wheelhouse. Trying to force Day Trading into my mix was a real confidence killer. My frustration at lack of success in Day Trading overwhelmed the good things that were happening on my Swing Trades. Document your feelings in your Trade Journal when you try different trading regimes or styles. I think you’ll soon know in your gut if something isn’t right.
4. Avoid and reject negative environments; Seek out and Embrace Positive Ones
Imagine if you were helicoptered deep into the Rocky Mountains and dropped into a commune of hardcore survivalists. Upon arrival, you’re handed a gun and a Manifesto explaining in deep detail how the Government is after you. Doomsday is near. At first you laugh at the comical notion, then 3 weeks later you’re practicing your marksmanship with a bazooka and organizing the ammo bunker.
We absorb the ideas and attitudes of the people that dominate our environment. Same is true for we traders. If we hang out with the “trader’s lonely losers club” would we be surprised to feel confidence being drained from our existence? Losing is a part of trading, but it doesn’t have to be a lifestyle. Find a diverse mix of positive people and traders to associate with. Get out of the chat rooms where the prevailing view is that Lloyd Blankfein is pulling on all the strings so it’s impossible to succeed. If you truly believe that, simply stop trading.
Hanging out in the wrong places can also affect your P&L along with your confidence. It happened to me in the Spring of 2016. I’d like to think I am a good market technician. I can certainly identify pattern changes, trends and breakouts etc. How then would it be possible for me to miss, ignore, or even shoot against a powerful rally? Because I was living in the Bear Base Camp. Daily readings of Bearish theses, homing in on all the bearish macro factors that are out there of which there are many, seeing earnings collapse etc. It was no different than living in the survivalist commune; boogeymen everywhere. I subjected myself to a harsh bearish environment that blinded me from bullish chart input. In trading what you call an advance really doesn’t mean anything. Bear market correction or Bull rally? Who cares! If price is going up, get long or step aside if you don’t trust it, but certainly don’t hold shorts or fire bazookas. Price = Truth. Opinions about the whys and what-for’s are pure speculation and wont contribute one iota to your P&L.
Prescriptions to re-boot your attitude and to begin building Self - Confidence
Think about this one. I challenge you to "Trade like a Monk" for 6 weeks . Imagine yourself as a monk in a cave on the far edge of civilization. All you have is your trading platform and your charting package. No phones, no chat rooms, no blogs, no TV to distort your market input. Can you imagine the clarity of your thinking going sky high? Can you imagine truly owning your trade ideas? Can you imagine the confidence you'd gain by seeing and trading pure market input?
These ideas are free and you can start tomorrow.
I challenge you to follow the above ideas for 6 weeks. It's a big ask. From experience, I know 95% of you either wont try it or will fall off the wagon within a week as you battle symptoms of withdrawal. The reward for challenging yourself however will be great. For the 5% of you that give it your best effort, you will emerge a different trader. You will emerge a more confident and disciplined trader. By eliminating all the noise, you will become very attuned to market input. You should experience a groundswell of self-confidence. A self-confident trader is a powerful trader. Beginning that journey is one of the most important things a trader can do.
If you decide that it's worth the effort and give it a try , keep me posted on your progress. Either post a comment here for others to see and learn from, or send me a private note. Reach me anytime at firstname.lastname@example.org
Happy Hunting and Good Trading