All Entries in the "Psychology" Category
The Power of the Mastermind
One of the most beneficial hours of my work week is spent attending a Mastermind call with my fellow traders.
What is a Mastermind Group?
The concept of the Mastermind Group was formally introduced by Napoleon Hill in the early 1900′s. In his timeless classic, “Think And Grow Rich” he wrote about the Mastermind principle as:
“The coordination of knowledge and effort of two or more people, who work toward a definite purpose, in the spirit of harmony.”
He continues …
“No two minds ever come together without thereby creating a third, invisible intangible force, which may be likened to a third mind.”
In a Mastermind group, the agenda belongs to the group, and each person’s participation is key. Your peers give you feedback, help you brainstorm new possibilities, and set up accountability structures that keep you focused and on track. You will create a community of supportive colleagues who will brainstorm together to move the group to new heights.
The Psychology of Option Trading
The Psychology of Trading – Some Thoughts Are the markets a zero-sum game? In a zero-sum game, winners make as much as losers lose. So you’d think that trading in the market is such a “game”. If I bet $10 the S & P will move 50 points up and you bet $10 that it will move down 50 points, one of us will win and one of us will lost. Zero-sum, right? Well think again. What people fail to realize is that trading on the markets is a minus-sum game because winners receive less than losers lose and the brokers and market makers chuckle all the way to the bank. Successful traders ignore the money Trading for a living appears to be deceptively easy. Most of us work from home, make our own hours, live where we choose to, and work for ourselves. I live on the west coast so the market closes at 1pm leaving me most of the day to do whatever I want. When a new trader makes winning trades, they feel like they are brilliant. A number of good trades in a row – invincible. Gaining confidence, he or she starts taking risks, deviates from the plan and before you know it loses everything. The focus is on the money, typical rookie mistake. Instead of focusing on the money, learn to trade well. Professional traders do not think about the money, they focus on the trade. If the trade is good, the money will follow. Successful traders keep learning, improving their skills to the point that the money doesn’t matter and at that point ceases to influence emotions. There are no “trading secrets” Amateur traders who lose money often blame it on their lack of knowing the “trading secrets”. A professional trader knows there are no secrets to trading. Successful traders are realists. They know what they can and cannot do. They trade with their eyes open, and they stay in tune with their reactions and their emotions. As soon as emotion enters into a trade, up goes the red flag. Journal = Success Amateur traders often repeat their mistakes, slapping their foreheads saying, oh yeah, I remember making the same mistake last week/month/year. Successful traders keep track of their trades, their strategies and their emotions while entering and exiting trades. I personally use a journal to keep track of all aspects of my trading. I capture when I place a trade and why I chose that particular time. I carefully document when I exit my trades or if I let them expire, why I did so. For new traders I suggest also keeping a record of your feelings, before and after placing a trade, during the time you hold a position and your reactions to movements in the market. Look for patterns, of success and failure. Trading is not for everyone and if you find yourself overly anxious, losing sleep or freaking out, another profession might be better for you. The big 3 In my opinion there are three basic components to successful trading: a sound psychology around trading, a good trading strategy, and money rules. You need the intellectual and emotional discipline to be a trader. Your emotions have a direct impact on the size of your account balance. You can have the best trading strategy in the world, but if your behavior is impacted by fear, greed or arrogance, your account balance will surely suffer. You need a trading strategy with a history of success and you must follow it, period. Many a novice trader learns a strategy, experiences success, gets over confident, tweaks the strategy “cause they know better” and loses. Just don’t do it! You need rules that determine when and at what position you enter and exit trades, when you stop your losses and take your profits. Mitigate your risk by diversification. Once again, you must have rules and of course you must follow them! To trade or not to trade Individual traders have a significant advantage over institutional traders. Institutional traders have to trade. They can’t sit on the sidelines during a volatile market move. Individual traders need patience. I fell into this trap my first month trading. After paper trading for a couple of months, I funded my account and instead of waiting until the right time to jump in, I couldn’t wait and made a bad trade. I lost money that month, but learned a valuable lesson. Trading for a living is a long-term endeavor. It’s okay to not trade if the situation dictates. Amateur traders get emotional about trading and lose their money. A sure sign that psychology is the key to success or failure trading. The crowd mentality Did you realize that the market is more often than not lead by the whim of the crowd rather than sound financial indicators? We’ve all heard stories about the maddening crowd mentality where people behave in ways they would never if acting alone. Please keep that in mind when trading. Develop sound trading strategies and stick with them. Listen to the news, and the financial “gurus” if you have to but don’t let them lead you astray from your strategy. Stick to your strategy and your money rules. I recently read something that I liked so much I’ll share it with you. Opening prices in the market are typically a reflection of the amateur traders perception of value. They read the paper, look at what happened the day before and most often trade early in the day. Professional traders trade against the amateurs; they unwind their positions during the day and trade the close. So if you want to know what the professionals think, look to the close.
