Fall is in the air. Well, almost, because you couldn’t tell it by our hot, and I mean hot, weather here in sunny Southern California, specifically Los Angeles and Orange Counties. I mean, it’s been in the triple digits at times; and at the beach where one would expect a breezy reprieve, it’s been in the upper 80’s and 90’s Fahrenheit. But, none-the-less it’s still the beginning of fall and despite the rising temperatures there are some trees that are turning and we’ll be going through another ritual of the season soon: the turning back of the clocks. There are some other things that reflect the seasonal change; for instance, the anticipation of a year-end upturn in the markets often referred to as the Santa Clause rally. Also, year-end calendar spreads and LEAPs that were opened months ago are beginning to wind down for potential closure. In other words, it’s a time of change and it’s a perfect occasion to start seriously reevaluating your trading plan, goals, accomplishments and improvables.
Understanding the psychology behind your trades is an integral part of your overall trading process. Before you can actually change, obviously, you must first take stock of what is going on in your process and begin to identify what about your trading is not working. In other words, what are you doing that is not getting you the results that you want. This necessarily means that you must increase your awareness of those things that you’re doing that are getting in the way of the desired results and the emotions that are driving those behaviors. Additionally, you must identify the thoughts, or more specifically the “limiting and irrational beliefs” behind the thoughts, that are causing the errant emotions like fear, anger, worry, doubt and greed that are literally driving the things like “rule violations” that you are doing. Now, one of the keys to all of this is to “journalize” a verbalization of the documentation process. I just know that all of you reading this missive are documenting your trades…right?…rrriiiiggghhht. Unfortunately, the opposite is true. There are droves of you out there that do not memorialize your trading process at all. Sure, some of you will document your mechanical data (everything that has to do with the mechanics of the trade like planning, news, charting, entries, targets, stops and exits). That is a good start, but as so many of you know by now you must “journalize” your internal data as well (the thoughts about what is happening inside of your head and your heart”). Your internal data is no more and certainly no less important than your mechanical data; but so many of you don’t trade like internal thoughts and emotions are critical to your trading success. You must track and document each of the emotions that are expressed in your trades as you become aware of them. Then write down a synopsis in bullet form of what you were thinking when you moved that stop or chased that trade and the emotions that were prompted and the behavior that ensued. Each time that you do this you add to the data; and with time you will be able to identify the negative and discipline destroying patterns so you can interrupt them as soon as they raise their ugly heads in the trade. When you achieve this, you are on your way to developing the capacity for emotional strength and endurance while in the trader trenches.
Becoming more aware of your trading psychology, recognizing what gets between you and the results you want, also means that you become more sensitive to the signals (internal thoughts, emotions, feelings,) that prompt rule violations. Becoming more sensitive to the signals means that you must stop and “listen” to your body. It means that you must be willing to invest the time and energy to get to know you. It means that you must be willing to get outside of your comfort zone and be uncomfortable in the service of your highest and best goals. I remember one of my students decided not to involve themselves in an exercise in one of my classes. When I asked him why he had not done the exercise he said that he didn’t want to “remember” the trade and go there. I told him; “…but, that is exactly the point!” You must be willing to confront the unpleasant thoughts, emotions and memories to find out what is at the core of your conflicts, bad patterns and limiting beliefs. What you resist persists. Using mindful practices like self-reflection, introspection, meditation, and just asking the question “why” after each answer to the question “what is going on with me right now?” will help you immensely in your quest to connect with your highest and best trader.
I often write about change and that’s because if you are getting results that you don’t want you “must” change something, whether it be in the mechanics of your trade, the psychology of your trade or a little of both. However, if you don’t have a clue as to what to change then it’s an uphill battle and potentially “hit-and-miss” to find out what is actually causing the problems. So, get yourself out of that vicious cycle where your money is circling down the drain. You have felt the pain of being out-of-control and getting results that you don’t want. It’s time to take a deep breath and do what you must do by having and using a documentation process to journalize your internal data and to log your mechanical data in order to find out where they are congruent and where they are at cross purposes. “Mastering the Mental Game” online, on-location and the XLT coaching program will help you get back in control so that you can and will keep your commitments to your plan and your rules. Ask your Online Trading Academy representative for more information. Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.
Dr. Woody Johnson