Traders, along with most people who are seriously attempting to do their best in anything that requires lots of focus, mental alertness, information processing, analysis and commitment, also must have a strategy of how it’s going to be done. All of these mental initiatives are integral to the big picture, but arguably one of the most important is the strategy that you employ. By strategy I mean the overarching plan, your “big picture” series of steps that are designed to catapult your efforts into the realm of success. Strategy also represents the science and art of adapting complex protocols, structures and behaviors that serve an important function to achieving effectiveness in the effort. So, strategy forms the foundation of how you would move forward in your trading. Strategy also uses information and data in generating the big picture and the details prior to setting the plan in action.
Information and data in trading can be said to have two domains or spheres that the trader uses to structure the process; the Mechanical and the Internal. The Mechanical encompasses all the perfunctory items of the trade, the mechanics if you will. Examples of the mechanics of the trade are: charting, analysis, planning, news, economic reports, entries, targets, stops and exits, to name a few. The Mechanical Data of trading represent the components or moving parts that are, for the most part, external to the trader and are usually manipulated in some way.
The Internal Data are intricately related to and an outgrowth of your mindset. They are comprised of thoughts (attitudes, beliefs, biases, values and internal pictures) that stem from personal conditioning and programming going back as far as infancy, and emotions which are outgrowths of and determined by those same thoughts. Emotions can initiate a thought as well; but original emotions or the initial emotion involved in an event always comes from a thought and, in most cases, this thought may be in the form of an unconscious personal belief, which might be limiting or irrational. Finally, behaviors make up internal data too and they represent the last item that takes place just before you get a result or outcome. In fact, these three internal items, thoughts, emotions and behaviors, comprise a formula for getting any outcome. In other words, any result that you experience is an extension of the interplay between thoughts, emotions and behaviors and they are always present as in T+E+B=R (Thought+Emotion+Belief=Result). Internal data is the foundation and initiates the making of your ability to follow rules and keep commitments …your self-discipline.
These two domains of data, the Mechanical and the Internal, form the foundation of the trading process and they are always involved. Furthermore, they are of equal importance and must be and remain balanced in order for your trading process to ultimately be consistently successful. In fact, your earliest strategies almost invariably involved mechanical ways of perceiving and manipulating the process. For example, traders are taught technical analysis strategies of price patterns, candle formations, moving averages, indicators, time frames and supply and demand zones. They learn about the mechanics of planning, entries, targets, stops. Novice traders are instructed in the interpretation of news, economic reports, technology, sectors, the broad markets and the interplay of international markets. These mechanical strategies are integral and they must learn to master core strategies like supply and demand. Of course all trading strategies are not created equal and you must choose your strategies well; and learn to master them through training, practice, repetition and documentation. Documentation allows you to measure, verify and, if need be, modify your core strategy along the way to becoming a consistently successful trader. Unfortunately, many traders stop there. They only learn and incorporate strategies that are mechanical and therefore ignore the Internal Data which forms the core of self-discipline.
Here is the buried lead, you must have Mechanical Data strategies, but it is imperative that you also learn, train, incorporate, practice, repeat and master Internal Data strategies. No matter how awesome your Mechanical Data strategies are, if you cannot follow the rules of your trading strategies and keep the commitments that you have made to your trading process, then the mechanical strategies are useless. It would be as if they did not exist. Your discipline, which is a direct product of your internal data and your ability to manage your internal mental/emotional state, is crucial to your overall success. So, it follows that you must use, early and often, mental and emotional tools that are part of an overarching internal data strategy for creating a trading mindset that develops the capacity for emotional strength and endurance in the trade. Trading is difficult not because it is rocket science, it is not; but because when you are in the trade your limiting and irrational beliefs about self and markets are challenged by your concepts of money and the prospect of loss (causing fear) and gain (initiating greed). Your A-Game is required every time you prepare to open your trading platform and you must sustain it while you are in the trading trenches. This is what we teach in “Mastering the Mental Game” Online and On-location courses. 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