The Mental Aspects of Trading (Part 2)

02/26/2008 12:00 am EST


Linda Raschke

President, LBRGroup, Inc.

The first principle of peak performance is to put fun and passion first. Get the performance pressures out of your head. Forget about statistics, percentage returns, win/loss ratios, etc. Floor traders scratch dozens of trades during the course of a day, but all that matters is whether they’re up at the end of the month.

Don’t think about trying to win the game—that goes for any sport or performance-oriented discipline. Stay involved in the process, the technique, the moment, the proverbial here and now! A trader must concentrate on the present price action of the market. A good analogy is a professional tennis player who focuses only on the point at hand. He’ll probably lose half the points he plays, but he doesn’t allow himself to worry about whether or not he’s down a set. He must have confidence that by concentrating on the techniques he’s worked on in practice, the strengths in his game will prevail and he will be able to outlast his opponent.

The second principle of peak performance is confidence. Confidence in yourself, your methodology, and your ability to succeed. Some people are naturally born confident. Other people are able to translate success from another area in their life. Perhaps they were good in sports, music, or academics growing up. There’s also the old-fashioned “hard work” way of getting confidence. Begin by researching and developing different systems or methodologies, put in the hours of backtesting, tweak and modify the systems so as to make them your own, and study the charts until you’ve memorized every significant swing high or low. Self-confidence comes from developing a methodology that you believe in.

Concentrate on the technical conditions. Have a clear game plan. Don’t listen to CNBC, your broker, or a friend. You must do your own analysis and have confidence in your game plan to be a successful trader.

Analyze the markets when they are closed. Your job during the day is to monitor markets, execute trades, and manage positions. Traders should be like fighter pilots in that they make quick decisions and have quick reflexes. The plan of attack is already predetermined, yet they must be ready to abort their mission at any stage of the game.

Just as you should put winning out of your mind, so should you put losing out of your mind—quickly. A bad trade doesn’t mean you’ve blown your day. Get rid of the problem quickly and start making the money back. It’s like cheating on a diet. You can’t undo the damage that’s been done, however, it doesn’t mean you’ve blown your whole diet. Get back on track and you’ll do fine.

For that matter, the better you are able to eliminate emotions from your day, the better off you will be. A certain amount of detachment adds a healthy dose of objectivity.

Part 1 |  Part 3  |  Part 4

by Linda Bradford Raschke,

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