Friday, November 10, 2017

Avoid Self-Sabotaging Your Trading Strategy | Trading Psychology

Today’s Trading Psychology question of the day…

“I know how to trade, I have a strategy that works, but I swear, it seems like I’m my worst enemy when it comes to following that plan.  I find good trades almost every day, but for some reason, I find some lame excuse on why I can’t execute the trade according to my rules.  It’s costing me money, any ideas for how to solve this problem?”

This is another great question, and very common for new traders…

…self-sabotaging your own trading strategy because you’re letting outside thoughts and distractions get you away from executing your plan.

I had a big problem with this when I was a new trader as well.  I would find a good pattern with a good signal, I would take the trade, but then something would spook me and I would exit the trade early, just before the market ran straight towards my profit target.

I think every trader knows the words to THAT song.

So, how do we keep our emotions from sabotaging the execution of our strategy?  Because it’s easy to see that it’s costing us valuable profits that could be the difference between success and failure in the long-run.

The bottom line is this…

We all seem to have a “trigger” that sets in motion a series of distractions, that ultimately causes us to self-sabotage our trading…

…so, let’s develop a strategy that will help manage those mental “triggers”, so we can trade the strategy correctly.

Speaking of Confidence…

Confidence is Earned:

Confidence plays an important role in our ability to execute our strategy.

Let’s talk about confidence for a moment, because a lot of people act like you just need to have confidence and everything else falls into place… but it’s not that easy.

Let me tell you a story about confidence…

This reminds me of a trip to Las Vegas that I took many years ago with some friends.

A while back I bought a new car, and decided to take a road trip from Los Angeles to Las Vegas.  A five-hour drive from the beach in LA, through Death Valley, and into the desert in Sin City, Las Vegas, Nevada.

I’ve taken this trip a hundred times before, very easy. 

I had just bought a new car, and I was meeting friends for a birthday party later that night, I was excited to go have some fun…but I was running late, and I didn’t want to miss the party.

…Now, if you live in a major city, you know how important it can be to get out of the city before rush-hour, because if you don’t, you end up sitting in traffic…

…running late, and running low on time, I forgot to fill up the gas tank before I left the city, and by the time I realized I was low on gasoline, I was in the middle of the desert, and I had just passed one of those “last stop for 100 miles” signs on the way to Vegas.

I had a choice to make…

I could turn around and go back and fill the tank (guaranteeing that I miss the dinner party), or I could test the limits of the gas tank and see if I could make it to the next gas station.

Either way, I was in the middle of nowhere, and I needed to fill my tank or I had bigger problems them singing happy birthday with my friends.

Being the young, brave (moron) that I was, I decided to roll the dice and test my luck on getting to the next gas station.

Sure enough, 45 (stressful) minutes later, and my fuel gauge begging me for a refill, I pulled into the next gas station and filled up my tank.

I got back on the highway, and made it on-time to help my buddy blow out the candles.

The moral of the story is…

I tested the limits of my new car, and from that point forward, I had plenty of confidence that I could push this car passed its limits without having any trouble in the future. (and I did on many occasions!)

Confidence must be earned, just like testing my car’s gas tank, you need to test the limits of your strategy. 

The challenge is, you have to execute your strategy BEFORE you can have confidence, and a lot of new traders don’t have the patience to test their strategy in ALL market conditions before they move to putting real money at risk.

I can’t tell you how many times I speak to a new trader who has never been successful before, but yet they wonder why they don’t trust their rules, why they cant execute with confidence?

I ask them…  “how long did you test this strategy before you went live?”

And the answer is always… “not long enough.”

So… the first thing you need to remove the mental distractions from your trading is the confidence in your strategy.

The next time that little voice in your head says… “take profit early” or “get out of this trade early” you need to have the experience to say to yourself... “no, my strategy works, I just have to execute using my rules.”

Take the time, test your strategy over a long-period of time, (don’t back-test it, REALLY trade it on a simulator) make sure you cover all different types of market conditions, and you will earn that confidence that you need to be able to avoid those mental distractions.

Now that we know how important confidence is, and how most new traders that I meet never invest enough time to really EARN that confidence, let’s talk about another important tactic in removing the mental distractions that cause us to self-sabotage our trading.

Mental discipline, and our ability to stay focused.

Meditation to Strengthen Your Discipline:

In today’s world of shrinking attention spans, people seem to have a very hard time staying focused for a long period of time.

I’ve always told me clients that following our trading rules will be easy for 15-minutes, but after a few HOURS of trading, only a disciplined professional can keep themselves focused.

I can’t tell you how many times as a new trader I would lose my focus towards the end of the session and either miss the trade I was waiting for, or create a bad trade out of thin air, or take a perfectly good trade and make some foolish decision that robbed me of my hard-earned profits.

Staying focused, staying disciplined for more than 20-minutes is hard, it takes practice.

Discipline is like a muscle… the more you use it, the stronger it gets.

How can we develop our discipline muscles that would make it easier to follow our trading rules?

I recommend using meditation to develop the skills you need to remove those distractions from your trading.

The bottom line… we get tired of staying focused, and that allows us to trigger that mental state that is susceptible to making mental mistakes.

We need to practice the skills of staying focused, and I would recommend adding daily meditation before and after you trade, as a way of developing those specific skills.

Meditation sounds really scary at first, but in reality, it’s really easy to learn and you are going to see remarkable improvement in a LOT of different aspects in your life when you invest the time to use it each day.

First, if you’re new to meditation, I would recommend a free app called “headspace”.  I used this when I first started with meditation many years ago, and it will be a good foundation to grow with.

You don’t need to spend a lot of money, you can find books on this topic at your local library, you can watch thousands of great videos on YouTube for “guided meditation”, and so forth.

Meditation will train your mind to stay focused by strengthening your discipline not to let your mind wander. 

All meditation really is… is listening to some calm music for anywhere from 10 to 60 minutes at a time, and every time your mind starts to wonder, you bring back into focusing on the music, or your breathing.

This sounds really easy, just don’t let your mind wander, stay focused on your breathing, but you will quickly see how HARD it is to keep your mind from wandering to some very odd places when given the opportunity.

I promise you this… if you invest 20-minutes every morning to meditate before you begin your trading day, you will find it MUCH easier to keep those distractions from interrupting your trading.

Use meditation to build those muscles and you will LOVE the results you see in your trading, patience with your children, your co-workers, almost the entire spectrum of your life will be improved.

Before I finish… I also want to touch on the topic of risk.

Risk the Minimum:

When a client has trouble following the rules, I always recommend meditation, I recommend practicing the strategy to build confidence, and I always remind them to trade the smallest size possible when they begin.

In my experience, FEAR of loss is one of the hardest emotions to conquer, and if you’re risking more money than you can safely afford to lose on any single trade, those emotions are going to make it almost impossible for you to follow the plan.

So… I would recommend that you start trading with 1 or 2 contracts, the very minimum size, with the least amount of risk, so that you don’t have that fear of losing a lot of money, which clouds your judgement.

I’m going to do a lot more on the topic of risk-management in coming videos, so stay tuned for more.

We’ve covered a lot in this video, so let’s recap…

The trading psychology for today was… “how do I keep from self-sabotaging my trading?”

I recommend earning confidence through extensive practice.  Not backtesting, but trading in real-time on a simulator to make sure that your strategy will succeed in ALL market conditions.

I recommend using meditation to strengthen the muscles that will keep your focused and remove those mental distractions.

And I recommend you risk the minimum when you begin, because the fear of loss is one of the most challenging emotions for new traders, and we’re going to cover more on that topic in coming videos.

Guys… I hope you found value in today’s trading psychology lesson…

…and I would love to hear from you about additional topics that you’re struggling with as traders.

Do me a favor…drop me a comment below this video with any topics you’d like to see me cover in my next trading psychology video…

…make sure to give me a thumbs-up if you found value, and share it with a friend who can benefit from this information as well.

It doesn’t matter what market we trade, or the strategy we use, even the best traders battle with their emotions when there’s money on the line.

And don’t forget, you can find me every morning @ 8:00am EST in my trade room with all of our members here at, I have a great free trial on the homepage of our website, I publish my Nightly Newsletter every evening on my blog before 8:00pm EST, and I’m excited to see you again soon on my next trading psychology lesson.

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