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knowledge is power, so now thyself.
having difficulty with pulling the trigger is a
a problem with fear a greed and an emotional
problem that relates to psychology. first off
if you are having problems with pulling the trigger
it's not really your problem. so you have to
stop blaming yourself for it, you have to understand
where the problem originates... the problem is:
it's fear that keeps you from entering and it's
greed typically that keeps you from exiting.
( panic reactions of flight ie "freeze/unable to pull
the trigger" type situations on exits are a variation
of fear and greed ) . so after you id the emotions
that create "not able to pull the trigger" situations
than you have to look to where they come from.
fear in general is the worst of the negative emotion
that you can face in your life, it is a biological reaction
to situations that threaten your life. in trading fear can be
detrimental and beneficial at the same time. market
can be threatening at times. the emotion will amplify
greatly IF:
- if you are trying to hard to preserve your capital
( ie you are undercapitalized ) because your mind
will desperately trying to keep you away from possibly
loosing all of it. the solution is trade smaller until you
get comfortable within your so called "money level".
- if you don't have an edge in trading then no matter
how small you trade you will still have problem pulling
the trigger because your mind is telling you: "you
have no technique that gives you comfort in knowing
that if you follow it you will make money". so you
need to get an edge in trading before you get comfortable.
by edge i mean either a methodology of a system or discipline that
you can make money off of.
NOTE that in both cases fear is trying to keep you away
from the situation that is "life threatening". it is trying to
keep you disciplined. many other factors can contribute
to your fear threshold, such as your family situation,
your income situation, your burnout level, how you feel, etc...
in "desperado" type
situations your fear threshold can actually drop to 0 and you
can start pulling the trigger back and forth trying to gain
your loss back...that's "fight" response ie you start fighting
the market vs "flight" inability to pull the trigger on entry
or exit. fight or flight is a standard biological response to life
threatening situations. it can only be controlled by training.
[ check your pulse when pulling trigger, if it's up to over 80
you are reacting biologically ]
GREED is a slightly different emotion that it actually an opposite
of fear... greed keeps your from exiting your position.
if fear will keep you from buying then greed will keep you from selling
it back and vv. so basically the emotions are the different side
of the same coin.
so here is how to fight it:
- be well capitalized, if you have a small account be prepared to
lose it all without any regrets, but don't program yourself that you
will lose it all. trade within your money level, you can build up your
resistance to fear gradually by trading small then more and more.
don't think negative ( losing it all ) but don't think positive ( i will
make a ton of money ), stay neutral ,learn how the when and why the
market takes and how and when and why the market gives.
- try plunging in the market with small size a few times, that will
tell your mind that market is not to fear, it won't hurt you and it
won't take your money automatically unless you make mistakes.
- get a definite edge, the better your edge is the less fear you
will have in trading. remember if you had a holy grail system
your fear will disappear almost completely "ie the situation where your
systems is highly profitable".
- learn DISCIPLINE, see below.
*** for discretionary trader the key word is DISCIPLINE
for systematic trader the key word is EDGE ***
the edge of the disc. trader is his discipline to follow the market
the discipline of the systemic trader is his edge in the market...
read it again.
technical edge is very hard to find these days.
it is much easier to train to become a disciplined trader.
let me give you an example: if i were to give you a
system that makes does in just about any market and
calls 80% correct shots and is highly profitable with
low drawdown, would you have problem with pulling
the trigger? i am sure that you will answer no, will
not have any problem, if you have confidence in that
system...in this case capital requirement is of secondary
consideration. in fact you not only will you not be scared
to trade a system like that but you will be overly excited
to pull the trigger and will be looking to every new trading
signal .... this is the edge of a systematic trader...
that's why clerks are employed to trade good systems...
there is no need for disc disciplined trader to pull the trigger
in this case.
now all that considering the case of having
a holy grail system... but what if you don't have it or what
if there is none, what if the only thing you got is yourself ???
you can get an edge not through finding
a better trading technique but by being disciplined! in this scenario
you simply admit that there is no edge and that everybody has the same
technical edge and that the only real edge you can gain is DISCIPLINE
to execute the trade on given simple rules... if you follow your even
very simple trading rules : cut loss short without double guessing,
let profits run, use simple entry and exit technique, bet with the trend only,
the market will reward you... simply because trends will give you money in the long
haul. no way around it, marker guarantees profits to those that have discipline
to follow the market trends ( simplified ).
in this case you must train your mind to follow those rules through
fire and water... AND you don't have to search for the holy grail system
or technique or better edge. basically the edge of a discretionary trader is
not the trading technique but his DISCIPLINE to follow very simple
trading rules... just by understanding the above your fear threshold
will drop dramatically. i guess they call it Zen ( Tao ) of trading, the point
in time where you understand that the market gives and market takes
( trends come and go ) stop looking for holy grail, holy grail is in yourself in form
of a disciplined mind that follows simple rules to make money, you have only to
fear your own poor undisciplined actions. you can master your emotions
and start making money through practicing disciplined rule execution...
for systematic traders it's different, the nirvana of trading for us systematic
traders is the search for the holy grail... as disc. trading attain peace
through discipline we, the systematic traders attain trading nirvana through
finding the ultimate technical edge, but we also need discipline to follow
the signals.
yet another issue that you can read on is called "paralysis by analysis"
do a search on it... basically your mind can become paralyzed to act
if it's analyzing too much... your mind is occupied by constant analysis of the
trading situation and can not find time to make the decision. if you
find yourself constantly analyzing the price movement and your mind can't
find time to pull the trigger, you are paralyzed by analysis, you have to
stop and learn what it is and how to deal with it.
paralysis by analysis can only be overcome by training to react automatically
to certain situations... ie military training, sports...( again basically discipline )
ie you train your
mind to act automatically without thinking in certain recognizable situations.
this is the same as Zen of trading, some of the best traders are
automatic in there reaction to the markets. often the can't remember why
they entered or exited profitable position because their entries and exits
are so automatic they don't remember how they did it...
it is rare to find traders like that... but that's how you have to be if you
want to be a disc. trader... execution of trading rules becomes subconscious,
you REACT to a situation without thinking too much about it. ie pulling
the trigger become automatic. again you can get there only through years
of training and trading... disciplined simulator trading will help with iding
entry and exit points but at same time simulator trading can never replace
real trading because of liquidity and execution. you need to train
yourself to deal with two issues: timing the trade and executing the trade...
both reactions should be close to automatic...
the key is that trading rules must be simple and easy to follow, if rules
are hard you won't be able to follow them and you will make mistakes.
if rule A then pull the trigger, don't think but do it... if you find yourself
thinking too much about whether to do it or not then train again...
until you are not thinking about it but simply reacting too it.
yet another cliché in trading is the notorious vicious losing cycle:
- you get into a trade too late and you lose a trade,
- this trading loss increases your trigger threshold due to fear,
that keeps you away from making the next trade
as a result of which you miss the move...
- later your fear of getting into the market gradually subsides and
the threshold allows you to pull the trigger again, but...
you are too late again...
- the process repeats itself and you become emotionally ruined,
burned out...
either your trigger threshold goes way high and you unable to pull it
for a long time flight response or you get into the fight response and continue to
buy and sell the end of the move.
- as a result your account goes gradually goes down as your are trading
out of synch with the market... you get more and more aggravated
and lose more and more as you are getting into a habit of fighting
the market instead of following it... or you abandon the market altogether.
in both cases you are done... the negative response kills you.
beware of those flight forever or fight the market to death traps...
it will ruin you. just step out of it. learn basic rules and again
and try it again.
in systematic trading the emotional / analysis / discipline parts are off loaded
onto the system/computer that searches for the rules and tells you to pull now.
so that the trader does not have to analyze, think, decide when to pull the trigger,
the analysis part is up to the computer to do. you can however get paralyzed on
execution part if your system is crappy and you don't trust it.
so systematic trading has clear advantages over discretionary trading,
providing the system is a decent one.
hope that helps.
bilo.
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