Lessons from the Pros

Specialty Skills

The Importance of Tracking Your Trades

His thoughts raced and he still felt the remnants of the pounding in his chest. “Wow,” he thought, “That could have been disastrous.” Kevin had taken a loss, but he actually found himself feeling upbeat and positive. Just weeks before he would have kicked his desk while hurling expletives at himself, the market, his platform, the talking heads on the news and anyone else within thinking distance.  That was several weeks ago, before he had learned to use mental tools to bring his execution under control and his emotions under new management.  He continued to document the trade that he was just stopped out of.  It was a Euro/Dollar Forex pair that he had been trading for some time.  The price action had been very volatile, but he waited for a pull-back to a demand level where he placed a bracket order to enter just as the price pierced the demand zone and simultaneously placed his stop just below the demand zone.   In the past, Kevin would have hastily scribbled a trade plan based on hasty analysis and as the price action inched toward his stop, he would have given in to what before was an uncontrollable urge to move his stop.  He would have continued to violate other rules; for instance, increasing his size as the trade went against him while ignoring the other time frames to verify his analysis.  It was different now; he still felt the strong urge to move his stop, but he used the mental tools that he had learned to interrupt the old pattern as it began and remained focused on what mattered most in the trade.  What mattered most at that moment was to follow his plan and his rules and allow the market to prove him wrong.  When the price action looked as though it was going to hit his stop, he began to use his thought journal to document his emotions as he also identified what his unconscious ego-driven self was saying that drove the desire to move his stop.  As he wrote he listened to a special stress reduction audio file that helped him to maintain his focus through the noise of his beating heart and the craving to violate his rules.  Additionally, he told himself how important it was to do the “right” thing, that he could tolerate the discomfort as it was in the service of his A-Game.  After it was over, he relished the fact that he had experienced a private victory; he had won against his ego and thus he had developed more capacity for strength and endurance the next time.  Kevin knew that this small loss was, as he told himself, “going to get him closer to a big win.”  Kevin knew that he had just traded as a winner.

Through learning more of the mental game of trading, Kevin began to recognize that he had to become more aware of himself as well.  This meant that he had to document his “Internal Data” as well as the “Mechanical Data.”  Mechanical data is what most traders are willing to track.  These data are everything that have to do with the market, the news, the indicators, the price action, etc.  Mechanical data is usually documented in either a trade log or a trade journal.  These data are everything external to the trader; including entry, exit, price patterns, targets, plans, analysis and the like.  Most traders understand the importance of documenting mechanical data.  On the other hand, many traders are ignorant or dismissive of the internal data, which includes all the thoughts, emotions and behaviors that are part of trade execution.  In other words, the results that the trader gets are a “direct” outcome of her thoughts, emotions and behaviors.  In fact, this is borne out by the equation; T+E+B=R (thoughts + emotions + behavior = results.  In everything that you endeavor to do, that equation is in play…and certainly in trading.  Actually trading is a 100% mental game; you are either, preparing, analyzing, processing or executing when you are trading.  All of these efforts involve mental and emotional tools.  So, it is imperative to not only be aware of your thoughts, emotions and behaviors; it is also important to track and document them as well.  Patterns of thinking are associated with patterns of emotions that give rise to patterns of behavior, which create results.  If these patterns are negative and destructive, if you don’t change them, you will continue to experience the exact same results…no matter how bad you’d like to change them.  Kevin began to track his inner thoughts, emotions and behaviors and as patterns presented themselves, especially the negative ones, he began to use tools he had learned to interrupt, uproot, and extricate them from his trading routines, one issue at a time. He began to develop a larger comfort zone with each private victory along with greater confidence, self-esteem, strength and endurance to withstand the negative urges that still would rear their ugly head.

Human beings are impulsively driven by greed and the desire to dominate.  They will take the easiest way to get and keep what they want.  This often has negative and unintended consequences that are frequently destructive.  Humans are not naturally prone to accountability or self-discipline, which is why we need laws, rules, boundaries, and limits in society.  Trading requires self-imposed limits and these limits must be created through personal accountability.  You must know what you require in the way of protocols, strategies and rules in order to create effective self-limits and self-control.  Documenting actual behavior provides the data to compare to your thinking and emotions.  In this way you will identify strengths and weaknesses.  When you accurately record the thinking that was present during a trade, it exposes your limiting beliefs and unconscious conversations.

It is critically important to identify the faulty patterns of thinking that eventually lead to bad behavior.  After identifying the bad behavior, isolate it and create a counter routine to help you when the pattern is activated.  For example, if  you uncover in your thought journal that you have a habit of moving your stop in violation of your rules; create a routine that immediately interrupts the pattern by first doing something different (something positive like changing your physical posture), then begin to journal the incident.  Additionally, you could include in your new routine mental techniques or tools like the ones taught in Mastering the Mental Game to help support effective ways to reduce the emotional intensity (for instance using a stress reduction audio file to reduce anxiety and confusion).  Thoughts and emotions are difficult to control.  The difficulty stems from the deep seated and unconscious nature of the programmed patterns that cause the unwanted behavior to begin with.  The goal is to get into a mental place to see how the behavior reflected foggy thinking and how thoughts and emotions work together to create results—this knowledge helps to generate routines and rules designed to cut losses and position you to re-observe the order flow without the emotional noise.

Personality is a blend of many parts in you, some of which don’t always get along.  Your personality is formed through pleasure and pain associated with achievements and letdowns in your past.  The “parts,” so to speak, are sub-personalities formed through patterning as a response to certain environmental conditions.  Different parts of you reflect different program patterns.  You are not always the same and how you are is based upon what part of you shows up.  Also, the environment, biorhythms, discomfort vs. comfort, and recent events that may have shaken your confidence, all have an impact upon who shows up.  So, sometimes you are confident and relaxed; sometimes you are agitated and anxious; sometimes you are depressed and fatalistic.  These patterns result in “who is coming to the trade today” and greatly affect how events are perceived.  You want to be focused on supporting your effectiveness, and a big part of that is accepting the market reality.  This means remaining in a constant state of observation of both the mechanical data and the internal data.

The question is, “How close to my A-game – my highest and best self – am I at this moment?”  Your Thought Journal and Trade Log work together to confront weaknesses and consolidate strengths.  You create new routines to modify your behavior until you begin to experience a shift in your mental and emotional game.  When this happens, you are better able to see the order flow as it is and not as you “wish” it would be.  The Feedback Loop of the Thought Journal and Trade Log provides a roadmap and blueprint of where you want to go and what you want to build in your trading so you can accurately see and participate in the order flow without being overly influenced by emotional interference. The objective of emotional interference is not to eliminate it.  Emotions are an inextricable part of who you are as a human being.  The point is to learn how to understand more about them so they can be contained and managed and seen as an ally to boost the drive to stay on course.

So, always have your journals at the ready.  Remember, you can’t change what you can’t face, and you can’t face what you don’t know.  Document, record, measure and track your market participation from both sides of the data “balance beam” meaning the mechanical and the internal data.  Learn to bring your A-game to your platform and keep your A-game while in the trade by identifying and changing the bad patterns that have been causing your bad results.  This is just one of the concepts taught in the Mastering the Mental Game course and the coaching Extended Learning Track – XLT.  Ask your Online Trading Academy Educational Counselor for more information.  Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.”

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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