Tag Archives: Trading psychology

Trading addiction and its antidote

Traders

I have been running workshops couple of times in a quarter and get this question a lot – Is trading the markets an obsession/addiction? – Answer is both YES and NO.

Most of the books/articles/trading world luminaries dont talk about addiction a lot. This topic is shied away mostly. In my opinion, it is as real as it can get. So, let us delve deeper into it – embrace yourselves for a long post 🙂

Introduction

What is addiction actually? One of the definition says “Addiction is the repeated involvement with a substance/activity, despite the substantial harm it now causes, because that involvement was/is pleasurable and/or valuable.”

Let us look at it in trading perspective – When a person starts trading the markets, it is usually an harmless regular activity. When a trader opens the screen – he is welcomed with ticks moving every second and a possibility of making lacs every minute unfolds infront of him. Fair enough. But please read the last sentence again – “possibility of making’. This is what gets a trader hooked with the market instantly.

Trading and sleepless nights

Watching SGX nifty/DOW in the night (even though the trader knows that he cant do nothing when our markets are closed) is not just because of having positions more than they can handle. It is also due to the fact that the trader is addicted to watching everything related to markets. He just cant help it.

Many argue that only losing traders do this kind of watching activity. Not exactly – it is not about winning or losing. Typically, addicted traders absolutely have to be in the markets at all time – they feel that they have to assimilate all the information they could. They feel that they need to be trading every single day. No exceptions – it is like that wound that itches. You have to scratch it 🙂

Trading and stigma around money

Our brain acts differently when it ‘anticipates’ monetary reward. Behavioral psychology long ago demonstrated that the mind’s ability to choose rational thrills offering positive rewards over more intense thrills offering ridiculous, negative rewards is deplorable at best.

Usually addiction with alcohol/drugs or anything for that matter is a sickness but trading addiction is a bit different- the keyword separator here is ‘Money’. There is a social stigma around money albeit a big one. Folks will tell you everything about the most intimate details of their lives, but they will not tell you about their money – How much they have/How much they want/What they think about others who have more or less money than they do.

Actually, answers to these questions would reveal what they really think about money – What money really means to them? People have more feelings of shame, guilt, greed/lust around money than perhaps any other thing.

Trading and addict’s mindset

When the market opens, a typical addicted trader would feel like this – “Let me just put on a short trade as overnight DOW was red and Nifty has moved 50 points from the open. If I just chase it just this one time, it should be OK because it makes me feel so good when I see the price going down, and I am convinced that I can make a killing on this one. Why should I wait for the price to come to me? Waiting is for losers. Maybe the price wont pullback and I would have missed it all. There’s no fun in that – so, lets jump into the trade”

This feeling is supported by excess secretion of dopamine and the ‘feeling of high’ kicks in immediately. The possibility of making money is enough to kick dopamine – we dont have to actually make money. Well, it’s all good and wonderful until it isnt. Because the trader chased the trade, and market in its natural way of ebbing and flowing, comes down and the trader is in a loss right now.

Now, here comes the best part – the brain registers losses 5 times more intensely than it feels gains. A loss of 1 lac will feel like 5 lacs. Chasing caused pain, and now the pain is financial/physical and psychological. Immediately, dopamine shuts down and the fear begins to pop up in the brain. This leads to an emotional roller coaster in a traders mind – a feeling of high followed by low. Markets can bring this effect upon unseasoned/impatient traders very easily and things go south psychologically pretty fast.

It is important to understand that addicts dont know when to stop trading and when to not jump. This cycle keeps repeating. If you have experienced this before or know someone who has gone through this cycle, this is what is happening in the background.

Trading addiction and research

Two professors from University of California, San Diego (UCSD) did a research on stock market fall and the hospital admission rates. Their research says that if the market goes down 1.5%, there is a rise of patients in the hospitals by 0.28% on the same day (in the evening).

This research was mind-boggling, to say the least. So, the sickness can be physical not just psychological.

Full research paper here –

https://pdfs.semanticscholar.org/4111/4bea0b59b220f6d3c3575b7a8a19729db88d.pdf

Antidote to trading addiction

In my opinion, ‘following a well structured plan’ is the best antidote to this issue. Faith in our plan brings patience and patience is a key ingredient in following a well-defined plan.

Create a rigid plan (well thought out one) that has no ambiguity and follow it to the T. This is the only way out of despair and addiction with trading. The trading plan must be part of you – based on your psychology. Otherwise, it will be sacrificed for whims and moments of weakness.

Here is a blogpost i wrote on trading plan –

Basic pillars of trading success

As long as you work your plan, the plan will work for you and you will reach your goals eventually. There is no “get rich quick” plan.

Happy trading all !!

Lessons from market wizards – then and now

I read Market wizards book some 11 years ago and remember highlighting so many points that made sense to me those days. After someone talked about Jack Schwager recently, i thought i should read that classic book once again.

This blogpost (long one) is just a small earnest attempt to register my reactions by then and now for the same highlighted statements made by great traders.

Bruce Kovner

1. “I never had lot of difficulty with the process of losing money, as long as losses were the outcome of sound trading techniques”

2. “A common mistake a novice trader makes is to think of the market as a personal nemesis”

My initial reaction as a new trader

1. Why would anyone want to lose money? If i want to lose money, why i would i choose this ‘lucrative’ profession? Losing money is for traders who dont have enough knowledge. If i learn more about the markets, a trader will never lose. Top of that, losing means ‘am wrong’ and i am not a loser.

2. Yes – sometimes i feel, market operates just to get to me. The whole market is conspiring against me and i guess it is fair for me to take revenge back at the markets.

My reaction now

1. It is a known fact that nobody enters a trade with the idea of losing money. But, let me assure you something – Losses are like ‘breathing out’. You cant survive just by ‘breathing in’ right?..we need to breathe out..So, losses are natural part of trading and the sooner we embrace it, better it is for our trading account. Trading has a lot more to do with repeatedly admitting that you are wrong (and also OK with it) than with trying to make huge amount of money.

2. Being accountable for our actions is a big step – both in life and trading. More on this topic at the fag end of this blogpost.

Richard Dennis

“Being consistent and making sure you do that all the time is probably more important than the particular characteristics you use to define the trend”

My initial reaction as a new trader

How can one make money without knowing where the market is gonna go next minute/hour/day? Many analysts and traders are doing it all the time. After all, this profession is all about prediction 🙂 . Once we figure out where the market is gonna go, all it takes is place an order and laugh all the way to the bank !!

My reaction now

This statement makes so much sense now as there is no way to know what’s gonna happen in the market next. Even though we enter a long position with a predilection that the market will move higher, there is absolutely no way to know if its gonna happen. We are just risking our money to know if the market wants to move in our direction. If it does not, then we move on to the next trade – simple thought.

As a popular saying goes – ‘Only two sets of people know where the market is gonna go next – God and liars’

Ed Seykota

1. “I dont think traders can follow rules for very long unless they reflect their own trading style. Eventually, a breaking point is reached and the trader has to quit or change, or find a new set of rules he can follow”

2. “Everybody gets what they want out of the market”

My initial reaction as a new trader

1. This guy is talking rubbish. All i need to do is attend a workshop/read a book/follow someone in twitter(and nag him for his system) and once i get hold of an another trader successful(?) system, then i can quit my job and trade sipping pinacolada in the beaches of the world. So, pursue (without giving up) traders/workshops/forums to get the best system. After all, if it works for him, it should work for me as well.

2. Ofcourse. People come into trading to make money and they get ‘money’ out of trading. Everyone i know makes money easily in trading. This one makes lot of sense. Little did i know about the profoundness of this statement actually.

My reaction now

1. What a true statement. The system and the trader should be like lock and key – a perfect match. Psychology of every trader is like a fingerprint and what works for person A will definitely not work for person B. Reason is very simple – a person following a trader’s system(methodology to the dot) will not have the same level of conviction, statistical comfort (based on backtesting) and mental-makeup to start taking the trades. Once he gets 3-5 losers in a row, he will start tweaking the system to avoid those losses/or find new rules set to make sure that the losses are minimal(according to his perception on losses).

This is exactly why i urge new traders to understand the concept behind a trader’s methodology and not go for his complete system. If we blindly follow another trader’s sytem (assuming the trader shares it), it is going to be a great disaster. I was aghast looking at trainers teaching system(with all exact entry/exit rules) as even a 5 year experienced(profitable trader) will completely accept what Ed is saying here. They are actually doing a disservice to the participants by spoonfeeding them a system as it almost always leads to disaster in the long run.

2. This statement gives me goosebumps every-time i read it. It is not as innocuous as it looks.

Ed was just alluding that if one cannot sort out those innermost negative traits one carries, it will be reflected through our trading. Trading is very much a mind game and one which does not come naturally to most people. Once you trade, we are pulled in the direction of what you really want. You may want to win at trading but, for example, there may be the belief lurking below which tells you that maybe it’s luck this time and that good luck always runs out. Some people win by losing. Some people win by winning.

If one is looking for thrill (adrenaline rush) in trading , market is a great place to get it. If one is looking for self-pity, you will have plenty from the market. If one is looking for ‘ego-inflation’, market will give so many opportunities to announce to the whole world how big your ego is…Now, read the statement again – “Everybody gets what they want out of the market”

Marty Schwartz

“What is the ultimate rationalization of a trader in a losing position? – I’ll get out when am even. Why is getting out even so important? Because it protects the ego. I became a winning trader when i was able to say – to hell with my eog, making money is more important”

My initial reaction as a new trader

What is wrong in removing the SL once in a while as i have seen market coming back to breakeven point more often than not (after hitting my stoploss). When i have done hours of analysis before getting into the position, how can it go wrong? I have applied my brain in so many difficult situations in life and came out with flying colors. Why trading should be any different? Mind has been fully applied, due diligence is done and this trade is a sureshot winner. So, why keep stoploss or why not change the SL when the market comes close to it?

My reaction now

Nobody wants to be wrong and that is why a simple argument eventually gets out of hand and makes two people nemesis to each other (we see this often in social media). “i’ll get out even’ usually stems from the fact that the trader has not accepted losses mentally. He knew that losses are part of the game but has not accepted it internally. On top of that, market reinforces bad habits and he would have seen market market moving in his favor after hitting his SL. So, why bother to have SL? If we dont have SL, it serves 2 purpose – satisfy our ego by not taking a loss(and thereby proving our analysis right) and gets us out at breakeven.

Amateurs resort to hope and sometimes prayer to save their trade. In life, hope is a powerful and positive thing. In trading, resorting to hope is like placing acid on your skin—the longer you leave it there, the worse the situation will get.

Van Tharp

“The composite profile of a losing trader would be someone who is highly stressed and has little protection from stress, has a negative outlook on life and expects the worst, has a lot of conflict in his/her personality, and blames others when things go wrong. Losing traders are usually disorganized and impatient”

My initial reaction as a new trader

This is partially true as i understand a losing trader will be stressed out but what does negative outlook in life has got anything to do with trading the markets? What does our personality got anything to do with our success in trading?

It does not make any sense to think that ‘taking responsibility’ for my actions has any bearing on my trading results. This is some bunch of BS because i make a bad trade in the market(despite my wonderful analysis) due to the following reasons –

1. The market makers (operators) were fishing for my stop losses
2. I was on the phone, and it collapsed on me.
3. My twitter guru gave me a bad tip.
4. The forums caused this one to pump and dump.
5. FIIs are just manipulating the markets to take me out.

My reaction now

Trading results have everything to do with our mindset and attitude. Having negative frame of mind or exposing ourselves to negativity stifles us from learning anything worthwhile. Learning and negativity cannot co-exist. Professional traders very well know that blaming others for their bad trades is such a ridiculous thing to do. So, when they have a bad trade, their thought process sounds like –

1. It is my fault. I traded this position too large for my account size.
2. It is my fault. I didn’t stick to my own risk parameters.
3. It is my fault. I allowed my emotions to dictate my trades.
4. It is my fault. I was not disciplined in my trades.
5. It is my fault. I knew there was a risk in holding this trade into a big event, but I didn’t fully comprehend it when I took the trade.

The obvious difference here is accountability. For amateurs, everything having to do with the market is ‘outside their control’ That is not reasonable thinking and really just points to individuals who have, probably for the first time, had to confront their “real self” as opposed to the perfect self or idealized self that they have constructed in their mind. People can drift through life in their own private world, where they are pretty special and can do no wrong.

Unfortunately, trading rips off this mask, because you cannot dispute what has happened to your account. For many people, when they start trading, they are suddenly confronting reality for the first time in their lives. Just to see the world as it really is requires a lifetime of training, and for many people, trading the stock market is their first real step on this journey.

Happy trading all !!

Master of one or Jack of all trades

Traders

Everybody wants to be a jack of all trades but many dont bother to master anything specific. This blogpost tries to analyse this topic from trading point of view.

Introduction

As an human being, we tend to naturally gravitate towards things that are complex and the situation worsens if we are an engineer 😊 (you know what i mean). As many believe, the complexity of trading is not in the charts, but it is nicely wrapped up in the mind. We see many wannabe traders and few experienced ones trying to be jack of all trades (in trading the markets).

Knowing to do a little bit of everything is very good in life as we ‘learn’ how to learn and we fit well in leadership roles. But it can also lead to lot of distractions and eventual burnout.

Trading the markets can be simple but not easy

Trading itself is not overly complicated. Well, lets look at it closer –

1) Markets only go up or down (they can consolidate, but they have to leave that state in a direction). Essentially, there are only two directions. Deciding how far, how much room to allow it to breathe can get complex, but it still comes down to one of two choices 😊

2) Markets will only move in one direction for so long before they change direction. Traders study on where the change of direction should most likely occur. Each trader might have different notion/concept for trend reversal but there has to be one.

3) Allowing winners to be larger than losers beat a lot of things that could go wrong.

These 3 simple things may require a lot of study/practice/patience and learning, but not anything that seems “complex”. Maybe price analysis, but even that can be simplified to far less than quantum physics 😊

Trading and real life analogies

Analogy Number 1

I have a 2 year old son who started walking few months ago. As humans, our ability to balance on 2 legs is complex (try programming a robot to do it as well as an human – a Robot can never walk as gracefully as a developed human). We had to practice that skill as babies until it became second nature.

But today, while there may be a lot of complexity occurring in the background for our bodies to maintain balance (and we could probably map all of that with tons of analysis and indicators/charts), if we stand up right now, does any of that really matter? Absolutely not !!

The complexity of balance is just going on silently in the background. The study of anything worthwhile can be complex, but is complexity a required point of focus? A big question to ponder.

Analogy Number 2

I have never done skiing but can draw one more analogy from it. Balance is mandatory for that wonderful sport, but that point should never enter the mind of a skier.

Gravity is also mandatory, and complex, but still not on my checklist. Skiing does not require me to be aware of the complexity. What does matter really is that ‘have I practiced enough to have the ability to ski safely?’ As simple as that. If the answer is ‘No’ to that question, then the prudent thing would be to get back to the basics/practice arena.

Conclusion

In the pursuit of simplicity, by focusing on one or two markets over time, it can harness the potential of a trader to somewhat “understand” what the market is saying at a particular moment. This cannot be immediately translated into profits but the trader can ascertain the nuances of his methodology in a more meaningful way.

Long story short – focus on a specialty instead of taking the shotgun approach and devote the attention to understanding your niche. I don’t think that the process of mastering something can be easy but I do believe it should be very simple if we follow a structured approach.

Focus on one instrument/idea, keep things simple and it pays off nicely in the long run 😇😇

Let me end this post with this quote – “Seek freedom and become captive of your desires. Seek discipline and find your liberty – Frank Herbert”

Happy trading !!

Professional vs Amateur trader

Traders

This blogpost is a small effort to delineate the thought process of a Professional in comparison to an amateur trader.

Introduction

It is a common understanding that trading profit on any given trade can be construed as the compensation we receive for the risk we took on the trade. Traders take risk, in the sense they routinely make judgments with uncertain outcomes. So it would follow then, that good traders don’t try to eliminate risk as much as manage it, and instead, can increase their chance of profitability by better reducing that uncertainty !!

This can be accomplished by making better trading decisions than those that are less informed, less knowledgeable, and less skilled. Ultimately, it is not what the trader knows, but who he is. The really consistently profitable traders are able to ignore or subvert their natural tendencies to do what feels comfortable, and instead, do what is necessary, to be optimally profitable over the long run.

Amateur traders

1. Watch what other traders do and be sure to follow the crowd. After all, they have been trading a lot longer than him/her and hence, naturally they should be more ‘smarter’

2. Never worry about using stop loss orders. When the time comes, he will be able to sell his open position(s) and take a loss. Our emotions won’t even come into play. Besides, stop loss orders are for weaklings 🙂

3. Setting high standards to achieve and feeling beaten when they fail to meet their expectations. Suddenly,they are disappointed/stressed out,and prone to make trading errors. Losses start to mount,mood worsens and before they know it, they find themselves in a deep psychological hole of despair.

4. They dislike regret more than losses. Their avoidance of regret is more powerful than the fear of loss. It’s one thing to make a losing trade, but it is quite another to feel that we’ve made a mistake, and continually berate ourselves for making it.

Professional traders

1. They don’t give a hoot about anything/anyones opinions of what the market will/might do.The very news/opinions that surround them becomes the mortar for their brick wall of defense that protects their completely independent thinking (Keyword here is ‘Independent’)

2. They have incredible discipline to not buckle under pressure. They have a perfectly clear head and understand fully what they do and how they do it. Battle wounds and memories of defeat are more valuable to them than the money.

3. Their self esteem do not rise and fall with trading results. Their self concept is strong/durable and not at the mercy of the current, last, or next trade.

4. As they know that their experience in markets is a reflection of their personal life, they keep their personal life/finance in order as that will nicely percolate into their trading. They take care of their bodies with healthy diets/exercises, while understanding that recreation is a vital activity in keeping trading performance at peak level.

Conclusion

A budding trader’s goal should be to move from the 1st group (amateur trading) to 2nd group (professional trading) as early as possible. It is easier said than done though.

Please do remember that ‘Winning’ is just the culmination of lessons learned by making our own mistakes – not from other people’s mistakes. Many folks would disagree here and they believe that one can learn from the mistakes of others in trading. This statement is absurd, to say the least. Especially in an experiential profession like trading the markets where one has to go through the path on his own. Our biggest nemesis is in between the ears and one has to face their own demons(often unique) in trading.

Want to end this blogpost with this thought – ‘Professional traders attitude’ can be abbreviated as FEDCOP

Focused (on the trade only)
Emotionally Stable (treat winning and losing the same)
Disciplined (in trade management)
Confident (in methodology & risk management)
Objective (Unbiased)
Patient (to wait for the opportunity & to maximize profit)

Happy trading !!

Get comfortable being wrong

ComfortZone

Human nature is to be right all the time. Nobody likes to be wrong even in petty/useless arguments. This particular thought process is one of the primary reasons for many opting for methods that shows high winning percentage with abysmal Risk:Reward ratio. Many of the world’s renowned traders are trend followers and trend following usually delivers something that human brain is not used to – More losers than winners with superior Risk:Reward ratio.

Introduction

In trend following type of trading, the usual combination is low winning percentage with high Risk:Reward. This requires a trader to get comfortable with the fact that we will most likely be wrong more often than we are right.

That concept is tough for a lot of traders,as many of us believe that to be profitable we need to be right more than we are wrong. but nothing could be further from the truth. Yes, for scalping that is partially true, but for swing trading, with the proper risk to reward ratio, we can be profitable even if we are wrong more than we are right.

We just need to have the patience to wait for a trade to come, and also patience to wait for a trade to work.

Here is a blogpost on patience

Deliberate practice and patience

Trend following and surfing

Unlike surfing, we don’t get the luxury of knowing which direction the WAVE we are on is headed, but trust me, it is going somewhere and is not going to sit around in any one place for very long. This is the one and only guarantee in stock markets 😀

We may spend days watching for a sequence of events, enter a trade and get stopped out in minutes. But if we are a trend follower, we have to just get back up and start watching again. That is tough to swallow for traders who enjoy the adrenaline of a fast-paced trading environment

Trading and action

If a trader cannot wait and always in need of action, trend following will never work for him. For that matter, any kind of trading would be difficult.

Many traders love the frequent adrenaline rushes that come with trading. And, the more frequently they trade, the more they feel that they are hitting the fast forward button on their way to riches.

By the way, most successful traders and investors are systematic. Systematic sounds technical or quantitative but that’s far from the truth. All it means is that there is a process to guide proper decision making. When A happens they do Y, when B happens they do Z. Warren Buffett and Benjamin Graham has a very systematic process in searching for their stocks. Ray Dalio from Bridgewaters Associates has a very systematic fundamental approach to capital markets.

Trading and drudgery

Many a times, people ask this question to me. It always pops up in different ways –

Should i pursue the dream of becoming a successful/consistently profitable trader in spite of all these drudgery?

I remember a movie honcho once said that when people asked him if they should continue to pursue their dreams of movie stardom, he would always tell them ‘NO’. His reasoning was simple – no one destined for success would be dissuaded by him anyway, nor for that matter would they even have asked the question in the first place.

It’s that solitary “march to your own drummer” mentality that mark those ordained for success 🙂

Trading and negativity

So, to be effective in trading (and anything in life), kindly distance yourself from negative energy – no matter where it comes from. Let negative thoughts roll over like water. Negative thoughts, emotions, energy is destructive multiplier. It kills creative uni-directional thinking. Detach yourself from things, other people and immerse yourself in the price. Lose sense of time and space.

Think of an activity that you enjoy, we lose sense of time and space when we get involved right? So, let me ask this question then –

Why does trading have to be stressful, painful, edgy all the time?

Get comfortable being wrong and detach from negativity

Happy trading all !!

Your trading is exciting or boring?

Trading is boring

Introduction

Many folks find trading the markets pretty exciting. Why not? Seeing the tickers move wild can give great excitement to anyone and the prospect (not actually making money..just the prospect) of making money can give the best adrenaline rush . A fun-filled activity right? As a matter of fact, they become really sad when the markets are closed as there is no fun in mundane daily activities.

And there are certain set of people who find trading the markets as downright boring. Surprisingly, majority of the consistently profitable traders find this endeavor a really boring one. For them, it is a matter of doing the same thing over and over as long as it keeps on working. Without deviating and without looking for something new. Without getting antsy about “missing out” some great opportunity somewhere else.

Hard work and belief in the process

Let me get this straight – Trading is hard work at the start, but it should be effortless during the trading process. Good or professional traders know this really well. In fact, trading should be boring to some degree when we have our system and methodology down. The reason for this is we know when to pull the trigger and when not to. If market gaps against our position, we know what to do. We know how to react when the time is right. However, it requires hard work to get to this level of professionalism.

Two sides of the same coin

Trading the markets in itself is contrasting in nature. We must be confident, but ego-less. We must be mechanical but analytical, focused but relaxed, and disciplined but willing to learn. Our decisions may appear to be binary, buy or sell but they are markedly more complex.

Acquiring the knowledge of trading mechanics, maneuvers, ideas/strategies, and risk/money management is a relatively easy and determinate process. But, developing the mental skills of focus, discipline, objectivity, and self confidence are much more challenging.

In fact, it’s the one area of trading performance that gives the pleasure of incessant learning experience for the practitioner (trader) , and for some a continuous scuffle (and might feel like never-ending ordeal)

Trading and lack of knowledge

The problems and challenges we face in trading are not due to a lack of knowledge/information, but are due to a lack of patience and self-confidence. Once again, ‘it is never a lack of knowledge’. The sooner we understand it, the faster we can pave the path to recovery.

Enhancement begins with changes in how we choose to think, act and be. Positive changes that will only be realized when we make a decision – a choice to learn to let go off the selfish/self-defeating side of our emotions which blocks our minds and garbles our decisions.

Trading and self-introspection

I will be the first to admit that the journey onto becoming a successful trader is mired with twists and bumps all along, filled with great triumph, and frustrating distress, but everyone has the talent to succeed and the power to create value in their lives.

Now some serious questions to ponder upon —

1. Are you patient enough to wait for the planned trade set up?
2. Are you ready to wait until a valid buy / sell signal is triggered (not jumping the gun)?
3. Can you place and execute the required orders, before the prices move away from the price of entry?
4. Can you focus on your trade without any sort of disturbances, until the trade is completed.
5. Can you patiently follow your exit plan (even if the market moves up and down in-between)?

When we try to introspect by answering these questions, we readily identify that it is not our ‘lack of knowledge’ that is enabling us to lose money in trading but it is the lack of patience(in order to seek excitement).

So, let us focus on acquiring the non-glamorous skills and trading will become more boring than we would have ever imagined !!

Great lesson from Mahabharata – Visualization

Visualization

Most of you already know that am not a religious person but the mythological books can teach us many life lessons. So, my reading habit obviously gravitates even towards mythological stories/ books.

One such lesson can be learned from Mahabharata – it is about visualization.

What is Visualization?

Visualization is simply a mental rehearsal. We create images in our mind of having or doing whatever it is that we want. Visualization techniques have been used by successful people to visualize their desired outcomes for ages. The practice has even given some high achievers what seems like super-powers, helping them create their dream lives by accomplishing one goal or task at a time with hyper focus and complete confidence.

The typical visualization pattern comes from the sports world, where an athlete would imagine themselves winning a championship or standing on the podium receiving a medal.

The key to visualization is to visualize that we already have what we desire. This is simply a mental trick. Rather than hoping we will achieve it, or building confidence that one day it will happen, live and feel it as if it is happening to us right now. On one level, we know this is just a mental trick, but the subconscious mind cannot distinguish between what is real and what is imagined. Our subconscious mind will act upon the images we create within, whether they reflect our current reality or not.

Elite athletes use it. The super rich use it. And peak performers in all fields use it.

Visualization in Mahabharata

After losing in a game of dice, the Pandavas were exiled to the jungles as per the bet waged. So, one of those days, Arjuna – the great archer was eating his dinner in the light of an earthen oil lamp, when a gust of wind
extinguished the flame. Arjuna continued to eat, his hand accurately reaching his mouth every time he ate a morsel of grain in the dark. At this exact moment, a sudden flash of thought embraced his mind.

If it was so easy to accurately place a morsel of food in his mouth, due to force of habit, the food not going into his eyes or nose by mistake, why was it so difficult to aim and shoot down a target in the dark ? This fired him up and the restless soul set about practicing archery in the dark, after staring at the target all day in the sunlight.

The mission was very clear and simple – the mind should be trained to know where to shoot from memory, just as it knew where to guide the hand containing a morsel of food in pitch dark. After months of rigorous practice, twanging his bow all night, for months, Arjuna attained mastery of the dark. The hard work paid off and helped the Pandavas win the battle of Kurukshetra years later. This is sheer Neuro linguistic programming (NLP) in work and ofcourse a lot of visualization before entering the actual arena.

Key take way and usefulness in trading

We all are Arjunas but we just lack something important – a sheer target practice. The mind can and should be trained. Samurais train with their Katanas thousands of times before attaining mastery of the sword. History tells us again and again that it can be done.

In trading terms, Visualization can help us cope with stressful situations (like visualizing to stay calm when we are in a trade) and to reinforce good habits. If one has issue in pulling the trigger/exiting early/jumping the gun, Visualization can be immensely helpful.

Thoughts are things and they create the beginnings of getting any result. The thought process includes not only what we’re telling yourself, but also the pictures that those thoughts summon.

Happy trading all !!

Never start your trading day with an hungry stomach

Brain

Indian stock market starts at 9:15 am. Well past the usual breakfast time for many. Yes – this post is about food 🙂

Behavioral science has been blessed with many stalwarts. Roy Baumeister is one of them. As a behavioral scientist, he wanted to ascertain whether remaining hungry and / or craving for food (though not starving) impacted a human being intellectual performance. As it goes with many researchers, he conducted an experiment.

Details of the Experiment

Two batches of 30 students each, of equal IQ and academic performance were selected. They were locked up in separate rooms for 60 minutes and given an exercise to master in mathematics. In both rooms were ovens, which were halfway into baking cakes and cookies. B

Batch # 1 was instructed to stay away from the oven even after it finished baking and was banned from consuming a single cake/cookie. Batch # 2 was instructed to wait for the oven to cool off before enjoying the confectionery.

Result of the experiment

After the designated 60 min timeframe, Roy Baumeister found batch # 1 floundering in their mathematical questions, whereas batch # 2 breezed through it.

Upon interviewing them, students of batch # 1 admitted that majority of their mental energy was spent in fighting their salivating mouths, the aroma of the cakes & cookies and deep emotional craving for the goodies. This was a great revelation.

But, the experiment did not end there. The roles were reversed and batch # 2 was forbidden from savoring the cakes & cookies and their performance went south as well. This is a very critical piece of information that can be used by traders as it can affect our logical decision making capabilities.

Final thoughts

Next time you decide to skip breakfast because you’re in a rush, please do remember this experiment and how our mothers force-fed us before packing us off to school. One might call that as ‘love and affection’ but indirectly, it served us well.

Moral of the experiment – Never start your trading day with an hungry stomach 😊

Roy Baumeister Profile

https://psy.fsu.edu/faculty/baumeisterr/baumeister.dp.php

Happy trading !!

Social media and its impact on the mindset of a trader

Mentoring

I have been active in Twitter for the past 6 months and this side of world seems to be filled with overly-expressive folks, especially, when it comes to trading. Traders bicker with each other like kids for everything under the roof and keep fighting that their method is the best in the markets. Even a 5-year experienced trader knows that there are many ways to skin a cat and one method is not superior to other.

Open disclaimer first – right off the bat, it may piss some people off but in long run accepting and learning to deal with these basic tenets will definitely help us to move into the small realm of successful traders. Please adopt the supermarket approach. If you don’t like something in this post, please ignore this rambling. This post is not intended to hurt anyone as I do not know 99.99% of the traders in-person. So, not directed to any individual or group. The pointers that are covered below are few of the several reasons that hamper a trader’s progress if he is active in social media during market hours. Whether you are involved in bickering/ego-fighting or just a spectator, the end-result is same, albeit with varied intensity.

1. When one is trading profitably and wishes to teach it to others (the psychological urge behind this teaching could be many but let’s stick to the point), he cannot expect his students to understand it the same way as he has understood. As it is almost impossible to convince a bear to be a bull once he or she has taken a position, it would be even more unfathomable to convince each trader to trade a certain way. I also conduct workshops and I don’t expect my participants to understand the mechanics of my trading style in a day. Once they keep practicing the concept, it might get internalized well in the mind (after dedicated practice) and the idea can open up many possibilities.

While we are at it, would also like to mention that just because we don’t understand a method, does not mean it is not making money for others. ‘Lack of understanding’ cannot be construed as the ‘failure’ of the method discussed. On the flip side, there are 100’s of ways to make money in the markets and it would be childish of us to ridicule other methods. It would be more childlike if we say that my method is superior to others and start chest-thumping – this is so prevalent in facebook/twitter unfortunately. Market returns are cyclical and method A might do better in certain circumstances than Method B – vice versa is equally true. Please understand that everyone has different time frames, methods and objectives. It is also prudent to remind oneself that “every dog has its own day

2. Stop justifying your methodology or trades – who are we are trying to prove here? We don’t need to prove anyone that we are successful in anything. So, why to some strangers? If one is successful in trading, he will exhibit patience as patience is every successful trader’s virtue – without exception. Patience comes with a sense of calmness and confidence. You know you are doing the right thing. Thus, there is no need to justify excessively. On the other hand, stubbornness often comes with anxiety and over-justification. When you find yourself trying too hard to explain what you are doing, you are being stubborn.

Any successful trait needed for trading (like patience, emotional control and discipline) will definitely be reflected in our other aspects of life too. Our family/friends would definitely see the massive difference once we become successful (not only in our finances but also in our behavior) – One of the important perks of being successful in trading.

3. Actually, most of the traders know the reason (or set of reasons) that make them lose money in the markets. But taking corrective action and doing the right set of things to turn profitable is something that individual has to do. Please do keep in mind knowing, and doing are two very different things

4. While people are told they won’t be successful overnight, most new/struggling traders don’t actually believe that. Social media never lets them believe it completely as every other trader is supremely successful in social media 🙂 They have an idea in their head that they’re smarter (Lake Wobegon effect), have it worked out, and will be able to make money quite quickly. So, always in the urge to make money faster and lose it actually.

5. As Master Oogway tells in the movie Kung Fu Panda “One often meets his destiny on the road he takes to avoid it.” (this quote is actually from a french poet Jean de La Fontaine). Most of the traders are determined not to lose money (rather than having a determination to ‘make money’) and in the process, they actually lose more money. Am not saying we are pre-destined to results but this one needs to be taken seriously. Knew many folks who have the aversion for loss and unfortunately, end up in trading (trading needs that loss digesting stomach) and struggle for years.

6. False hope also keeps our enthusiasm going in trading. We can attribute this ‘false hope’ to survivorship bias – We are likely to hear more stories of people making a killing than hearing about people losing everything because the people who lost everything are gone from the public eye and are not talking about it. The few who make money are sure to let everyone know about it (or others talk about them a lot) and thus create a sort of illusion–intentionally or unintentionally– that anyone can do what they did/do.

7. Easy money lure – the lure of making money each day in only a couple hours gets people’s minds spinning with possibilities. They imagine stopping everything and just start trading for a living immediately (For example, lot of chatter happened on Sept 21 2018 EOD about people buying far OTM puts for pennies and selling it for 200s..this kind of chatter happens a lot when mkt moves violently..this also feeds the mindset that money is easy in trading)

As a matter of fact, they would start dreaming about trading in a beach while sipping pina colada. Unfortunately, sand, water, sun glare and laptops don’t mix. You are not gonna get paycheck every month and you must be absolutely at the top of your game without distractions to make money long-run (this is exactly why I keep advocating to get off from social media/forums during market hours). Distraction and ego fights can damage our psychological forte and eventually, we start focusing on things that does not matter.

8. Long story short – stick to a well-defined plan and trade that plan even when it is uncomfortable (and it often will be). The vast majority of the population, and thus the vast majority of traders, buckle under this uncomfortable pressure – the same way we reach for the ice-cream instead of the carrots.

9. On the other side, social media and forums can have a positive/lasting impact on a trader if he can figure out a virtual mentor(mentor does not have to know you but you can follow his principles/thought processes). It can be a great resource of authentic information for new traders as well. But overall, it has never served a trader well if he loiters around in social media during market hours. This is not even debatable any more as the negatives over-weigh positives by a huge margin.

10. So, if you are a losing/struggling trader, try getting off from the forums/social media (for few months) during market hours. See if it has changed your overall mental resilience/trading. I can bet that this will be a great trade to put on as Reward:Risk seems very high. Risk = not being able to participate in conversations/getting updated about latest news, Reward = profitable trading without outside distraction.

Happy trading !!

Price action based trading + System trading Workshop

Introduction

As many of you know, i have been trading just the price (a.k.a price action trading) for the last 13+ years and was receiving requests to take classes/workshop on how I do price action trading in a mechanical way (absolutely no discretion involved).

Based on past participants feedback and the time crunch we face in every workshop, i have decided to conduct 2 days workshop from hereon. I would be covering Intraday trading, Backtesting, Money management and psychology extensively (1 day workshop pales in comparison with the content/hands-on experience am gonna cover).

Workshop Agenda and participants feedback

Please click on Workshop Agenda for complete details on agenda.

Please click on Past workshop participants feedback

Fees and Timings

Fees for 2 days : Rs. 25000/person (Inclusive of mid-morning Tea/Snacks, Lunch (Veg & Non- Veg buffet), Evening Tea/Snacks)

**Accommodation not included. You will have to arrange your own accommodation**

Timings : 9 AM – 5:30 PM (on both Saturday and Sunday)

Payment details

To confirm your registration, please pay an advance of Rs.10000 (and the remaining balance of Rs.15000 atleast 1 day before the workshop)

(or)

the full payment of Rs.25000 to the below mentioned Instamojo ID (all kinds of payments like Bank transfer, Credit/Debit cards, UPI, Wallets are accepted)

https://www.instamojo.com/@marketswithmadan

Kindly mention your preferred workshop location in ‘Purpose of payment’ and send the screenshot of the payment window along with your name to marketswithmadan@gmail.com for further reconciliation and registration process.

Location

Date: October 12(Saturday) and October 13(Sunday)
Location: Ramada Encore, Domlur, Bangalore

Date: November 9(Saturday) and November 10(Sunday)
Location: Quality Inn Airport, Meenambakkam, Chennai

Additional perks of attending the workshop

Telegram support group for the attendees (1 month duration) to clear out workshop related doubts.

Contact details

If you have further questions, please email me at marketswithmadan@gmail.com or Whatsapp at 9677036689