Stocks & Commodities V. 12:9 (385-387): Trading Hesitation by Ruth Roosevelt
Trading Hesitation by Ruth Roosevelt
At one time or another, traders may second-guess their own methods and fail to follow their strategies — to disastrous results. The founder of the Wall Street Hypnosis Center explains how to return to consistent performance.
L
et me tell you about two traders. The first trader would hesitate whenever he would get a signal from
his methodology. He would wait for confirmation. He'd go over all the reasons the trade wouldn't work. He'd get confused and start to feel clammy. When confirmation finally did come, he would throw himself headlong into the trade, which by then was already well on its way or, worse still, already over. The second trader would begin to feel queasy when she'd get a trading signal. She'd remember how frightened she'd been in her last few trades, and how she'd actually gotten sick to her stomach. She'd remember all her past losses — and she'd freeze. When the trade would prove itself to be a winner, her whole being would be filled with deep disappointment. Both these traders would consciously vow that the next trade they made would be different, that they'd take every signal from then on. But somehow, when the next signal would come, either they wouldn't take it, or if they did, it would produce a loss. In both cases, an unconscious pattern was being reinforced, and so they would continue to balk at the trades that followed, thus increasing their discomfort and frustration. MORE PAIN THAN PLEASURE
Article Text
Copyright (c) Technical Analysis Inc.
1
Stocks & Commodities V. 12:9 (385-387): Trading Hesitation by Ruth Roosevelt
As a general principle, we are drawn toward pleasure and away from pain. Both of these traders associated more pain with their trades than they did pleasure. It's a natural behavior to avoid discomfort — going to the dentist, paying bills, cleaning out the garage or even just doing the dishes. At the same time, we are drawn toward those things that give us pleasure — good food and drink, conversation with friends, interesting reading and even television. If you find yourself avoiding taking the trading signals given by your methodology, you are probably associating the trade with loss. Your eye is on the risk, and you've put the profit potential out of focus. This is in stark contrast to those who impulsively overtrade in both size and frequency: These people are looking only at the possible profit. Compulsive gamblers always have a sure thing, no matter how much they may have lost in the past; it's always a sure winner this time! Effective traders realistically balance the profit and loss potential not only of each trade but of each trade in a series of trades. If you're having trouble putting on a trade, you may be overweighing the loss potential. It becomes important to keep your mind on the possibility of gain not only in the trade but also in your methodology over time. With each signal, immediately imagine how great you'll feel if this is a big winner, and how bad you'll feel if you miss it. Then extend your imagination out a year from now and experience how you'll feel if you follow your methodology consistently — or if you don't. Then pick up the phone and place the order. Connect the two — the signal and the phone order. One trader I know says to himself each morning, "When I see that [pointing to the screen], I'm going there [pointing to the phone].” You can use affirmations to help yourself. One helpful affirmation might be: "I always follow my trading signals because I never know which will be a large profit or a small loss." Another might be: "I view my trading as a series of probabilities that favor me over time, and so I take each and every signal because collectively they will make me profitable." Write the affirmations out and put them near your screen. Say them over and over to yourself as a trading mantra. PULLING THE TRIGGER Pulling the trigger is a metaphor frequently used to describe putting on a trade. The archetype of the trader is the hunter-warrior, and this universal trading metaphor of “pulling the trigger” comes appropriately from an implement of hunting and war, the firearm. What does the metaphor teach us? First, that trading is a weapon to be taken seriously, for it is a deadly tool. You need to be careful in its use. Second, the metaphor teaches us that you need to keep your eye on the target, and that means not looking around at all the other things you're afraid you might hit. Third, the metaphor teaches us that you need to be timely. A split-second hesitation could cause you to miss your prey entirely. You need to be primed to shoot when you see your target. Fourth, you need target practice, both actual and mental. The more you practice, the more confident you'll be and the more subconsciously competent you'll become. The shot becomes automatic, but this doesn't mean being trigger happy. Beyond pleasure and pain, other common fundamental factors cause traders to experience difficulty in pulling the trigger. Let's look at a few of the major ones. For some traders, the difficulty in trading is caused by the need to be right, often related to the need to be perfect. These traders, convinced there is a right way and a wrong way to do everything, are cursed with the need to do everything right. Beneath this compulsion is a personal lack of self-esteem — a sense that
Article Text
Copyright (c) Technical Analysis Inc.
2
Stocks & Commodities V. 12:9 (385-387): Trading Hesitation by Ruth Roosevelt
something terrible will happen if they do something wrong. Uncertainty is the essence of markets. It is simply not possible to always be right when trading: being wrong, at least on occasion, is an integral part of trading. Short of resorting to using inside information (and even that isn't always a guarantee), it isn't possible to know the future course of prices for sure. You have to accept uncertainty. It comes with the territory.
Uncertainty is the essence of markets. It is simply not possible to always be right when trading: Being wrong, at least on occasion, is an integral part of trading. You have to accept uncertainty. It comes with the territory. To trade, take the attitude of someone performing a lab experiment. You're looking to find out whether your idea — technical or fundamental or both — is correct. Take the trade and discover whether it works, at the same time protecting yourself with stop-loss points and money management. Risk management and money management are your fail-safe laboratory protectors. Trust them. If you believe you must be right, you need to change this belief to one that says it is all right to be wrong from time to time. Create within yourself a profound conviction that fallibility is part of the human condition, and what really matters is how you handle and interpret feedback. Interpret fallibility as feedback rather than error. Neurolinguistic programming (N LP) has a fundamental presupposition that states: “There is no such thing as failure; there is only feedback.” If something doesn't work, try something else, and learn and grow from the experience. The mechanism that is most flexible survives the longest. Be a flexible explorer. VIEWING EFFECTIVENESS View your effectiveness not from the point of view of whether any given trade worked out, but rather on how well you handled the process. Did you follow good trading principles? Did you take the trade at the optimal time? Did you get out in a timely fashion? Did you trade an appropriate size? Did you follow your methodology? This is where you can allow yourself to judge whether you were right or wrong. Fear of loss is another factor that inhibits timely trading action. This fear can be exaggerated by memories of painful experiences of trading loss. Just as it is not possible to always be right, it is not possible to always have a profit. Having some loss is the simple cost of doing business. To trade effectively, you have to expect and accept loss unequivocally. Allow yourself to get comfortable with loss — just let yourself fall into the thing you used to fear. Don't judge your trading by a single trade. Look, rather, at a trail of trades. This will enable you to become indifferent as to whether any single trade is a profit or a loss and to be optimistic about trading, indifferent in the present and optimistic about the future. Some traders can't take trades because they don't trust their own methodology. If you haven't confirmed for yourself that your methodology works, of course you can't trust it, and it's not monetarily feasible for you to take its signals. Find out what works, verify that it works, and do it! It's also important that your methodology suits your personality. For example, is it easy for you to react
Article Text
Copyright (c) Technical Analysis Inc.
3
Stocks & Commodities V. 12:9 (385-387): Trading Hesitation by Ruth Roosevelt
quickly? Can you tolerate large drawdowns? One way to find out whether you're comfortable with a given methodology is to practice it historically as though you were trading in the past. Go through each trade (first covering up the outcome) and see how it feels to trade it. The principle of dominant effect states that the strongest emotion always wins. With that in mind, consider the very true cliché of fear and greed in trading. These emotions can exist at the same time. But which is dominant? The strongest emotion will determine whether you will attack or retreat, whether you'll pull the trigger and put the trade on or whether you'll sit and cower. It won't help you to swallow the fear, because it only becomes stronger. You could find yourself hesitating, only to jump in when prices have already moved and your greed finally predominates. But by then, it's already too late. Better to bring the greed in early on by using your imagination. IMAGINE YOUR POSSIBILITIES The principle of reversed effect states that when imagination and willpower are pitted against each other, imagination always wins. Take an example outside of trading to illustrate. Say you decide you're overweight and you set out on one more diet. You're bound and determined to do it this time, but then your imagination gets to work thinking about all kinds of delicious foods. You can't get them out of your mind. You argue with yourself. Eventually, the thoughts of food win, and you decide, "I have no willpower." You're wrong. You do have willpower, but you don't know how to direct your imagination. In trading, you need to direct your imagination toward your outcome and not toward everything that could possibly go wrong. The professional golfer concentrates on the fairway and where he wants the ball to go, rather than thinking about the sand traps and water holes where the ball could go into instead. For example, a trader may see a setup and say, "That's it, all right, but I'll feel really bad if I lose." He is directing his imagination in the wrong direction and he'll end up feeling bad if he messes up and misses out. Another trader may connect everything that could possibly go wrong with a trade: "I'll lose this trade. I'll lose my job. I'll lose my family. I'll lose my house. I'll starve to death." Both traders need to redirect their imagination toward the benefits of effective trading and to become masters of the positive. One way to redirect your imagination to a positive end is to mentally rehearse. Athletes do this: They go over and over their flawless performance in their minds so that when the moment finally occurs in real life, their behavior is automatic and naturally effective. The human brain doesn't distinguish between imagination and reality, so each time you do the right thing, in the right way, right on time — whether in reality or in your mind — you're setting up your natural response. To mentally rehearse your trading, repeatedly imagine yourself seeing the signal, placing the trade, using the appropriate stop, feeling calm and alert and indifferent as to whether any single trade is a winner or a loser. Mentally practice the whole process, the series of trades, and do so confidently. Create your intentions now. Identify yourself as a winner. Mentally associate trading your methodology with success, profit and pleasure. Make it your intention to take and control every trade your methodology signals you. Put that intention out there purely and clearly as you focus on your target, and soon the trading trigger will pull itself. Ruth Roosevelt is the director of the Wall Street Hypnosis Center, 165 William Street, New York, NY 10038, 212-349-3989.
Article Text
Copyright (c) Technical Analysis Inc.
4
