THE PSYCHOLOGY OF TRADING 'IN THE ZONE'

Techniques to deal with FEAR:
1. Face your fear. Acknowledge it, face it head-on and use it as an opportunity
to learn and progress.

2. Acceptance of responsibility. You must accept that you alone are responsible
for your fear...this will put you in control of your fear.

3. Reality Check: As a trader, if your greatest fear came true, what is the worst
that could happen? Your honest answer can help you examine and deplete the
energy of your fear.

4. Identify the thought choice. Choose a different thought choice other than that
you are afraid of losing money. Choose the thought choice, " I know that not
every trade will be profitable, and that's ok".

5. Acceptance of risk. When the trader has complete acceptance of the risk and
all possible results, then he can be optimistic, committed and realistic about the
next trade and the outcome.

6. Eliminate self-sabotage. Don't link your self-worth to your trading
performance. You are not how you trade! Don’t let losses erode your self-worth
or self-confidence.

7. Have a solid trading plan and adhere to it. This allows a trader to trade
without fear, knowing he is prepared for any potential event.

8. Have a love and passion for trading. You need a motivation far beyond
money. If you only trade for the money, you would be best to find another career
and avoid risking both your emotional and financial well-being.

9. Pay close attention to your trading environment. Does it suit you? Is it
comfortable? Is it noisy or quiet? Do you have privacy? Can you control
interruptions? Can you play music to enhance the feeling of having fun? Do you
have everything you need to trade successfully...a good Internet connection, a
good PC, a big enough account, a good trading system you are comfortable with,
etc.

10. Forget about yourself and your fears. If you completely focus only on what
needs to be done, you will neutralize your fears. They will never stop you.

Millionaire investors use only six (6) minutes a day on investing.

The following is an extract from the Market Watch commentary article
written by Paul Farrell on Sept 20, 2011:

"Finally, in researching 5,000 millionaires, money manager Ric
Edelman discovered that on average millionaires spend about six
minutes a day on personal finance.  They don't waste time watching
cable news, reading self-serving brokerage reports, attending
seminars, studying stocks tables, subscribing to financial
newsletters, pondering economic reports, reading the financial
newspapers, etc., etc.

They invest in their business and build Lazy Portfolios that operate
quietly in the background, generating long-term returns with minimal
effort and attention.

Yes, folks, things are tough and will get tougher.  But still life
is for living and having fun, not wasting time investing.  Winning
portfolios are certainly a heck of a lot simpler than Wall Street
and your financial planner want you to believe. They complicate
investing to justify all the money they're siphoning off.

There are far more important things in life: loved ones, family,
hanging out with friends, doing charities, sports, hobbies, movies
.. plain old, ordinary, everyday living.  Don't get sucked into
buying risky stocks and greedy investments."

The trading wisdom from these 5,000 millionaires
should augur loud and clear to all of us:  10 minutes a day should
be just nice to do our trading/investing.  So, don't spend too much
of your time trading, following or researching the market.  As life
is short, you should live and enjoy your life fully, serve as a
philanthropist to help the poor like those wise millionaires!

Successful Trend followers

Successful Trend followers
· understand the power of compounding
· knows their goal is to compound their accounts over time
· are NOT big risk takers and are actually more risk averse than one might suspect
· have a detailed plan of exactly what they are supposed to be doing at all times· follow that plan
· understand what challenges they likely will encounter, they are mentally prepared

Successful trend followers are ordinary people like you and I, and are not market “wizards” with exceptional skills and knowledge. Loses happen and your greatest drawdowns are always ahead of you. Trend following is not retirement in a box. You need to do your homework.

Paula Webb, in her book Success Without Fear - The ‘RACRS’ Edge for Traders, suggests there are three (3) steps we all owe ourselves as we strive to reach our goals:
1. Determine exactly what is needed to reach your goal
2. Assess your skills and expertise levels and determine what you need to learn to accomplish your goals
3. Do what needs to be done

Be a Good Loser is the only solution to cope with the Downside!

Yesterday, my friend asked for clarifications about how to take care
of the downside.  I would say, "To become a "Good Loser" is the only
way to cope with the downside."

Let's see how other Master Traders managed to cope with the downside:

1)  Seykota: "Win or lose, everybody gets what they want out of the
market.  Some people seem to like to lose, so they win by losing
money."

Seykota: "Risk no more than you can afford to lose and also risk
enough so that a win is meaningful."

Vince Lombardi: "The difference between a successful person and
others is not a lack of strength, not a lack of knowledge, but
rather a lack of will."

Successful trend traders like Ed Seykota, David Harding, Richard
Donchian, Richard Dennis, they all know that by having a strong will
in trading is a must especially during the drawdown periods, and in
most cases they have gone through 40% - 60% drawdown before the big,
big trends come.

So do you possess a strong will to trade like those successful trend
traders?

2)  "Whenever we get a period of poor performance, most investors
conclude something must be fixed. They ask if the markets have
changed.  But trend following presupposes change." - John W. Henry.

Markets are driven by people and their emotions; this is what all of
these markets had in common - people - and people just don't change.
What really has changed is the level of our confidence in what we do
or the system we use.

So if one is not sure of what he does or has lost confidence in the
system he uses, it is time to stand aside and re-test his trading
system or strategy with the Demo account again until he regains his
confidence.

You may want to ask me, "How I can become a Good Loser yet with good peace
of mind?"

My answers are simple:

i)  Reciting my secret weapon - "The Daily Affirmations."
Since I have expected the worst before I take any trade and I know it
cannot be worse than the worst anticipated.  So why worry?  Don't
worry worries until worries worry you.

ii)  Look at my drawdown, what is the "% value" of drawdown against
my trading capital or my recent equity peak?  Compare to 40%, 50%
or 60% drawdown experienced by the great trend traders, which is
higher?  Mine has never gone more than 35% so far.

iii)  Treat my drawdown as "Abstract Money', and this is just
temporary advance to the market as cost incurred to acquire a big
trend down the road!

iv)  I know Trends will surely come, as sure as the sun will rise
from the east tomorrow morning!  Of course, I make sure I don't
blunder on your money management so I can "live" until tomorrow to
trade!

That's how I become a Good Loser!

The world of trading is full of hurt and pain!

The world of trading is full of hurt and pain, and you can thank the market’s maximum adversity for it. Maximum adversity will rarely allow a trader to make easy money. Success does hurt. It’s painful. 

Most people need to suffer firsthand the failures of trading before they are truly ready to learn. Until they endure disappointment, they will continue to believe the marketing hype that suggests trading should be easy and fun. Certainly trading is relatively simple when you get down to the mechanics and execution, but it’s not easy to implement your trading plan successfully.

When you lose money, it will hurt. When you trade with the trend and lose 70% of your trades, it will hurt. When you are in drawdown, which you are for most of the time, even with a higher accuracy system, it will hurt.

Successful traders know this from experience, and they know how to manage the pain to stay on the course. They know how to numb it. You will need to accept that you can experience a long streak of consecutive losing trades. You will need to learn how to deal with that particular pain. You will constantly be trading through drawdowns, some minor and some uncomfortably large.

Inexperienced traders aren’t prepared for the pain, and they believe trading and making money should be easy. Once they face the pain, they shy away, not realizing that it’s the conquering of the pain that leads to continuing successful trading.

I conquer my hurt and pain by:
1) being a mechanical system trader, I don’t predict the market direction, it helps me to remove my emotions and disappointments from trading.
2) trading with proper, sensible and defensive money management: I don’t risk a large percentage of my account on any one trade.
3) diversifying my trading in 20 pairs to reduce the risks and uncertainties.
4) using simple, objective, and independent trading strategies with a very good chance of surviving into the future. Although it’s painful to trade a rough and bumpy non-optimized equity curve, I know I am trading the realities.
5) expecting to lose before I place my orders each day, and I welcome my losses.
6) not following the market, I trade 10 minutes a day. I keep myself busy and away from trading the market, I lessen the pain of trading. It allows me to trade almost pain free!

My dear friends, it’s unfortunate but there is every real chance that you will need to experience failure firsthand before you can succeed. Failure includes pain. Successful trading is accompanied by constant hurt and pain, but please remember that it is also very rewarding because at the end of the day, you will make good money!

It’s better to be out of a trade and patiently waiting and wishing to be in, than to be in a trade impatiently waiting and wishing to be out!

The problem with human beings is they want what they want when they want it.

The concepts of delayed versus instant gratification are undoubtedly one of the most important choices that separate rich thinking from poor thinking. It certainly is the difference between success and failure in trading.

Patience and delayed gratification are some of your greatest assets to becoming successful. Impatience means you will need to trade at least twice. The money lost due to the lack of patience forces you to make multiple trades that may or may not work out, and eventually you lose time and more money.

Impatience at trading is a bad habit that takes money out of your trading account. So it is better to be out of a trade and patiently waiting and wishing to be in, than to be in a trade impatiently waiting and wishing you were out!

Patience in trading is the ability to do the following:
• Sit back and patiently wait for the TNT Index to reach your Strike Zone Level without experiencing anxiety, tension or frustration.
• Let go of your need for immediate gratification.
• Accept your human imperfections and frailty in your trading process.
• Committed to learn how to trade with calm, calculated, and considerate actions.
• Find people who can help you, and hang on to those relationships.
• Feel peace, contentment, and satisfaction that you are on the path of financial recovery or growth.
• Curb your enthusiasm, energy, exuberance, and excitement after you have experienced a winning trade. Do not become overconfident, for pride comes before a fall.
• Accept that there is no need to rush in this learning curve, that overnight reformations rarely last long, and that gradual change and growth have a greater durability, give yourself 1 to 3 years to master your investment skills. Remember, this is not a sprinting race, this is a marathon.

Traders who can develop patience while trading can ultimately achieve what they want. 
“One moment of patience when trading may ward off great disaster or financial loss. One moment of impatience may wipe out your trading account and destroy your attitude, not allowing you to be emotionally prepared for the next trades.”

Markets are not efficient–they are MOSTLY efficient.

Huge, huge difference. A market that is “mostly” efficient will place a reasonable/logical value on most assets, most of the time. But every so often it will completely go off the rails, or otherwise offer mispricings that traders and investors can profit from (or save money by staying away from). Facebook, the biggest IPO of all time, had ample warning signs that silly season had commenced.

Price is set at the margins.

In a Sotheby’s auction, who gets the oil painting? The guy who is willing to pay the most, i.e. the one who makes the highest bid. In a hot real estate market, who buys the property? Again, the guy (or gal) who makes the highest bid. What does this have to do with the “rational” market value of the painting or the house being bought? Often very little, sometimes nothing at all. Market valuations–for growth stocks, real estate properties, paintings or whatever–are NOT determined by “a fair and sober assessment of value,” but rather, by the marginal impact of what the most enthusiastic market participants will bid.

Valuation is not the only factor that drives price.

Efficient market theory teaches that “the market price is the rational/logical price.” But there are many factors driving price that have nothing to do with rationality or logic at all! Facebook’s private market value was in large part driven by “greater fool theory” — a self-reinforcing trend of belief that Facebook’s value would keep going higher. That “greater fool theory” mentality was carried over into the public IPO, with high school investment clubs trying to buy FB shares at the open in the hopes of “selling into the pop.”

When everyone agrees, prices get stupid.

Studies have shown that crowd estimates can be surprisingly accurate on average–but only when there is sufficient diversity of opinion. Market valuations are the same way: When you have a diversity of opinion, reasonable estimates prevail as outliers cancel each other out. But when there is a critical mass of one-sided opinion — when an overwhelming majority shares the same general view–you get serious mispricings.

If you don’t know who the sucker at the table is…

It’s the old poker truism, quoted by Warren Buffett and many others. “If you sit at the poker table for an hour and can’t tell who the sucker is, then the sucker is you.” This crusty old saying has some real wisdom in it: It is a way of asking What is your edge? If you don’t KNOW what your edge is… if you don’t understand how or why you are likely to prevail over your competitors… then it may be you don’t have one. Countless Facebook buyers thought that, because they understand what the company does, they understood the valuation case for the stock. Not the same ballpark. Not even the same sport!