Friday, July 1, 2011

Getting to Know Your Intersections

This is a follow up post to: The Process of Trading One Trade at a Time: Step 1 Self Control 

One of my trading mentors taught me this exercise and I've used it ever since to train other traders.  "Know in advance the intersections of your trading."  These are the times you ought to check your internal traffic light.  You have to know when adjustments are needed before they happen not after its to late.  Its one thing to tell yourself you have an internal traffic light but its another when you spell out your internal traffic light in your trading plan.

Answer each of these questions for each light:

When do you get them?
What do you feel?
What do you say to yourself?

I strongly suggest you answer these questions on your own.  But here are some very basic suggestions I give to the traders I train.

Green Light: 

  • When do you get them?  I get a green light when:
I prepare myself mentally for the trading day
I use and follow my routine
I know my plan and execute my plan
I manage my risk
I've done my chart work -  I know important price zones and have a plan for each zone
I'm not losing money
I'm trading with edge defined in my trading plan
I know what I'm going to do in various possible future situations
I know the cheapest vol I can buy and the most expensive vol I can sell
I'm on top of the market internals
I take full responsibility for my trades
  • What do you feel?  When I have a green light I feel:
Energized, excited, calm, relaxed, disciplined, confident
Totally focused on trading
Prepared for whatever the market brings
  • What do you say to yourself?  When I have a green light I say:
"I'm in the zone"
"My risk is under control"
"If this happens I'm going to do X. If that happens I'm going to do Y."
"I'm executing my plan"
"I'm getting paper!"
"All I do is Win!"
"Youz a bad mother f#$@er!  I always knew you was a bad mutha f#$@er"
"Ball'n! I'm Pop'n Bottles Tonight!" 
JK on those last few ;)

Yellow Light: 
  • When do you get them?  I get a yellow light when:
I can't commit to my plan
I'm taking bad trades
I'm taking to much risk / not managing risk well
My alerts aren't set or set incorrectly
I don't follow my routine
I don't use a stop 
I blame someone or something for my trade
  • What do you feel?  When I have a yellow light, I say to myself: 
The game/market speed up, I think of a million things
Shoulders, back, and/or neck get tight
I start to "try" harder
Upset, disappointed
I feel like I can perform better than this
  • What do you say to yourself?  When I have a yellow light, I say to myself:
"I'm losing it"
"Here we go again"
"Why does this always happen to me?"
"It's not my fault. It's the market makers, high frequency traders, algorithms, bad fill(s), PPT, brokers, etc"

Red Light:
  • When do you get them? I get a red light when:
I have two yellow lights in a row
0 of my last 3 trades have worked
I make a stupid error (fat finger, misread tape, didn't set an alert, shorted the hole, etc)
I chases trades
I let one mistake affect my mindset and then make another mistake
I compound mistakes
I don't take losses
I don't follow my plan 
  • What do you feel? When I have a red light I feel:
My jaw clench tightly
Like quitting
Like throwing my keyboard across the room
Like I shouldn't have thrown my keyboard across the room
Like I should go back to those anger management classes
  • What do you say to yourself? When I have a red light, I say to myself:
"Why do I even trade?"
"I'm a loser"
"I can't believe that just happened"
"I probably shouldn't be pop'n bottles every night if I'm going to trade like this... "

In a future post I'll write about tools and skills for gaining control back.  How to get out of red and yellow lights and back in the green.  

Love us or hate us? Comments are always appreciated on how we can improve. 

 *Special thanks to Option Radar, BMO Capital, MEB Options, LiveVolPro, CBOE, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow! 

 No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

1 comment:

  1. An excellent piece. I believe if you watch Matt Cutt's current TED video and challenge yourself to review your post every day for 30 days your game will be greatly improve.