It's usually not the setup that's the worry, it's the management.
We recently covered an article here whose primary focus was using quant strategies to overcome human behavior and in it, discussed how poorly people tend to react to circumstances that are so obvious. It was certainly not the most exciting thing I have ever written, though there are some very crucial topics discussed within it. If you get a chance, give it a read.
Today I want to address a few simple ways to potentially fool your mind into staying out of the “death hole” that it is so naturally attracted to with trading. Fear is a horrible thing, and it causes us to act irrationally.
And yes, we dig more ideas. Use the comments below to post your own variations or additions to these.
1. One panel for workin', one panel for tradin'
Most of your work as a trader has you staring at 2 main sources: charts and news feeds. For those that use a great deal of technical analysis, the screentime associated with charts is tremendous. So think of all the excitement that comes when you actually execute, and have to stare at your money ticking away as you do more work.
This is a massive disadvantage with retail platforms…..everything is essentially in your face, all the time. Setting up a separate platform(s) for all of your analysis allows you to stop looking at your cash tick by tick and focus on the task at hand: trading.
2. Post execution, use line charts
Every trade is just as important as the one before it and getting lost in nitty gritty ticks and price action convolute the bigger picture of why you entered in the first place. Line charts can help you normalize activity and better see price for what it means on a bigger scale.
Bar charts and candlestick charts = more information for your brain to process. The more information processed, the greater potential for you to create undesirable scenarios, creating potentially unwanted circumstances.
3. Happy music
An emphasis here on “happy”…..listening to songs that have the mental equivalent of slitting your wrists is not going to prepare you for a successful outcome. Your “state” is absolutely relevant to how you overcome fears. Most traders simply think too much about negative context and get sucked into a whirlwind of terror.
Listening to songs that get you amped, make you smile, get you excited are a quick way of changing your “state”. Those that react via overwhelmingly pessimistic experiences tend to continue the trend moving forward. Happy music lets you escape a portion of this.
4. Post execution, use higher timeframes
The premise here is the same with using line charts. Traders looking at the market move tick by tick tend to get an insane amount of anxiety overcoming their well-being. On your working panel, use a higher timeframe that allows you to see whether or not your trade is looking good or invalidated, without having to stare at every tick. Zooming out and looking at the bigger picture can help put your mind at ease.
5. Indi Confirmation
Many traders that use price as a sole indicator lack one thing: secondary confirmation. I know of several readers that use this trick to help guide them and fight off fear when entering something that initially appears starkly parabolic. Many standard exponential indicators will tell the exact same story as what you see on your chart, though simply provide another “look” for you to absorb mentally.
Example: If you are taking a long based on a short term trendline break, draw the same trendline on a 14 period CCI or RSI. Depending on the situation, these even sometimes break ahead of price, leading the larger movement.
Just be aware of divergence, and the common pitfalls of any exponentially calculated overbought or oversold conditions. This isn't something that you normally “jump into”, so some obsewrvation is required in terms of understanding how these are calculated and simply, how they work.
6. The Profitability Chain
This one comes to us from a very unexpected source, but useful nonetheless.
Most people are fully aware of one or several techniques / tactics that prove favorable outcomes. An underlying issue always tends to be sticking with them or trying something different or breaking out of the box of comfort, creating losses. This goes against our number 1 rule here: “Take the easy ones, and don't do anything stupid in the meantime”.
The profitability chain is nothing more than a printed, always “in your face” calendar that gets an X for every day that turns out to be profitable. The more X's, the longer the chain. The simple rule here: don't break the chain. Mark it up on the weekend to add a little more inspiration and keep your chain fully intact. When you break the chain, you break the rules.
Granted, you're going to have days where things just might not pan out. Did you break the rules / deviate from sensibility? In trading, that's all that really matters.