Overcoming Three HUGE Issues With One Simple Action
Today’s post is about how you can overcome what are
probably the three biggest issues for traders, all
in one fell swoop and without risking a dollar in
the markets.
It’s a little long, but well worth a few minutes.
I just received an email from a client talking about
a signal service, and here’s what it said:
“My problem is that I don’t trust other people to
give me direction.”
I’ve heard similar comments about trading systems.
As I reflected on that, it occurred to me that this
really is one of THE biggest issues that traders
have - issues that cause them to lose money.
Q: What is a top challenge for traders?
A: Discipline.
Q: But why do traders have such a hard time sticking
to their system?
A: Because they don’t trust their system to give them
the proper direction all the time.
Q: Why don’t they trust their system?
A: One of two reasons. Because 1) they never really had
complete trust in it to begin with or 2)that trust has
been broken in the past and has not been sufficiently
rebuilt.
Here’s what happens.
A person may trust a system, so long as it is picking
winners all the time, with a losing trade here and there,
but as soon as a losing streak (drawdown) occurs and it
continues past 2 or 3 trades, that trust rapidly wanes.
Same goes for a signal service. You may have a great
signal service, giving you valid entry and exit signals,
but as soon as a few losers are hit (sometimes it doesn’t
even take very many), now you become fearful that it is
going to continue losing you money.
What even worse is when you decide to start modifying
your system on the fly, and hit some losing trades. Now
the temptation to blame the system (consciously or sub-
consciously) is very strong.
Worst of all, it happens quite often that traders will
give up on their system or service right before it hits
a winning streak - just what you’ve been waiting for.
It happens so often that a trader will follow their
signals into a drawdown, then right when they need to
stick with their system because it’s due for a winning
streak, the trust, confidence and discipline are not
there to fully capitalize on it.
They deviate and then kick themselves because they saw
the signals, didn’t follow them and then left money on
the table.
So what do you do about it?
How do you go about building that TRUST that will give
you the CONFIDENCE to have the DISCIPLINE to stick to
your system, especially when you need it the most -
during or after a drawdown and the signals will give
you the winners you’ve been waiting for?
One word: PROOF
You give yourself proof.
But…
You do need to do it properly to truly build the trust.
Here’s why.
If you only look at your current trade data, unless
you’ve been following your signals to a tee, you will
have information that doesn’t give you a true picture
of what your system can and can’t do - particularly how
well it performs regarding drawdowns.
So, the right way to do it is to back-test your system
or signals where you can see how the signals perform
when they aren’t deviated from - what they do under ideal
conditions if they WERE traded with the proper discipline.
This way you will have proven to yourself with real
market data that your signals are sound and that you CAN
TRUST them.
When you can take the profit/loss data and run the metrics
on it, then you KNOW that you’ve got something that works.
When you KNOW something works, you can then TRUST it. You
can then have CONFIDENCE in it and have the DISCIPLINE to
stick with it - when you need to.
Just looking at the bottom line isn’t enough though.
You need to know what to expect in the future and that is
why the critical metrics that tell you what makes it
RELIABLY profitable are so important. Metrics like:
* Percentage of winners
* Profit-to-loss ratio
* Real reward-to-risk (most people say this backwards)
* Your average return per trade
This last one is huge!
Your average return per trade (profit or loss) when all
trades are included in the calculation is what really
makes the difference regarding trust, confidence and
discipline.
As an emotional safeguard, backtesting an existing
system and forward-testing (in a demo-account) is what
gives fund managers and high-profile traders their real
edge. Why?
Because they always KNOW WHAT WORKS - they prove it!
How can you do the same without getting over-whelmed?
I created the Trading Performance Analyzer exactly for
this purpose. It is simple, user-friendly and printer-
friendly and made to give you the proof you need to
have the trust and confidence in your system you need
to stick with it and make money from it.
Best of all, you can use it for signal services as well,
so long as your source has a specific system that they use.
You can see how easy this is by viewing the videos that
are on this page,
http://insideouttrading.com/tpa/
Take a look right now. You’ll be glad you did.
I’m here to help!
Cheers
Brian
http://insideouttrading.com/tpa/
P.S. If you like this post, then share it with your friends! Just click the
that says “Social bookmark this” below and bookmark it!
Two of My Dad’s Favorite Jokes
My Dad loved boating and one of his favorite jokes is
his definition of a boat:
“A boat is a hole in the water, surrounded by wood or
fiberglass, into which one pours money.”
Another of his favorites goes like this:
Q: “What are the two happiest days of a boat owner’s
life?”
A: “The day he buys the boat and the day he sells it.”
Why? Before he even takes it out for the first cruise,
he can already feel the spray on his face, smell the
sea air, see himself out having fun with friends and
family, and enjoying the feeling of freedom from being
out on the water.
But once he gets the boat, he finds that it means a lot
of work to keep the boat up and a lot of money to run it
and maintain it.
Heck, just to take it out for the day used to cost my Dad
over $200 in gas and that was 20 years ago!
Nowadays, it’s more like $400 to $500. When you’re talking
about a vehicle that you measure in gallons-to-the-mile
rather than the other way around, you know it’s expensive.
Sure, the boat provides some entertainment and good
memories, but many boat owners realize that they paid
a high price for those.
Don’t get me wrong. My dad LOVED being on the water
and he was more than willing to work hard and put the
money into it. For him, it was a good arrangement.
What does all this mean to you?
Well if your trading is a ton of work with only an
occasional payoff (not counting the adrenaline rushes)
and a significant portion of your time, is the way
you’ve been going about it producing what you really
want? Is yours a good arrangement, both now and if it
stays like it is for the next umpteen months or years?
Why do I ask? Because you may not be aware of it, but
in trading there are several particular aspects to the
business of trading that give you unique advantages over
any other kind of business (pursuit for profit).
There several reasons why you really should be enjoying
all that you want.
It’s all a matter of going about it the right way -
and that begins with the right perspectives.
To see what I’m specifically referring to, check out
the new video on my homepage at Inside Out Trading
where I share two of them with you.
I’m sure you’ll find it very encouraging! 
Cheers
Brian
P.S. You’ve made a very wise decision to pursue trading
the odds can be very much in your favor, more than you may
realize. See what I’m talking about in the video:
http://insideouttrading.com
Trading as a Business: Your Mindset - Part 1
I’ve got a new video for you in the “Trading as a Business” series.
What determines your results? Both directly and indirectly
your mindset does, and that’s what today’s video is about.
Click the small play button below (the one to the lower left), then
give it just a moment to load.
I hope you enjoy it and that you have a great weekend!
Cheers
Brian
Built-in Risk Management, PLUS…
Does your chest ever tighten up when you’ve just entered a
trade and the market moves against you?
I know that when I first started trading, I was almost
asking for a heart-attack every time I placed a trade.
See I started off rather small time, and in the back of my
mind I was always afraid of my stop-loss orders not getting
filled.
The anxiety would get so intense at times that I wound up so
fearful that I couldn’t pull the trigger at all. Either that
or I’d get out of trades way too early and leave thousands on
the table - money that I was too scared to pick up.
I would occasionally have nightmares about margin calls or even
worse, limit moves against me and being wiped out completely.
Even though I never ran into either of those situations, it
wasn’t until I started trading options that I could truly get
over the fear of “unlimited risk”.
With options, your risk management is built-in.
You can never lose more than the cost of the option, plus you
still get to profit from the leverage when you call it right
and the market goes your way.
Now, there’s no guarantee that you’ll never lose ANY money, BUT
there are several advantages to trading options:
* your risk is limited - for you - by the very nature of options
* if the FEAR of “unlimited risk” hangs in the back of your mind
like it did for me and that’s why you struggle with pulling
the trigger AND
* if that FEAR is causing you to get out of trades too early (and
you wind up kicking yourself for it afterwards), then perhaps
addressing this fear will lower your anxiety enough for you to
follow through when the time calls for it.
* if a limit move occurs and a stop order can’t be filled, you
can have the peace of mind that your maximum risk is pre-defined
* there are no “margin calls” with options
* you can still make money in either an up or down market, no
matter which way it’s going
One of the big keys to trading successfully and consistently is to
trade within your comfort zones, or at least not going too far out
of them.
If the way you’ve been trading has you filled with fear and anxiety
on a regular basis, because of the “unlimited risk” aspect, then
perhaps you may want to consider options.
Now, of course you don’t want to just jump into options trading
without proper help on how to really take advantage of it.
The Options University is one of the recognized leaders in the
options field and this Thursday will be conducting a free webinar
which you may find very enlightening.
If anxiety and stress are two things you could do without, then
attend this webinar and see how your trading can be more profitable
and enjoyable without all the stress.
Here’s where you can register for the webinar,
http://optionsuniversitystrategist.com/iscript.php?16_A21_5
Now, you may have been hearing about this as it has been getting
great feedback, but make sure that you go through MY links!
You’ll be glad you did (see the P.S. below)
Cheers
Brian
P.S. Why go through my links? Because if you decide you want to
signup for the Strategist Program, then I have an incredible set
of bonus gifts if you go through me and I get the credit for referring
you. Check this out,
http://insideouttrading.com/go/os-super-bonus.html
Trading Psychology: One Reason Why Traders Intentionally Make Mistakes
“To Err is Human”, but in trading it is a common occurrance that traders will intentionally do things that result in losses. The situation we’re looking at is not losses that are the result of testing out a trading plan or a particular combination of indicators. Nor are we talking about simple errors made purely by accident. If profit is our goal, then why would we do these things that are clearly against our better judgment? This phenomenon has many very undesirable consequences that are experienced quite regularly in the trading world.
The Trader’s confidence can take a severe blow When these intentional mistakes occur on top of the loss of money. Additionally, the trader will then engage in quite a bit of traders putting themselves down for having made the mistakes. Depending on the magnitude of the error, this can be the start of a rather vicious cycle that compounds the problem and sets the stage for recurrence. Until the root cause of the issue is discovered and the person takes action to address it, the self-sabotaging behavior is likely to happen again and again. Experienced traders can encounter this as well.
To give you an example, one such trader (a real person that we’ll call Mark) of over 50 years had been going through this month-after-month for over a decade since becoming an individual trader trading from home. Mark has done just about everything there is to do in the futures industry. He worked on soybean farms and at the shipping docks loading ships and coordinating shipments and orders. For about another decade, Mark ran orders on the exchange floor. After that, he worked both for and as an introducing broker in the commodities industry until he decided to retire at the age of 59. Needless to say, Mark had plenty of experience in trading, but for nearly 15 years, Mark has been losing money. But why, and why does he continue?
Trading is definitely nothing new to Mark. As a broker, he was very successful. He understands just about every strategy and system there is. He’s pretty sharp and knows his way around the computer and what he’s looking at on the charts. Mark loves trading and is excited about getting out of bed every day to get busy with his trading. On a typical day, he might make $600 or lose $800. More often than not he loses. When his wife gets home from work (yes, she still works at the age of 70), he’s usually brooding in his recliner after kicking himself and calling himself “stupid” or “idiot”. In all these years, he still has yet to end a year in the black. He’s also not sure how much longer his money is going to last.
In response to the question why he sticks with his current method, and why he doesn’t make use of a system that he knows can make him money, he simply says that he doesn’t want to because they lack excitement. This is very true: a well-planned trade, where you know what you’ll do before you get in regardless of which way the market moves can be very boring. But… when you enter trades without a plan, or if you’ve done something outside your rules, the suspense can be very powerful.
Why do people take the time to sit through movies instead of just skipping to the end to see if the hero triumphs or fails? Why do millions of people watch baseball games, rather than simply check the scores in the morning? It is the suspense, the excitement of not-knowing the outcome, that brings the thrill. The moments that are most enjoyed and fully captivate us are when the ball is in the air and we don’t know if it will be caught or dropped, when the hero’s fate hangs in the balance. In being human, there is a part in all of us that craves that tension.
At the conscious level, profits are what everyone desires (who doesn’t?). Many people choose trading because trading offers the opportunity to realize very substantial monetary gain. The danger is that it also offers the thrill that a certain part of us craves at the subconscious level. If that part of you isn’t being satisfied in other areas of your life, it is highly probable to seek fulfillment in your trading. Excitement from not-knowing the outcome in your trading is where the results can be disastrous. What you need to do is to include activities in your life that tend to this very human desire, and let your trading be a little boring - but profitable.
Did you know that it takes anywhere from 7 to 20 YEARS for most to develop the Trading Psychology to profit consistently and confidently? Can’t afford to wait that long? Go to => www.SubtleTrap.com