Tuesday, January 16, 2018

Develop Instincts for Day Trading | Trading Psychology



Today’s Trading Psychology question of the day… (I always appreciate you posting those questions!)

“I’ve noticed that the best trader’s I’ve met all have this “gut feeling”, which tells them when and where to enter the market?  Are people born with this, or is this something that I can develop myself?  I would love to know your opinion on the topic, and any recommendations you might have to achieve it.”

Great question, and I agree, I’ve met quite a few traders in my career that seem to have this sixth sense when it comes to trading, as you called it, a “gut feeling” that seems to make it easy for them to find profitable trading-opportunities…  but how do they achieve that?

In today’s psychology lesson, I’m going to give you a strategy with five (5) ways that will make it easier for you to develop that “gut feeling” so you can gain confidence and make it easier to find those big winning trades each day.


But before I go into today’s lesson, I need to remind you that this psychology lesson is the most recent in a series of videos that I publish every week, and these videos build on the topics we’ve already discussed, so if this is the first video you’re watching, you might want to go back and start from the beginning to get the most value out of these lessons.  I’ll drop the link up above and in the description.

Here’s the link to watch from the beginninghttps://goo.gl/k1F34D

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And if you really want to stay in-tune with what’s going on here at SchoolOfTrade, head on over to our homepage and join the mailing list so you never miss a new video.

Ok, now that we got that out of the way… let’s get into today’s lesson.

So, is there really such a thing as a “gut feeling” trade… are there traders out there who trade based on intuition alone?

You know what I mean, right?  It’s that guy who looks at a chart, doesn’t say much, but then all of a sudden, he says, we’re going to crash, you should sell, and two seconds later the market collapses.

Does this really exist?  Is there such thing as a “gut instinct”? 

Can you really listen to your instincts and find profitable trading-opportunities?

In my opinion, the answer is yes and no.

Yes, there are traders who can trade almost exclusively by “gut feeling” alone, but no, those traders weren’t born like that, they had to develop that intuition for the markets over a long period of time. 

This is why I am a firm believe that traders aren’t born, they are developed with a combination of strategy, skills, and psychology.

So, if we can develop this intuition and “gut feeling” on our own, what’s the best way to do it?

I think there are five (5) ways to develop the gut feeling:

1.      Battle-Tested Trading Strategy
2.      Mechanical Rules
3.      Accountability
4.      Quiet Mind
5.      Time

(1) Battle-Tested Trading Strategy

The first thing you need to develop your “gut instinct” is a battle-tested strategy, which simply means a strategy that you have executed mechanically using rules for over 100 trades and you see a positive result.

As I’ve said in many of my previous psychology videos, way too many traders, myself included, start risking real money before they have properly vetted their trading ideas, and the result of this is a lack of confidence that leaves us with problems such as…

·        analysis paralysis
·        forcing trades
·        chasing trades
·        holding losses
·        cutting winners
·        etc

The reason why a battle-tested strategy is so important is because you need some map to follow each day, so you start building habits.

In other words, you need a written plan with exactly what market, what timeframe, what set-ups, entry triggers, trade-management, risk-management, etc.  Such as what I provide to all my clients at SchoolOfTrade.

The only way to develop the instincts of a successful trader is to develop habits, and habits come from doing the same thing, in the same way, each day.

So, if you want to develop that “gut instinct” in your trading, start making your trading mechanical with a battle-tested strategy.

(2) Mechanical Rules

Next…Inside that trading strategy you’re going to need to use mechanical rules, at least at first.

Even the best traders in the world, who appear to be trading off instinct, they all started with rules to follow... the markets are just too complex to do so without (when you’re learning)

The reason this is important is because developing a “gut instinct” requires an advanced form of pattern recognition, and having some order to follow is going to help you with develop your “gut instinct”.

For example, I use a simple checklist that I follow every day in our trade room.  Each rule is laid-out in a sequence so that I cover all the bases and (most importantly) in order for which I need them, to trigger me into a trade.

For example, my rules start with “what is the trend direction” and end with “enter 1-tick above/below the signal candle.”  It would be foolish to worry about the signal before the direction.  Does that make sense?  The rules are listed in the order in which I am going to use them.

Remember, developing the “gut instinct” requires you to develop habits…

So, if I have a mechanical set of rules, and I’m learning to quickly go through those rules faster each day, I’m programming my mind to start developing mental shortcuts, just like tying your shoes… at first it takes a while to learn, but soon enough your brain can do with you asleep.

If we want to develop a “gut instinct” for trading, we need the brain to use those shortcuts, and to do that we need repetition, and for that we use mechanical rules.

(3) Accountability

Next up is accountability, that is, you need to hold yourself accountable to those rules, or find someone else to do that job for you. 

I know what you’re thinking… that’s easy Joe… I’ll just make sure I follow the rules!

Don’t be so na├»ve on this… what makes trading so challenging is that we can do everything wrong and still make a profit, and we can do it right and lose money.

Why is that important, because when you know that you can get “lucky” and make money, a little voice in your head starts telling you that’s OK to take trades that are outside your plan.

So, trust me… whether you know this yet or not… following your rules will likely be one of the biggest challenges early in your career. 

I find that an accountability partner is key for this.  Social pressure is really powerful, we can lie to ourselves, but we have trouble lying to someone who we respect.  So, find someone who you can share your trading results with, and ask them to hold you accountable. 

Remember, the goal of accountability is not the profit or loss, its following the rules.  You are going to take losses with perfectly-good trade set-ups, its just part of this business.

Funny thing happens… when you worry about not letting someone else down, you follow your rules, you wind up making MONEY… and then all of a sudden it becomes really easy to follow your rules because of the positive incentives you’re seeing.

(4) Quiet Mind

Next up is what psychologists would call a “quiet mind,” which is a mind that is free of external distractions.

HEADS UP:  This is possibly the most important part of developing a “gut instinct” in your trading.

We are bombarded by distractions almost every second of the day, to the point where we feel out of place when we sit in silence.

Most people think that quiet time, lack of stimulus and distractions, is the same as boredom, as if it was a bad thing, and we need to fill that gap somehow.

This is why people are constantly checking their phones, updating Facebook, watching another YouTube video, etc. 

It’s not surprising that, in our current twitter-crazed society, that a LOT of human beings cannot stand to listen to silence, or be alone whatsoever… and that doesn’t come naturally… that is byproduct of the world we live in today.

This need for distractions, always being entertained by something … is likely one of the biggest reasons why most human beings struggle to be traders… they can’t stand being quiet! It’s boring!

To avoid boredom, traders often make-up trades, manufacture trades, and over-trade, they take big risks outside their trading plan to “spice things up.”  I have friends that bet tens of thousands of dollars on football games, and their reasoning is… “just to make it interesting!” 

Our world is conditioning us to crave the next dopamine hit, the next distraction, the next dose of whatever gets us excited… and that is killing your ability to develop a “gut instinct”.

It’s funny how… most traders assume that their emotions are their biggest problem, when in all reality it’s the over-trading to escape the so-called “boredom” that they really need to avoid.

If you want to develop that “gut instinct”, you need to start getting used to the idea of sitting in silence, free of distractions, being content with who you are, and being present in the moment, no matter how boring it may seem.

It’s really important to understand that trading requires the skill of pattern recognition, a highly complex version of pattern recognition, and when you invest considerable time in learning these patterns in a mechanical way, you develop a sense of intuition… that “gut instinct.”

Traders develop that sense of intuition through extensive practice with pattern recognition, and that familiarity with the patterns is what creates that “gut feeling.”

When we get distracted, or we struggle with our “quiet mind”, we’re unable to allow our mind to recognize those patterns, which makes it difficult to make quick decisions, and prevents any sort of intuition or “gut feeling” from developing in the first place.

To develop the “quiet mind” I would first start by turning off your cell phone when you’re trading.  If you can’t turn it off, turn off the notifications.

Next, close all the chat rooms, turn off the music, or at least listen to what is called “binaural beats”, which are proven not to distract you because of their frequency.   I’ll leave a link to this in the description so you check it out.  I listen a Pandora station that plays binaural beats, and it’s amazing how effect it is.

Next, I would highly encourage you to start meditating.

I know, nobody has time these days to take 20-mins and think about nothing… but if you’re serious about your trading, this is a MUST DO, must learn, must start TODAY.  No excuses.

Go to Headspace.com and set-up a free account and learn how to use guided meditation.  They make it SO easy to get started with 10-mins a day, and that will train your mind to start adapting to a world that’s filled with distractions.

If you want to develop a “gut instinct” then you need to get really good at pattern recognition, and to do that you need complete focus, and to get that focus you need give your brain a fighting chance by removing distractions and training it like a muscle to keep you focused throughout the day.

(5) Time

Last, but certainly not least is time.  

Traders who have a “gut instinct” have been trading for a LONG time, using the same strategy, with the same rules, with someone to hold them accountable, and they’ve mastered the skill of staying focused through meditation and lots of practice.

If you want an easy shortcut for the amount time you need… that’s simple… hire a trading coach.  That’s a no brainer.  A professional trading coach like myself, will make this process a whole lot faster.

A trading coach who provides the strategy, with the rules, holds you accountable, and leads by example each day by staying disciplined with focused… that will speed up this process dramatically.

Give yourself time, pattern recognition and developing the “gut instinct” will take some time, but with the proper tools, the right coach, and a little bit of patience to allow yourself to learn, you can certainly develop into one of those traders you see in the movies, but you’re not born with you, you have to earn it.

We’ve covered a LOT in this psychology lesson, so let’s do a quick recap.

Today we talked about five (5) ways to develop your “gut instinct” for day trading…

1.      Battle-Tested Trading Strategy
2.      Mechanical Rules
3.      Accountability
4.      Quiet Mind
5.      Time

You need a battle tested trading strategy so you have a map to follow, so you can start building habits.

You need mechanical rules to kick-start the process of advanced pattern recognition.

You need someone to hold you accountable because you WILL lie to yourself along the way.

You need a “quiet mind” which has become RARE in this world of on-demand entertainment and never-ending distractions.  Getting notified every time my buddy eats a cheeseburger and posts it to Instagram is wasting my time that should be invested in a more productive way!

After removing these distractions, then my best advice would be to begin using guided meditation to start training your mind to deal with a lack of stimulation, so when you’re sitting at your desk, you’re not tempted to force trades just for the sake of trading, or go back on facebook, etc.

And lastly, you need to give this some time.  Yes, I can teach you how to read a chart and follow my rules, hold you accountable, and you’ll likely be making money in a few weeks… but developing a “gut instinct” for day trading will take a lot longer, it just takes consistency and time invested, but it certainly can be done.


Wrapping things up… I hope you found a ton of value in today’s trading psychology lesson…

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

…make sure to give me a thumbs-up if you found value, subscribe to the channel if you’re not already, and please don’t forget to share this video with a friend.


And don’t forget, you can find me every morning @ 8:00am EST working hard in my trade room with all of our members here at SchoolOfTrade.com, 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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