In Trading Routine and Psychology

I have a routine. I have been doing it for years so it is something of a second nature to me. Having CONTROL is about as good as it gets for a trader and is ultimately the final goal of a long learning curve. When a trader is in control of their actions and feels that he/she has a harness on their trades and portfolio, there is rarely a better feeling.

Having control could be considered a two part event. In the beginning you have your market and trade management knowledge, and in the end you have the actual application of it.

The first part of this event might be finding your groove or understanding all the
components of trading as a whole. It means digesting information and interpreting it into tangible, successful price forecasting. When you know you have it, you know you have it. When you don't understand why something is happening, you simply don't have it. End of story.

For me, I want to understand it all. I don't enjoy opening up a chart and not seeing a reason why something is happening. There is always a reason. I start by cracking open my news feeds and reading furiously. I draw lines and find technical references, price patterns, etc. There is always an explanation for every tick on that chart, and I want to know what it is. If I need better resources, I find them.

Too much? First off, I realize that there is no way for me to know the drivers of every single tick. It's ludicrous to think so and impossible. But this desire to understand has led me to an education that I can't get in a school or have taught to me by anyone else. Most other people could never explain to me the level of insight I seek or have the patience to do so, I realize that. I know full well of any gaps that exist in my knowledge so I go out and read, read more and absorb until I feel satisfied with the answer. If I question a writer's knowledge or ability, I keep looking until I don't.

If you don't know why something is or could be occurring, most likely you will find yourself in trouble if you try to take action on it. It is why, if I don't understand something, or my level of conviction is low, I find it nonsensical to try to do anything with it. It's like trying to drive with a blindfold on. Someone is going to get hurt. Other pedestrians, or just me.

It Begins With Honesty

In order to control your actions, you have to have some starting points with which to work. In no particular order of relevance, here are some quick things I wrote down about myself:

  • I know the damage I am capable of, as well as the success.
  • I know what bothers me and things I don't like, so I am quick to stay clear of them. Bad feelings lead to more bad feelings if I don't listen to my subconscious.
  • I know that when I get overzealous, bad things happen. When I enter the market with ease, good things happen.
  • I know when I see something, I usually only have a small window of time to take advantage of it.
  • I know that if I don't work hard I lack knowledge. And when I lack knowledge I lack confidence in what I do, and a poor outcome is usually right around the corner.
  • There is no need to impress myself or others. When I worry about what others are doing, I slow down, not speed up.
  • I know what bothers me; conflict is one of those things. When my actions are poor the potential for conflict arises.
  • If I have a bad habit and can't get rid of it, I try to work around it instead. Completely getting rid of the habit is far from easy and can take too much time. Keep working at it, but don't expect a solution overnight. I deal with what I have.
  • I am driven by certain things, but realize that time is an issue. There is oftentimes only so much that can be done.

I have come to the point where these little things embedded in my brain are basically second nature and I don't feel the need to ‘fight' them anymore. People will tell you that you need to change certain things about your personality in order to become a successful trader. To me this sounds ridiculous. You just need to be honest with yourself and work hard, understand where your gaps are, and fill them up.

I know several full-time successful traders. Every single one of them is honest. They don't lie to others and they don't lie to themselves.

Trading Is Very Personal

I always tell others: don't simply seek out a ‘system' with fixed rules, think you will apply it and have it work successfully. This is an extremely rare event, if it ever happens at all. We like to listen to others that might seem to have more knowledge than us but at the same time, we can't expect to be that person. We are all 100% unique, thus our actions are as well.

Uncertainty Is A Natural Part Of Trading

You just have to deal with it. But there are times where your conviction levels go through the roof. You know damned well that should should be trading. You are comfortable with what you see. Are you taking action?

There are other times where your
conviction level is low, or not there at all. There is a split second cue in the back of your brain that says “I don't know what is going on here”. Are you listening to it and backing off? Or are you letting your conscious mind, emotions/greed etc. take over?

The probability for a successful outcome shares a positive correlation with what level your ‘conviction meter' is. If its high, your chances of a successful outcome increase. If low, you can imagine just as poor of a result.

Listen to your level of conviction. If it is strong, act upon it. If weak or in question, don't do anything at all. Typically, you have a short window of opportunity to decide where you stand. Take advantage of it.

Stop Asking Why, and Just Figure It Out

As I said earlier, conviction and/or confidence is gained through knowledge. Are you trying to take the easy way out or are you truly putting in the hard work required to propel you ahead? I know full well that people can be extremely lazy sometimes and don't like to work. I also know that most people that would have an interest in trading like things like science, technology, etc., and have analytical brains that generally like to seek out more knowledge.

Put your focus on what matters most and if there is something about the markets/price movements, etc., that you don't understand, find out the answer. Read the news. Read definitions of words you don't understand. If macroeconomics are your weakness, get more materials on the subject. Just do it yourself and you will prevent a lot of frustration, pain and anguish.

A 6 Step Process

Control is the ultimate goal. Getting control is, in my eyes, a 6 step process:

1. Honesty of yourself leads to the desire to learn.
2. The desire to learn leads to knowledge.
3. Knowledge leads to understanding.
4. Understanding leads to confidence.
5. Confidence leads to conviction.
6. Conviction leads to control.

It takes time, and not simply created overnight. That's the reality. So relax, you have plenty more years ahead. Go at your own pace, get the knowledge you need and focus on doing it right. You will be saving yourself from a lot of pain and anguish in the future.

Shift your concentration. Get away form the charts and start filling in your knowledge gaps.

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Showing 20 comments
  • David
    Reply

    Very interesting pieces keep them coming and thank you for the effort you put to help newer and more experienced traders.

  • cheetahtrader
    Reply

    Good insight Steve, I was wondering if you can do an article on what should be in a Traders' Plan?

  • tradersfarm
    Reply

    Well written, reminds us that it is always rooted to the mind of a trader

  • nobrainertrades
    Reply

    I hear what you're saying. Typical "Forex Course" and other stuff like it aside, I think in this article I am referring more to fundamental input and understanding what most novice traders lack. A lot of this information can be absorbed over time by just simply reading the news…..which many people dont even do that much. They go in, get the general idea and leave without really absorbing it. Same thing with studying price. A quick general overview or throwing on some indicators, and they think they are done and ready to trade it.

    But you're right though. This industry is flooded with a bunch of novices passing poor wealth of information from reader to reader. It's disappointing and unfortunate. But like anything else common sense should rule. Cliche coming…If it looks like a pig, smells like one, acts like one, it probably is.

    From a technical standpoint, I can just say learn the basics (support and resistance, learn to dissect price into chunks etc) and the rest will come into fruition over time. Everyone is going to trade differently anyway, thus its important we understand price in a manner that is comfortable to us and us alone. Copying other methodologies verbatim isn't something I advise….you need to own it.

  • Paul
    Reply

    I think its futile to seek out why things happen in the market – there are far too many factors at work and there's no way to figure out the real cause-effect story. But completely with you on the uncertainty theme – just have to accept that no-one can predict how any individual trade will work out – so the only thing you can do is trade a method that gives you an edge and then trade the probabilities over a large number of trades. Your conviction to trade will come when you can spot the high probability set-ups that put the odds in your favour (the no brainer trades) – and – when you run out of valid reasons not to trade.

  • Georgec
    Reply

    Excellent site. One of the very best for serious wannabees I have found.
    All credit to your team and thank you.
    Georgec.

  • Pete
    Reply

    I agree with your reply, experience and common sense win hands down, and understanding how the market operates, and how the key players operate alongside basic supply/demand. There is a huge amount of information out there with regards to understanding market market microstructure such as the process and dynamics of liquidity, how traders and various dealers operate. But it isn't mainstream and it takes a little searching. This stuff, while not essential to learning how to trade reinforces a common sense approach to trading. I found it very useful in relating my trading methodology to how the market operates. Such articles are usually found as academic papers but one book that really stands out, and that is Trading and Exchanges by Larry Harris. Not sure if you have read that one Steve or do you propose any others?

  • InterceptorFX
    Reply

    Nice article, Steve.
    Which news feeds do you use? I scan NewsNow, Bloomberg and I also like Jeremy Cook's daily podcast over at World First. I'm always interested to hear of any more decent sources, though……….

  • nobrainertrades
    Reply

    Hi Paul, In regards to finding out why things happen I meant it in the sense that there is almost always a technical reference at play (eg in the last vid I made https://paracurve.com/2010/07/video-iden… or more importantly, a fundamental driver behind it. Also, it spearheads a desire to 'figure things out'. Leads to learning and gaining more knowledge, etc.

    For instance, this last move on EUR and Cable, we have both fundamental and technical reference at play (https://paracurve.com/2010/08/cracking-trendline.html)” target=”_blank”> https://paracurve.com/2010/08/cracking-trendline.html)” target=”_blank”>(https://paracurve.com/2010/08/cracking-trendline.html). Finding a reason allows you to basically absorb what you are looking at; becomes a bit of a second nature as time passed by.

  • nobrainertrades
    Reply

    Thanks. I think the "Blame the Broker" game is more of a thought instated in the retail trader mind by traders that simply lose money and need to find someone to blame (not that you were insinuating that but just something I think needs to be said). One of the best parts of trading FX is the level playing field.

    Yes, dealers will always see the books because they are, of course, the ones providing you the service of liquidity. Yes, they do share portions of their books. In a perfect world, everyone would have access to everyone's info at all times, but then you end up with a running market. But it is only a piece of the pie, and by no means the full picture. It is hardly a key to unlocking the vault despite what many believe. They assume risk as you or I, and they need to manage it just the same as well. People tend to forget that part.

    People know these transparency issues when they trade though. No one forces anyones else to enter the market. My best suggestion is to work around them….simply knowing that they happen….there are in fact ways to forecast this kind of activity. Thats another article but just worth stating.

    You're right. Most of the works on microstructure are in academic papers, and the result, in many of them, are never that good from what I have personally read. The reason, my guess, is most likely because its only a piece of the puzzle in the interbank market. Only so much information is readily available, even to dealers. Discretion and hedging are still their best tools for managing risk….I haven't read the book you mentioned but heard of it.. Kind of intriguing though I'll check it out. Thanks again,

  • nobrainertrades
    Reply

    Hi there, just some basic freebies: http://www.bloomberg.com/news/currencies/ http://www.rttnews.com/Content/Forex.aspx?Node=B3 http://online.wsj.com/public/page/news-currency-chttp://www.ft.com/markets/currencies
    ….and IFR, Dow Jones are still a good choice for streaming stuff in my opinion. The Ransquawk guys do a good job as well for audio. More here: https://paracurve.com/2009/05/free-resou

  • Pete
    Reply

    I agree with regards to the losing traders blaming the broker. This is all to obvious to see on broker review sites. Harris does describe dishonest brokers and talks about front running and churning of accounts but argues such practices are more likely to happen with new firms and rarely happens. I would argue that churning happens all the time with many FX brokers (meaning practices where brokers devote much of their time and resources to setting up new accounts with aggressive sales pitches and round trip trading incentives -which often result in over trading and excessive account exposure for the inexperienced client. Meanwhile less resources are used by the broker for client retention such as maintaining a good helpdesk). ____ Harris's style is very dry and matter of fact but it is essentially a description of the markets component parts. A very detailed, long but fascinating read.

  • kk007
    Reply

    Amazingly deep insight. When I read the last part, I feel I am reading the saying of Buddha. To me, you are the Buddha of trading – revealing a new perspective to mankind.

  • InterceptorFX
    Reply

    Cheers, Steve. Nice one.

  • Alfredo
    Reply

    Hello all

    As always nice article Steve. Thanks alot for all the good work. Well must say if someday i became consistent profitable i will send you a good bottle of Madeira Wine. Just to help you to achive Nirvana.

    Alfredo

  • kk007
    Reply

    "There is always a reason." Excellent point, although most people wouldn't believe this. Glad you have said that!

  • Lee Paulison Jr
    Reply

    Steve, once again you write a most informative and highly insightful piece. Like you, I seek to understand the why's and wherefores. Unlike you, I am still finding myself lost in the sea of information presented. For the most part, I will find the reason why the market did X at Y on a technical level through S/R and Trendline (much of it thanks to other articles you have written). Occasionally, I'll discover a piece of news that explains a sudden strong move that to me appears largely outside technical definition. I'v only been trading for 1.25 yrs, there is no much to learn and what feels to be so little time to learn it.

  • kk007
    Reply

    Hi Steve,
    After reading it a few times, I have a question about this. You said "Listen to your level of conviction. If it is strong, act upon it. If weak or in question, don't do anything at all."
    This sounds to me like a kind of intuition. Is there any way to make it decision rules more explicit?
    Look forward to your comment.
    cheers,

  • kk007
    Reply

    I mean making everything in the decision process completely explicit.

  • arjfca
    Reply

    Amazing article.  I did realize that I have a bad habit to lie to myself when trading.  Setup not as it is supposed to and took the trades. etc.  And when I do it, I have a little voice that tell me,  you where wrong man…

    Thanks  for the reminding.  now, I accept this fact and I will work to be as honest with me as I am toward other.  I don’t need somebody else to correct my homework or to look above my shoulder…

    MT

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