Sheila knew she was in trouble, and no matter how long she stared at the monitor, the picture was the same. She had taken a huge hit to her portfolio – 20% in one trade and in one day! It’s not as though she was a complete novice, she had run into this type of issue before. In fact, she had promised herself that she would stop repeating this same mistake; that is, letting her emotions get in the way of her good sense. It all started when she had tracked the YM Emini and had identified an intermediate trend on the daily chart. It had been making higher highs and higher lows for several months, with pullbacks to the moving averages that she was using. Additionally, the price action was pulling back now toward a relevant support level and giving her a signal to go long for the next day. Furthermore, the high-probability signal was made even stronger because the 120-minute time frame showed a distinct demand level at the support line while coinciding with the moving average levels in that same area as well. She felt “strongly” that the price action was going to bounce off these levels. In fact, she “knew” that this was going to happen.
Certainty was already beginning to intrude upon her trade…she just wasn’t aware of it. She placed her limit order to buy 5 contracts at the top of the demand zone and simultaneously put her stop just below the bottom of that same demand zone. When the US markets opened the price action did bounce off of that support-demand level immediately. She felt elated, but a few minutes later it began to fall – precipitously. When it fell, she didn’t react too much, even though she did feel a tinge of anxiety. Unfortunately, it continued to drop and her anxiety continued to rise proportionately. When the price action inched toward her stop she felt a surge of fear so strong that she “reacted” by moving her stop. However, she rational-liesed ( yes, I made that word up and it describes the way that we lie to ourselves at times by rationalizing something that is not true) that there was no problem really, since she knew that the price action would rise. “Hadn’t the trend shown itself to be very powerful,” she thought? Ahh, but the price action continued to drop and twice more she moved her stop because she was so afraid that it would take her out and then turn to go in her direction…and she didn’t want that. But, the markets did something that they are prone to do once in a while; it began to drop like a big rock tossed over a cliff. Sheila panicked as she looked at the stream of red running like a river down her screen. But, because she still “knew” that the price action would “come-back” partially based on the fact that the ATR level for the day was about to be hit, and because she bolstered her confidence with a strong hit of “hopium”; she doubled down. In the back of her mind she was saying, “…I’ll get my money back.” Well, she didn’t get her money back; in fact the price action plummeted until the end of the day and lost 500 points. At some point the pain of the loss and the unmistakable realization that she was “wrong” was so acute that she liquidated her position. Her portfolio had been decimated and her head pounded with a migraine, she felt nauseous and thought she was about to throw-up. “What had she done?” she cried to herself.
Now, was this loss due to a lack of knowledge? No, she had been trading for a number of years and had studied the markets through books and courses. Was it due to something that couldn’t have been managed? No, it was due to the distorted judgment caused by distracting emotions of anxiety and fear…these can be managed. And, could this trading catastrophe have been avoided by following her rules? Yes, by allowing the market to prove her wrong, she could have taken a small loss, which is an acceptable part of trading. Unfortunately, Sheila’s biases got in the way often, and each time she did the same thing by holding on to them and hoping that she would get a different outcome. This is the definition of insanity…doing the same thing, and expecting a different result.
In order to change and get different results in your trading and in your life, you must be willing to not only think outside the box, but also “do” outside the box. You must be willing to first become aware of your thoughts, emotions and behavior in order to effectively address them. With self-observation, introspection and self-reflection you will begin to discover why your issues seem insurmountable; and why you continue to do things that you say you don’t want to do; and why you don’t do those things that you say you must do. After you get access to the faulty data, you can then change them. But, you can’t change what you can’t face, and you can’t face what you don’t know.
The other very important element of change is about doing something differently concurrently as you delve deeper into your motivations for responding as you do. To do something differently though relates to your willingness to challenge yourself, and to have the courage to fail; that is, you must re-frame your meaning of failure from “loser”, “not-good-enough”, and “undeserving”; to failure is just feedback, it is a lesson, and it gets you closer to your goals. Over-achievers admit that they have failed many, many times before accomplishing greatness. In fact, many attribute the valuable lessons that they learned from those failures as the reason for their achievements. Additionally, you must have the curiosity of a child; that is the playful and enthusiastic approach to trading that keeps it in perspective; meaning, trial and error, just like the great researchers have done thousands of times that then paved the way for the extremely important epiphanies and discoveries which brought them crowning achievements. They are interested in finding out what matters most in the mechanics and then doing that. It is the same with your trading. You are best served by having the researchers mentality and the child’s enthusiastic curiosity to think and do outside the box while of course documenting every piece of data along the way, whether mechanical data (everything having to do with the markets) or internal data (everything having to do with your thoughts, emotions and behaviors, most of which being unconscious).
Change is critically important to growth and development as a trader. You must be flexible and ready to respond to the changing nature of the markets. But, you are best served by being deliberate in how you change. Have a strategy for approaching change in the same way that you’ll want to have a strategy for your trading, that is, you’ll want to question yourself to identify your improvables; and, you’ll want to document your internal data in order to begin to address them. Then, you’ll want to learn and use effective tools to help you to modify the faulty thoughts, emotions and behaviors one at a time. If you do this you will be well on your way to getting the results that you want and deserve. If you do this you will be well on your way to developing your trading A-Game, your highest and best trader in order to access and activate your internal resources to bear on what matters most in the trade. We teach you in Mastering the Mental Game Online and On-location courses the tools to interrupt bad patterns and fundamentally change your approach in order for you to begin to master the process of trading. Ask your Online Trading Academy Educational Counselor for more information. Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.”