Saturday, 31 October 2015

How to Stay Calm when you know you'll be Stressed? [Stress Free Trading]

“Brain releases cortisol that raises your heart rate, it modulates adrenaline levels and it clouds your thinking.”

And with all the cortisol in your brain your thinking will be cloudy and you won't even know about it because "your thinking is cloudy". :) 

“It's something that he had gotten from the psychologist Gary Klein, who had written about it a few years before, also called the pre-mortem. Now, you all know what the postmortem is. Whenever there's a disaster, a team of experts come in and they try to figure out what went wrong, right? Well, in the pre-mortem, Danny explained, you look ahead and you try to figure out all the things that could go wrong,and then you try to figure out what you can do to prevent those things from happening, or to minimize the damage.

said Daniel Levitin in his recent Sep 2015  TED talk, “How to stay calm when you know you’ll be stressed?”.

We become STUPID when we are stressed. Literally our brain stops sending blood to the parts of the brain that help us make "intelligent decisions". 

"Remember, our brain under stress releases cortisol, and one of the things that happens at that moment is a whole bunch on systems shut down. There's an evolutionary reason for this. Face-to-face with a predator, you don't need your digestive system, or your libido, or your immune system, because if you're body is expending metabolism on those things and you don't react quickly, you might become the lion's lunch, and then none of those things matter.

Unfortunately, one of the things that goes out the window during those times of stress is rational, logical thinking, as Danny Kahneman and his colleagues have shown. So we need to train ourselves to think ahead to these kinds of situations."

Proper Planning ahead of time will minimise the “negative effects” of stress. There are things we can do, systems we can put in place that will prevent or at least minimise the bad effects of situations in which we are stressed because stress can cause us to make mistakes. And we all know that mistakes in trading are always expensive. 

Planning can help prevent a bad thing to turn into a total catastrophe. Have you ever had a trading day where you wiped the entire account or the whole month's profits? Yes, it happens, and it has happened to me a few times until I realised that I must address this issue in my plan.

Our daily trading plan states that we will stop trading if we have three consecutive losses. This prevents us from going into the “negative zone”. It stops us from revenge trading and trying to win back the losses. We stop and come back with a fresh mind another day.

Having a proper trading plan may even help  decrease the stress levels because you’ve got the confidence that your plan has got everything covered. Often, stress is caused by the urgency of the situation and our inability to respond in a timely manner.

Uncertainty is the main cause of stress for traders but that can be cured by working on achieving a probabilistic mindset. If you think in probabilities you will be able to remind yourself that you do not need to know what’s going to happen next in order to make money in the markets.

Decision making can be stressful as well specially when you have less time to respond and even more difficult when you are confused and the more stressed you get the cloudier your thoughts. Making decisions that are not preplanned, that  you have not thought about in advance may become the cause of the “stress” itself at the “heat of the moment”.

e.g. You have been closing your trades too early and now you have finally decided to apply a method that will increase your chances of staying in the trades longer. You make a decision and from today you are determined to follow the green line as your exit. No more exiting the trades without a proper exit signal. You take a trade and it spikes 100 pips in your favour. You say, “wow  that’s awesome” and although on one side you’re excited on the other you are stressed about what to do with this bonus income.

Do I take the profit or do I still follow the green line? If I close here would I still get DS1 or would I have to score a 0 but at least I bank the profit. IF you’re on m5 or m1 chart you might not have that long to think and respond which may result in experiencing even more stress.

What do you do? Well, the simple answer is that if you don’t have a plan for a situation like this, and you just experienced it, the logical thing to do is that you will create a rule for a situation like this so that you can apply that rule in the future. If it happens the next time you know exactly what you’re going to do. This will bring more accuracy and less reasons for experiencing stress.

However, if you don’t keep a journal, do not have written well documented trading plan, then  chances are that you will experience the pain and stress and won’t do anything about it for years and years and continue wondering why you always feel the stress and don’t become consistently successful.

Have a Plan TODAY. Join AIMS to learn how to create a trading plan within a week. 

ps: A healthy level of stress may be good for peak performance as suggested by modern research. You may want to watch this TED talk about How to make stress your friend? 

Sunday, 25 October 2015

Trusting Your System and Objectivity

It is very important to trust and continue to take objective actions as you process
the trading signals generated by your system. 

We have to learn to accept and take action based on the information given to us by the market
through the medium of our trading system. We have to accept and understand what the chart tells us
 rather than focus more on our  "feeling" about it.

Don't trade with your feelings or what you think about the markets. Our thoughts often take us
into the future trying to predict or they take us to the left of the chart pondering over the past.
Our thoughts make us look into the history tab of our platform or the running profit and loss for the day.

On average we experience and process 60,000 thoughts a day. And these thoughts make themselves
 known to us and get manifested inside our body as emotions and feelings. Yes, thoughts manifested
 are emotions, we feel emotions, we feel the manifestations of our thoughts. When you feel anxiety,
 stress or boredom it is because of the thoughts you have processed earlier.
The thought process happens ahead of those emotions.

So when you become aware of your emotions that you don't want or like you know that you have been thinking the wrong things. If you remain conscious at all or most of the time you will be in control of how you feel.

So our feelings are our feelings. They are inside of us. But the information that we see on the chart
are coming from outside, from the external environment. They become part of our inner self, the
internal environment but don't come from within.

What we need to is to respond in the manner that is the most objective and accurate. In order to
achieve that we have to find out and decide and document our course of action well in advance. The
actions that we take must have been already planned ahead of time.

Stop judging your template, your trading system or signals. Simply accept the information and take actions accordingly. If you're not sure then say no thank you with gratitude. But keep an eye open.

When the game is over you'll have the chance to go over the days performance and find out how well you did. IF you have passed valid set-ups you can then compare and analyse why did you perceive what you did and why did you take the course of action that you took. Was your perception correct or was it not.

If it was not, was it due the cloud of fear and greed or other emotions or was it based on market generated information?

If it was based on "objective" mental and technical analysis then you have done well but if it was a result of any of the negative emotions then you've made mistakes. It is time to enforce your disciplinary procedures which should have been laid out in your written trading plan.

May the Pips be with you! 

Wednesday, 14 October 2015

9 Reason why everyone should have a Trading Plan

What is a Trading Plan? 

"A trading plan is a complete set of rules that covers every aspect of your trading life. Many experts refer to the need to have an ‘edge’ which will tip the balance of probabilities of success in your favour." Say Tim Wilcox who wrote and shared a simple but powerful trading plan template int he trade2win forum about 10 years ago.

Everyone Needs a Trading Plan. If you don't have one, anything you do is a mistake. 

A trading plan will make the act of trading simpler than it would be if you traded without one. It will limit your opportunity to make bad trades and it will prevent many psychological issues from taking root.

9 Reasons Why YOU should have a Trading Plan 

[How to be a consistently successful trader? Have a Plan]

  1. Relaxed, stress free trading that is simpler with a plan than it is without one 
  2. Ability to monitor your progress, diagnose faults and amend the plan accordingly 
  3. A plan helps to prevent many psychological issues from taking root 
  4. A plan that is adhered to strictly will reduce the number of bad trades 
  5. A plan will help prevent irrational decisions in the heat of the moment 
  6. A plan enables you to control the only thing you can control - yourself  
  7. Professional traders are highly disciplined. A plan will instil a large measure of discipline into your trading. Gamblers tend to lack both discipline and a plan 
  8. A plan will enable you to trade outside your comfort zone. How many times have you let a loss run and cut a profit short because it was the comfortable thing to do? A plan, executed with discipline, will help to prevent this from happening 
  9. A plan is your roadmap which will enable you to get from wherever you are now to wherever you want to be – i.e. consistent profitability 

All credit goes to Tim Wilcox for sharing this knowledge and to Steve of for sharing the link/document with us. Tim has shared a Trading Plan Template that should help all traders at any stage of their trading to formulate a great trading plan.

The template (and, by implication, your plan) – is designed in such a way that if you do take a ‘wrong turn’ on your roadmap, you will know about it very quickly and have the opportunity to correct the problem before losses spiral out of control.

Thanks Tim!!!

Link to Trading Plan Template 

When is it too late or too early to buy a pullback? 

In order to answer this question first ….  Let’s quickly do some repetition. Let’s quickly do some repetition.  Let’s throw in some trading ...