In the Now Preparation

The last in series on the winning 10%’s mindset. We started with the brain’s structure, then looked at how that structure’s wiring lands us in the 90% losing camp. Today we’ll look at how to join the winning 10%.

The brain’s hard wiring responds to uncertainty by invoking our survival response: fight, flight or freeze (the ‘3-Fs’). And, it’s the worst reaction we can have when it comes to trading.  The counter we need? To assess market information employing our rational and emotional intelligences.  And, there are two practices that lead to that outcome.

The first is a daily practice of mindfulness meditation.

The benefits of mindfulness training for traders is now well documented. You need only Google “mindfulness for traders’ to see what I mean. There are even phone apps for both the IOS and Android to help us. Best of all, it takes only 20-minutes to 30-minutes a day.

For me, mindfulness leads to open awareness and acceptance of data that threatens my profitability. It allows me to engage both my left and right brains with the market information without raising the ‘3-Fs’. As a result, I make the best decisions possible.

If you have never meditated or tried and stopped, I’d recommend starting with 5-minutes and building from there. Use meditation music if music is your bag.  I’ve found a sensing headband (MUSE) provides additional benefits.

The other practice is preparation. Spend some time preparing and answering these questions:

  1. What’s the worst possible result for this trade?
  2. How would I feel if it happened?

It’s important to give the answers more than a passing thought. Many traders place stops with the attitude that they won’t get hit. As a result, when price action threatens the position, the survival response kicks in, and they cancel the stop!

A much better practice is to accept a loss before the trade is initiated fully. The practice will also tell you if you are taking too much risk.

So, over to you. What do you use to keep the 3-Fs away? Pop in a comment. We all can use new ideas.

 

4 thoughts on “In the Now Preparation”

  1. “Each trade is a totally random outcome, but each series of trades has an expected return” ( I got that from Mark Douglas )

  2. I find that stops placed as market orders are most often filled with slippage before price reverts to normal range again. One useful way is to maintain a mental readiness to close out whenever price action pattern does not pan out according to plan. Once that moment is determined and decision is firm to exit, i put in limit order to get out. Sometimes, i get filled at a smaller loss than thought. Other times, larger loss than i anticipated.

    1. I think that’s a fine strategy as long as you are able to pull the trigger when faced with a horrendous loss. For example, intra-day, the 30-min ATR for the S&P (Futures) was around 5 points; when the recent collapse happened, the 30-min ATR blew out to 26. So, if your position size was based on the initial 30-min range, a 26-pip loss may have been difficult to take. But, waiting for the rally may have meant a blown account.

      The problem is exacerbated if you are trading end-of-day data.

      The other problem is your limit order may not get filled and, as a result, the loss mounts.

      I prefer to use both a soft stop (exit at market if certain events occur or not occur) coupled with a hard stop (stop order placed in the market). To minimise slippage care needs to be taken when choosing the levels at which you place your stops. Awareness of news days also helps.

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