July 6, 2010
- in Uncategorized by schooloftrade
understanding day trading psychology; creating rules for your trading
hi guys, I hope you all had a great holiday weekend!
my wife and I spent the long weekend in La Jolla, CA, was a great trip, we look forward to going back again next year!
I wanted to continue with our discussion from last time on the ‘gift & curse’ of day trading.
in our last article, we talked about how trading provides us a unique opportunity where we control everything we do, but without boundaries, this can get us into trouble in our trading.
Creating Rules
I remember when I first became a trader somone reminded me that ‘the fastest sportscars need the best brakes’
.JPG)
As day traders we quickly realize that a world of opportunity and unlimited potential can be hard to navigate without a simple set of directions to follow.
entry and exit rules make it easy to navigate through a sea of opportunity, but day traders have trouble following those rules.
even though all traders know they need them, many have a hard time following rules, why?
Our personalities as traders can get in the way of our day trading success by avoiding your rules and sabotaging your own trading.
remember, as day traders we love the idea of unlimited riches..
we love being our own boss..
but now you want me to follow rules? every trade?
this doesnt feel right!
all of our lives we’ve dealt with rules; and now I found an industry without any rules & you tell me to create them myself?
Yes. we need to create and enforce our own rules and limitations if we are ever going to succeed as day traders.
here’s a suggestion that worked for me…
as a day trader I need to train myself to think a little differently than most people…
I need to follow my rules even when times are tough and my rules have shown losses in the past.
as humans, we avoid painful experiences at all costs, its natural for traders to avoid their rules if they have taken losing trades.
So i need to find a way to stay focused on following my rules, even when my emotions are trying to tell me differently.
the secret is motivating myself as a trader through positive reinforcement.
If I make money following my rules, I will continue to follow my rules, even though sometimes I may lose money.
Here are some easy ways to train your mind into following your rules:
– use tight stops: wide stops cost us lots of money as traders, and it takes the emphasis off your entry and places it on your risk. as a new trader, we need to use tight stop losses so that each time we trade we dont risk too much, which may cause our emotions to kick into hi gear.
– take profits quickly: taking profit quickly shows a day trader success, and seeinf success when you follow your rules is essential to looking forward to following your rules in the future.
– use automated trade management strategies: know where your stops and targets will be placed before you execute your trade, and automate this process to remove the emotions from your trading. if you cant control where your stops and targets are placed, you are less likely to allow your emotions to move your stop up prematurely.
– create a plan of growing your account for every 2 weeks you follow your rules. forget about your trading profits, make note of when you follow your entry and exit rules, and only allow yourself to trade larger size if you follow your rules.
– ask someone else to hold you accountable: this is something i HIGHLY recommend! Find someone, anyone, who you can share your trading rules with, and ask them to hold you accountable each day, week, month, etc. If you know somoone else will be reviewing your trading, you will be more likely to follow them consistantly.
– 2 weeks of demo trading: before you trade on a live day trading account you should be able to follow your rules for 2 weeks consecutively. If you cant follow your entry rules on a simulated account, you cant expect yourself to do it on a live account.
lets’ recap where we’ve come so far…
– day trading provides us the ‘gift & curse’
– we need to create rules to navigate the limitless opportunities
in our next article..
we have unlimited opportunity as a trader, and nothing happens until we pull the trigger and execute a trade.
we have the freedom to make choices as a day trader, and in our next article we will talk about the importance of taking responsibility for these choices.
“Taking Responsibility for our Success” coming next…
See you all in the live trade room tomorrow @ 745am EST
