I read this book several years ago. It is quite a deep conversation, but also a highly enlightening insight into destructive emotions that cause a cycle of suffering. Seen below
I have a Masters in Guidance and Counselling, and you probably have no idea what does that have to do with trading. I would say, 90%.
Because when trading, with real money, we are so attached to the value of money, it evokes strong, extreme emotions in us. And, sure enough, “over confidence” has been identified as a destructive emotion.
What is the result of destructive emotions? What is the cause? Well, it starts with having irrational beliefs. In the case of trading, most people think trading is all about getting the market right, predicting the right move, and finding the right guru to tell you where the market will go. It is irrational thinking, because the future cannot be known, hence your belief in the Holy Grail will only result in destructive emotions, such as anger, envy, hatred, which will lead to destructive actions and behaviours, such as revenge trading, doubling down too big, moving your stop loss, and changing your mind when you decided to break even, and when when you see profit, and greed takes over, and decide to add to your profit instead, you lose everything, very quickly.
Irrational beliefs, such as thinking trading can grow a $1000 to a $10000 account in one month consistently, gives you over confidence when it happens once, and then to despair when you get your margin call, and you double down to earn it all back, losing even more, and giving up what could potentially, if you had gone through proper coaching and embraced the rational thinking of trading, lose your dreams of being self employed, enjoying great quality of life, being detached from money, and overall attain happiness you never thought possible.
Which comes back again to my take on being a reflective trader. Do you trade with irrational beliefs? Are these beliefs leading to irrational, destructive actions, which feedback to your irrational beliefs, ending up in a never ending cycle of trading suffering?
Something to think about, and definitely not to be scoffed at. Most real traders will agree with me, that they have learnt more from books on trading psychology than from technical trading books. And that has actually sharpened their edge. At least, that has, for me. Perhaps you can try the same. And start, if you haven’t, read about trading psychology more, than about trading strategy.
Previously I blogged about the importance of reflection in trading. And I do that alot. I do it weekly, and monthly, and during drawdowns, perhaps every 3 months, but I try to reflect as much as possible. Simply because it is the best way to learn.
June has been a good month so far. And I’m not just talking about the numbers. I’m talking about the lessons.
As a reflective trader, I’m always looking for ways to improve the process. And to try new things. Because there is no such thing as “the only way to trade”. Why do you think prices move? It’s because people are trading thousands of ways giving them thousands of signals on different timeframes. The only one way to trade, is your way.
So coming back to June. I experimented with several things with my trading. One is adding trailing stops once the move has gone about half in my favour, and another is to place breakeven orders when the price is about halfway towards my target price.
I’ve always been experimenting with these two, and through reflection, and looking back at my records, I don’t see clear advantages, for my strategy.
So I started to highlight when these stops actually “save” me, or make me “lose money”.
The other thing I experimenting with is taking profit early, based on current price action, and oscillators, and day of the week. For example, if it is close to the end of the week and my profit hasn’t been hit, I take profit. Another example, is when the profit amount is very attractive, and I say, “why not, just take lah”, and I close the trade.
The other thing I added to June, late June, is actually increasing my risk, to test and push my stomach for drawdown.
So here are my reflections, and findings, specific for my trading style. Just to share with you the outcome of reflective learning. These are specific to my trading style, so please, don’t take these lessons as yours. I’m just sharing you my own reflections, as examples.
- Break even and trailing stops very seldom “save” me. They make me lose money instead, because of whipsaws hitting those stops, before eventually hitting my target.
- Taking profit, ironically, makes me lose money. As I shared before, it’s important to have a right perspective. And to get the right perspective, you need to reflect, to discover it. While taking profit early puts money in the pocket, I actually lost money because the trade eventually hit my targets. That’s the right perspective to take. I lost money by taking profit. And this is harsh, because I know, losing money slows down the compounding rate, for every week that passes.
- Increasing my positions size from 1% to 2% is starting to eat into me and push me to the edge. So now I know I am still not ready for a 2% position sizing, and perhaps, next month, I will try something like 1.5%, or less. Because I know that to speed up compounding, I also need to try to push up the position sizing, to gain a greater percentage growth per month.
So you see, hopefully, why reflecting, and keeping records, and making it a habit and having the mentality that trading is a job, is very critical to trading successfully. I have met several interested persons in what I do, and I am very happy to hear them tell me “I’ve never thought of trading in this way before.”
Give reflection a try. Keep good records. And reflect on why you took those trades, how they went, and what were some lessons learnt. And keep them. And go back to them once in a while, and reflect if you have made progress. Focus on process more than the results. The results come from process, not the other way round.
Week 4: June 26th-30th
No major holidays
ECB Forum with the big shots
830pm USD durable goods orders
11pm ECB Youth forum? Whhha?
6pm Carney speaks
10pm USD consumer confidence
1am Yawn Yellen speaks
830pm USD Advance goods trades balance
930 CAD guy speaks at ECB panel
750am lots of JPY numbers
8pm: EUR German CPI
830pm USD GDP, USD Core personal consumption expenditure, initial jobless claims
730am JPY CPI
9am CNY PMI
355pm EUR German employment numbers
5pm: EUR Eurozone CPI
830pm CAD GDP, USD personal spending, USD personal consumption expenditure core
Seems like a quiet week but quite a lot of important numbers that may influence monetary policy in July, such as the CPI, GDP, employment and personal consumption numbers. Other than that, besides reading the news which I don’t, I don’t see any major upsets.
At the moment I’ve closed all my positions and have no drawdown, which is good. So it’s starting from a clean slate, and I’m looking forward to next week to see what may come.
Have a good weekend!