Wednesday, June 15, 2011

The Process of Trading One Trade at a Time

When you trade well, you focus totally on each trade.  You are in control of yourself, think clearly about what to do next, and only when under control can you give up control and go to trust.  But it doesn't just happen magically.  You have to work the process, perform at a high level and repeat to improve. 

I recently did a post talking about "Playing the Game One Trade at a Time".  This post will break down the process.

Focusing on one trade at a time (or any task) has three basic steps that you will find in most psychology books: 
  1. Self Control
  2. Plan your performance 
  3. Trust Yourself
Self control - It's defined as "The ability to control oneself, in particular one's emotions and desires or the expression of them in one's behavior, esp. in difficult situations."

Turn your focus inward and evaluate yourself.  Are you where you want to be mentally and physically? If so, plan your performance.  If you are not where you want to be, use your mental skills and adjust. If you are stressed, relax. If you are too relaxed, pick yourself up.  This step is extremely important.  And honestly, I can't really help you get past this step.  All I can tell you is to make like Nike and Just do it! When talking about things that need to get done my old boss at MS use to always ask, "How about now?!?"

Plan your performance - Decide what, where, when, how you are going to trade.  Remember you can't control your PnL but you can control your risk.  Think about every situation that can happen in a trade and plan out various scenarios.  Entries, exits, risk management are obvious.  But what are you going to do if volatility goes up?  What are you going to do if volume goes up 500%?  If you could trade like a robot what would you program it to do?  What positions are you going to blow out of if you need more margin? 

Here are a few more things you should think about and have a written plan: What are you going to do if you're having a big up or down day? What are you going to do if you're having a huge month?  When do you perform best? How can you do more of what is working and less of what isn't working?  What types of trade yield the best ROI for you? What types of trades work the most for you? I could go on... but you get the point.  All of this planning will prepare you to perform.

Trust - Once you know exactly what are you doing, how you are going to do it and have gone over various situations you're ready to perform.  Trust yourself.  Trust your preparation and your plan.  Trust is confidence in action.  At this point you should be able to perform/trade at a level that its just second nature.  
This isn't an easy process otherwise everyone would do it.  I'm going to go into greater detail of each step in future posts.  But for the time being at least you can start the process.  "How about now?" 

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