Lessons from the Pros

Specialty Skills

When Trading in the Trenches Give Yourself an Edge

In any important effort where you are up against other individuals that are as motivated, as intelligent, as competent and as prepared if not better than you, then it is crucial that you identify an edge in your game in order to come out ahead of the pack and get the win. Trading is a good example of this due to the solitary nature of the game. You are in there alone in most cases and, ultimately, the only person that you can rely upon is you when the ride gets bumpy. By having and using an edge, you are employing an approach, a strategy, a belief, a mindset, or a tool that will support you in bringing your absolute best to the platform and keep it there. Surely you have experienced times where you found yourself at a crossroads in a trade; a fork-in-the-road where you had to make a choice to either go to the left and violate your rules, break your promises to yourself and go over the cliff to crash and burn; or you chose to go to the right, kept your highest and best trader engaged while trading in your highest and best interests. When you do-the-right-thing in such an instance, you not only support your ability to follow-through more consistently; but, as well, you have cataloged a peak experience that has the effect of catapulting you forward, bolstering your confidence and strengthening your self-esteem. One such edge is a tool that aids you in remaining focused intently on what-matters-most in the trade by interrupting disruptive patterns of thinking, feeling and doing that can and do cause you to take the left turn at the fork in the road resulting in catastrophic results. This tool is called Stop, Challenge and Choose.

Free Trading WorkshopOne of the most common rule violations that novices and some experienced traders make is inappropriately moving a hard stop when the price-action is inching toward it. The first signal that you normally become aware of is an emotion that is other than positive or neutral; such as, in this instance, fear or anxiety as you watch the price-action. That emotional signal is not the first thing that happens however. The first response in you is an internal dialogue that for the most part is out of your awareness, which is why you must attend to the emotional signal as the first stimulus that comes to your attention. When the fear/anxiety is felt immediately “stop” what you are doing in order to interrupt the emerging pattern, which would culminate in moving the hard-stop, increasing your risk and in most cases end in a greater loss than you would have experienced had you maintained the hard-stop. By stopping, you take a deep breath which will initiate a relaxation response in you; then change your physical posture and assume a position of power, for example, standing up straight and unclenching fists or teeth. By doing this you are not only interrupting the emerging bad pattern, you are also exchanging a forthright intention for what a moment ago was frustration, frazzlement and fragmentation.

Then you “challenge” yourself by asking 3 important questions: 1) What must I be thinking or believing to feel this fear or anxiety? The answer in this instance might be, “…That price-action is going to hit my hard-stop and that means I’ll lose, and that means I’m a poor trader, and that means I’m stupid…” You get the picture. 2) What is the objective reality? In this example the reality is that the price-action may or may not hit your hard-stop; and in actuality it doesn’t matter because your initial plan calculated the best hard-stop placement according to the risk assessment. 3) Is there an alternative interpretation? For our example the alternative interpretation would be that the hard-stop is there to protect your capital and, therefore, if it is activated by the price-action then it has done its job and you are more, not less, intelligent for allowing the plan to go forth without interference or second guessing from you.

After asking the three questions, then it’s time to “choose” a response that is in keeping with your highest and best goals for the trade. In this instance, that would be to be patient and allow the process to play itself out. You’ll not only maintain your A-Game at the platform, you will have gathered more mechanical and internal data; and trading is all about the data.

Stop, Challenge and Choose is a simple and highly effective “edge” for interrupting emerging bad patterns and placing yourself in a position to not only follow rules and keep commitments, but to maintain a position of increasing your skill levels. Additionally, it works quite well with your journal to memorialize the process in order to track the instances of emotional turmoil so that you can identify the bad patterns of thinking, feeling or doing as they take place. In this way you are poised to anticipate the occurrence and become proactive and pre-emptive in the process, thereby greatly enhancing your ability to sustain your highest and best trader at the platform. This and many other powerful, highly effective and easy to use tools, techniques and concepts are what we teach in the “Mastering the Mental Game” on-location, online and XLT courses. Ask your Online Trading Academy representative for more information. Also, get my book From Pain to Profit: Secrets of the Peak Performance Trader.

Happy Trading

Dr. Woody Johnson – wjohnson@tradingacademy.com

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.