There has been much written about how important the role is of your mind set when trading. Suffice to say that having the right trading mind set is critical to making money in the markets. This article is going to attempt to give you some insight into my take on how having the right trading mind set is not only critical but may be the only thing that would hold you back making money trading.
First, I think a little background would be appropriate. My wife and I attended a day trading workshop in White Plains, New York in the fall of 1998. The cost was $3,500 a person (yes, like most of you, I have spent 10's of thousands of dollars learning all of the trick that would help me make money in the market). The market was in a strong bull trend and people were making money hand over fist. The idea of "day trading" was really brand new. With the improvement in computer technology and the many programs that were being developed to identify various strategies, this type of trading was ripe for those people who had a bit of knowledge and were willing to share it. The strategies that were taught were presented in a 50-page booklet. There were 8 people in our group. The instructors were Oliver Valez and Greg Capra of Pristine.com. They had just started their company and were on the cutting edge of the day trading movement (In my opinion, they are still very good in what they do). You might ask why I go into all of this background? Well, at the time, I didn't even know that a day chart could be broken down into a 3-minute or 5-minute or even a 1-minute chart. My training had been from the largest brokerage firm in the world and they surely didn't want their brokers even looking into day trading. I came back to my office full of excitement and anticipation.
Then The Reality Sets In
I will never forget the first month that I started day trading. I made $42,000. My confidence level was through the roof. I thought to myself that this easy. I am going to retire next year. WRONG! Because of my confidence, I decided I couldn't do anything wrong. I would take a trade. It would go against me and I would rationalize why I should stay in the trade, MOVING MY STOPS to along with my juicy rationalizations. (Have any of you ever done anything like that?). Well, to make a long and very painful story short, the next month I lost not only the $42,000 but also another $3,000. This taught me a very important lesson: I don't care how much you like a stock (or trade), don't ever become married to it or why you bought it or shorted it. STICK to your rules and stops, no matter what.
And I Thought I Had It Bad
The people that had attended the seminar in White Plains were able to go into a chat room to discuss their trades and their successes and failures. There was one man whose handle in the chat room was dmarti (I can't remember his real name). Dmarti had worked for a large phone company. Dmarti came into the chat room every day. He had identified a company that set-up to be a short. So dmarti shorted the stock. The stock started to go up. He kept justifying why this stock should go down (too expensive, P.E. to high, institutional ownership to much/little, and on and on and on). The stock continued to move higher and higher. Last I heard was that dmarti had a margin call and he was down $750,000. OUCH!! The stock that he was sure was going down in 1998? ... a little stock known as Yahoo.
What Does This Have To Do With The Trading Mind Set?
EVERYTHING!!! Once you find a strategy that you like and fits your personality, mind set is the MOST important aspect to trading you need to perfect. I have read many older traders swear that anyone can make money day trading with any system as long as they have the proper mind set and follow a good set of money management rules.
So What Do I Need To Do Now?
If you have had any of these issues trading and would like to change your mindset, I would suggest that you start by writing down YOUR set of trading rules.
Try initially to take every trade using those rules. Then, every day, go through the chart and evaluate how you did with your trading rules. Take very careful notes on which trade made money, what you were thinking while the trade was unfolding, how you felt when you made money, or lost money, how you felt when you were up and the trade came back against you to stop you out for a loss. Anything that will give you insight into what your mind was doing when you were actually trading. For those of you who are still using a demo to test trading strategies, this the most important part of the learning process you can go through. This journal is a very good way to evaluate your mind set when you were trading. Remember, you can't think your way into better acting. You have to act your way into better thinking!!
Conclusion
As I stated in my opening blog, it is important for me to try to help new traders to learn to trade well. I hope that some of the insights in this report will help you to become a more profitable trader and that you won't have to go through many of the mistakes that I have made.
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