2 Components of Successful Trading

03/06/2012 4:00 pm EST

Focus: TRADING

Anne-Marie Baiynd

President and CEO, TheTradingBook.com

Psychology and mechanics are the major facets that can make or break a trader’s success, explains trader and author Anne-Marie Baiynd, covering each facet in detail.

Joining me today is Anne-Marie Baiynd. Anne-Marie, I understand you’ve written a new book, The Trading Book. Tell us about it.

Well, it’s built for the introductory trader, but as you read through, it adds complexity, so it’s not something that’s overwhelming, which I think is why people like it a lot. It’s split between the psychology of trading and the actual mechanics of trading.

A lot of times, it’s the way that we really make decisions that determines whether we’re in good trades or bad trades, so we address that as well.

Talk about the "psychology" of trading. What do you mean by that?

Well, the reason that we end up making money trading is really based on our decisions—the decision to buy and the decision to sell.

How we make decisions is really based on the way we live our own life paradigm. We sometimes don’t understand how we feel about loss and how the facing of loss makes for poor decisions. We don’t understand what happens to us when we’re under pressure and stress.

So what I try to do in the book is alert folks to the fact that they’re going to have that visceral event.

A kick in the butt (laughter).

Exactly. That visceral event, how to manage that by just thinking through conscious steps and saying, “Alright, this is what’s happening to me. Is this trade really broken? Am I really in the wrong space?”

I think if people master that, they really have 90% of the work done.

The other 10% I guess would be the mechanics of trading?

Exactly. From the mechanics perspective, the book really deals with the Fibonacci retracements because that’s the cornerstone.

I was just speaking with someone, and I realized that it was the turning point in my own trading career to realize that it (Fibonacci) was something that could give me a stair-step event that I could trade from one level to the next, and I could get out with my money and not worry about anything else on either side of those levels.

As traders, we’re not in the business of picking tops and bottoms; we’re in the business of making money. Some people are very, very good at picking those tops; some are very good at picking bottoms. For somebody like me, I’m dreadful at that.

My job is to find how I can get in the middle, take a bite, leave, and then come back later. So the book really is around that philosophy, and we use simple things like moving averages and Bollinger bands. We put that in the piece together, and once you get that, mechanically, for me, the Fibonaccis really took a lot of pressure away for whether I should get out, stay in, or what do I do here?

Mechanically, we can just learn when it’s time to take half your trade off without worrying that I’ve left a ton on the table. So what? The market is a gigantic buffet. It’s open every day and there are 14,000 different things to eat on it.

If you just focus on the fact that you might have left a little on the table today, but you have another day tomorrow where you get to trade.

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