Is trading really that difficult? Are consistently successful traders the equivilent of brain surgeons and nuclear physyicists or is trading open to those of us on a slightly less rarified level? Do we need to be Tiger Woods or can we make it if we can regularly hit par?

Here’s my take on it. I’m convinced that there is a holy grail of trading and its available to those that want to find it - it won’t be found by searching for the perfect method, but at the same time its not impossible to find if you look in the right place - if you are willing to go on a challenging quest to find it! Its certainly not easy, but its certainly not impossible.

The mechanics of identifying profitable trades and executing them are no harder than any other skilled profession. It takes study, effort, and practice, but what skill doesn’t? What makes successful trading appear to be so unattainable - and become so for many - is that it requires each trader to do something extraordinary. It requires you to adopt new beliefs, to retrain your mind to think differently, and to first face and then learn to manage your emotions. This is not difficult in and of itself, but most new traders simply do not do this crucial work.

Its interesting that the type of people that gravitate towards trading are actually the people least likely to succeed at first blush. Predominantly male, successful professionals, cocky young twenty somethings, doctors and dentists - why would this group have the predisposition to fail? Because they (I was once one of them) believe without question in the validity of the way they think. Changing beliefs, confronting emotions is outside of our initial comfort zone. Only the few that take the bold step of focusing on the mechanics of their own thoughts and emotions become complete traders, and ultimately achieve the success that they are looking for.

So here’s another question. If I’m to go on this quest to the find the holy grail within myself, is there a map? Again the answer is yes, there is a clearly charted path that you can take. BUT…don’t mistake the fact that there is a map, for it being easy. Nobody can walk the path for you. No matter how many people have blazed the trail before you - you will still need to walk it yourself and fight your own dragons.

Your goal is a state of mind and being in which you can stay focused in the ‘opportunity flow’ of the market. Fear of loss cannot touch you, because you’ve learned how to accept risk, how to safeguard yourself, and how to trust in your ability to do whatever is necessary in the moment to protect your capital. In that state, free of distraction, you can see the opportunities that present themselves. You can take profits from the market effortlessly. A trader in that state can take even a mediocre trading method and make it a gold mine.

The interesting thing about learning to trade is that no matter what path you take, you need to find a method with positive expectancy - an edge that you can rely on. And here’s the challenge - no matter how committed you are to a quest for the grail within yourself, watch out! Many a trader, with the best of intentions, has been distracted by the siren call of their method. They end up on a detour, constantly focused on method and never make it to the next step. Every trader that wants to be successful must understand that their method is just the beginning, its just the entry requirement. The true quest to find expertise and consistent profits lies in mastering a different kind of methodology - a new way of thinking.

Have a great week!

Mo

First here’s a reminder of the bottom-line on mental/emotional dynamics that every trader needs to know: As human beings our brains are hard wired to block information to protect us from emotional pain. If we are experiencing stress, anxiety, and other forms of upset, our brains begin to shut down awareness. We begin to experience what experts call perceptual blindness - unable to see what is staring us in the face - causing us to make poor trading decisions, and lose money.

In other words, our brains are not naturally designed for successful trading. As traders we must have a mental methodology, a system of thinking (in addition to our trading system/methods) to counteract our inherent mental processing. If you don’t, there is a very high likelihood that you will be defeated not by the market, but by your own brain!

Here are some of the most effective methods highlighted by leaders in the field such as Mark Douglas and Brett Steenbarger.

Mental Strategy

In his two trading books, the The Disciplined Trader and Trading in the Zone, Mark Douglas outlines a series of key mental strategies that take the fear and stress out of trading, and allow you to develop the relaxed state of awareness in which you can take full advantage of the opportunities that the market is presenting:

1) Risk Acceptance

When you know in advance how much you stand to lose if your edge doesn’t pan out in a particular trade; when you fully accept the possibility that you may lose that amount as part of the ratio of wins to losses in trading your methodology - then there is nothing that can hurt you, or cause you any psychological pain.

We’ve been taught that you can be successful if you have a positive mental attitude. And that’s true. But many traders make the mistake of believing that having a positive attitude means always thinking about winning. Thinking about losing is bad, defeatist, so they avoid thinking about losing. Successful traders however, think in terms of probabilities. They know that there will be wins and losses. They have learned how to think about their losses and about risk. Its in the acceptance of risk, not the avoidance, that they maintain a healthy and positive mind.

The fear and stress that many traders feel particularly at times like this, is caused by the fact that they aren’t comfortable with the fact that they may lose. The fear you may feel is actually your mind and body struggling to ignore reality; ignore the part of you that knows damn well that you will lose because its an inevitable part of trading. Because many traders don’t accept the risk ahead of placing a trade they experience the pain of loss - not because of the actual money gone from their account, but because they are suddenly confronted with a reality that they have been avoiding. They didn’t confront the possibility that they might lose.

Here are some strategies that I use to help me accept the risk of each trade:

While I’m preparing for a trade and evaluating where to place my stop, I ask myself “How much am I willing to spend to find out if my trading method, my edge, will work for this trade?”. Another variant on this question which helps avoid over trading is “Am I willing to spend (whatever your stop loss will be) to find out if my edge will work for this trade?”.

This simple approach causes you to think very carefully about the expectancy of your method and the state of the market. It will help you to get clear about whether your method does have an edge in this kind of volatile market. Or it may prompt you to stay on the sidelines and preserve capital.

The idea is that before you get into a trade you have quantified how much you can lose and you really are willing to let go of that money. You know that despite your edge, the market can do whatever it wants and that there is reasonable chance that you may lose. If you choose to enter the trade, mentally you have to accept that your risk money is gone. Its spent. You no longer have the money you are risking.

You have to reach the place inside where that’s OK - so that you can then approach the trade without any fear of losing that money. I like to think of it as though I’m buying a lottery ticket. My risk, my stop, is the money I’ve spent to buy the ticket to find out whether the trade will be profitable. I may win, in which case I get a refund, or I may lose in which case I wont. I’ve really no idea since the market can do anything, but mentally I’ve spent the money to find out.

2) You Don’t Need to be Right to Make Money

You have to do the mental work to let go of the need to know what is going to happen next or the need to be right on each trade. In fact the degree to which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader. Mark Douglas

The most successful traders have found a way to inoculate themselves from the stress of trading, and from the outcome of their most recent trades. Here’s how they do it:

They have an unshakable belief in the fact that

1) While the outcome of any given trade is uncertain they believe in their edge over a series of trades. In other words they know the expectancy of their method and have confidence that over a series of random outcomes, the odds are in their favor.

2) Anything can happen! In other words they have learned to think of every trade like tossing a coin - they don’t need to know what will happen. They don’t expect to either win or lose.

This firm belief in the uncertainty of any given trade, while knowing that over a series of trades you will be profitable, is very liberating. When you learn the mental discipline of letting go of the result of any individual trade you keep your mind in a state where it can easily perceive the opportunities that the market is offering. It is not distracted by focusing on your expectations of what you think should happen - it can perceive what is most likely to happen.

The Body/Mind Connection

3) Biofeedback

You can influence your state of mind, your focus, your ability to enter the zone, by being aware of your body - particularly your breathing.

There is a great software program which I use called Emwave which you can run on your computer as you are trading. You attach a sensor either to your earlobe or finger - and it tells you what kind of mental/emotional state you are in by measuring your body’s activity.

With this program you can easily train yourself, through breathing and watching your posture, to stay calm and in the zone even in the most stressful situations. When you are in that calm state you’re most in tune with the market, and most ready to take advantage of the opportunities the market is offering.

I highly recommend that you experiment with seeing the difference in your trading results between days when you use Emwave to trade ‘in the zone’ and when you operate in your normal (probably slightly stressful) state of awareness. Its quite surprising!

Emotional Clearing

4) Clearing

As always I recommend that traders learn how to continually clear their emotions using simple clearing techniques so that the build up of emotion, either negative or positive, doesn’t distract you from your focus.

Have a great and safe week ahead!

Mo

While I don’t see any conflict between the two approaches, I guess I do still have a bit of an issue with Dr Steenbarger’s assertions about trader development.  A new trader could easily understand from reading Dr S’s work that trading psychology and the development of trading mindset is a performance add-on, and this couldn’t be further from the truth

Dr Steenbarger’s books are both fascinating and very insightful about trader development. He’s absolutely right that an effective trading methodology, clear expectancy, and money management strategy is an absolute prerequisite for success. Nevertheless, what’s missing for me is mention of the importance of fundamental thinking skills in trader 101 training. It would be helpful for all new and struggling traders (which lets face it is the largest readership for any of these books) to hear it stated loud and clear that they are unlikely to reach the point of performance, let alone beginning to enhance it, until they’ve studied and implemented the beliefs and mental strategies that are the bedrock of consistent trading success.

What do I mean when I say beliefs? Consider these two newly developing traders - Dan & Luke. They have both spent considerable time researching and practicing an identical trading methodology and money management system that has the potential, if they execute it effectively, to be consistently profitable over time. They are both at the same skill level in terms of this method.

The difference between the two is that Dan has received no training in how to think, in what to believe about the markets. Mark on the other hand has studied the mental strategies that compliment his technical skills.

Dan sees a set-up based on the method, and he believes he’s right about how the trade is going to play out, so he enters the market. The trade doesn’t comply with his expectations and he loses money. He enters a second and third trade and the same thing happens. Its just a natural, temporary drawdown in the trading method, but Dan takes it personally. Fear creeps in, he starts to worry about his method, he experiences a minor emotional trauma from his attachment to his losses that lodges itself in his awareness and subconsciously taints the way he looks at the market going forward.

Luke on the other hand has thoroughly studied and imbibed ‘Trading in the Zone’ by Mark Douglas. As a result, he’s acquired a number of important beliefs that will make all the difference in trading his method.

Luke takes exactly the same trades as Dan, except he believes 3 things which Dan doesn’t.

Firstly he believes that his trading method gives him an edge over a series of trades but that he doesn’t need to be right about any single one. He knows its not about being right, its about executing well and allowing the method’s edge to do its thing.

Secondly, he believes that even though his method has given him a set up that looks promising, the market can and will do whatever it wants, quite possibly different from what he expects.

Thirdly he has learned how to think about risk, so that a loss on any given trade doesn’t disturb him.

Same three trades - now Luke is ready to enter the forth and execute with a clear mind, he’s still in the flow. This trade offers a 10 point profit and Luke nails it. Dan on the other hand is anxious, his perspective is off, he hesitates, his execution is affected, he bodges it.

What we believe as human beings and as traders makes all the difference in the quality of our life, and our trading.

Luckily both Dan and Luke have read Dr Steenbarger’s books.

Dan is going to get some brief therapy for his trauma, and he’s inspired to continue to assess his trading and improve his skills. Lets hope he reads “Trading in the Zone” soon so that he also develops some mental skills! Luke is going to make sure that his untraumatized optimism doesn’t make him soft and get in the way of his development - continuing to learn, to practice, and to refine his ability to implement his method effectively.

Having been in Dan’s shoes, and given the choice I know that I would always choose to learn mental strategy as a preventative measure, and as an essential part of my earliest development as a trader.

While I have a great deal of respect for Brett’s knowledge of trading and of training traders, I found myself puzzled by his comments. Was he being modest? Perhaps we have a different perspective on what trading psychology is?

I say that because in my experience, learning how to think properly, has been THE most important skill needed to be successful as a trader. I believe that without it you don’t have a chance of developing the broader skills and experience needed to be consistently profitable. Most of us, because of the way the human mind is wired, and because of the way we’ve been trained to think previously - can virtually guarantee non-success unless we learn how to think differently, and how to manage the performance anxiety that Dr Steenbarger refers to in many of his other posts.

I learned the hard way that you don’t wait to add mental strategy as an afterthought once you’ve developed, verified, and practiced your edge. Developing the thinking habits necessary to be a trader can (and in my opinion should) begin on day one - because they are fundamental to understanding the dynamics of successful trading.

• Learning how to think about and accept risk
• Learning how to think about and accept that the market can do anything it wants
• Learning how to think in probabilities
• Learning not to need to be right on each trade
• Learning how to stay calm under pressure through techniques such as biofeedback or emotional clearing

These are just some examples of core mental skills that need to be developed and practiced before even your first live outing in the markets.

There is absolutely no question that a trader needs a defined and tested edge, they need to know the expectency of that edge, they need to find their trading niche, they need effective money management strategies. However, there is a very high likelihood that even with all those things in place - a trader will fail spectacularly without having learned how to think and how to harness (not control) their emotions.

So what comes first the chicken or the egg? Trading Method or Trading Mindset? In this trader’s opinion, understanding the ideas of mindset outlined in Trading in the Zone by Mark Douglas and the work of Dr Steenbarger should be a prerequisite to anything else you do in trading - even beginning to develop a method. By understanding these dynamics, by understanding yourself first and how you are likely to impact your own success, you will pave the way for the successful choices you will make in terms of the type of trading you engage in, your trading method, and the development of your trading plan.

What if instead of being a slave to the charts you could calmly pinpoint exactly the right times to trade - times that will lead to the most decisive moves. Not only that but you could do it ahead of time so that you would know with plenty of notice when a trade was coming, and you could prepare yourself mentally and emotionally for the perfect execution of your plan.

This is possible when you have a method that incorporates cycles. Even if its just to tick it off your list and say “checked it out, not for me” I encourage you to investigate the possibilities of cycle trading.

In this post I’ve listed in one place a goldmine of cycle trading resources. These links represent the best of the best in cycle trading knowledge.

A word of caution though. Some of these sites/books are shrouded in slightly obscure language that might appear intimidating at first. Did you ever watch the TV series Kung Fu where the old Master made the student ‘grasshopper’ stand outside the Shaolin monestery for days to test whether he was worthy of being a student? I’ve come to the conclusion that some of them purposely make things a bit complicated to scare off the people that aren’t serious about uncovering the valuable information that they contain. Persevere - its well worth it.

J.M Hurst - Hurst Cycles

J.M. Hurst is a legend. He was an aerospace engineer by training and background, and a pioneer in computerized research into the nature of stock price action. Devoting many years and over 20,000 computer hours to the study of cycles, his books are trading classics.

The Profit Magic of Stock Transaction Timing

Cyclic Analysis: A Dynamic Approach to Technical Analysis

Software for implementing Hurst Envelopes: Divergence Software, Inc cyclePack

Walter Bressert

Walter is one of the ‘greats’ in the field of cycle trading. He pioneered the work of cycle trading using smoothed oscillators.

www.walterbressert.com

The website is going through some challenges right now but Walter’s Profit Trader Software is great so contact them by email if you want to try it our for 30 days. You can read the manual which tells you quite a lot about it and cycle trading here.

Roy Kelly

Roy Kelly’s Floor Trader’s Tools Software is in my opinion one of the best alround trading systems on the market. It incorporates excellent cycle and trend indicators that can be traded for consistent profits. Find out more about Floor Trader’s Tools here.

If you are reluctant to shell out the cash without knowing more about the system check out Roy’s book The Trading Method That Will Make You Rich.

John Ehlers - Mesa

MESA and Trading Market Cycles: Forecasting and Trading Strategies from the Creator of MESA, 2nd Edition

Cybernetic Analysis for Stocks and Futures: Cutting-Edge DSP Technology to Improve Your Trading (Wiley Trading)

 
For more information about Mesa indicators and systems visit www.mesasoftware.com

This time with a specific focus on building a mental approach to trading that will always allow you to derive the most from your trading plan.

But first a little background… When I crashed and burned back in 2003 even after having so carefully tested my trading method, I was seriously done in. I’d poured every ounce of my spirit into becoming a successful trader and it was absolutely devastating to me that I could blow it so easily. It got to the point that I was so emotionally wound up, and filled with a sense of doom as a trader, that I knew I had some very serious work ahead of me to undo the mental and emotional damage I’d done to myself learning to trade.

So this advice is based on my own real journey of undoing the mental mess I’d made and getting a straight ‘trading head’ on my shoulders. I hope it can be useful to you.

1. Know Your Numbers

Okay, I know I said another 10, but this first one is always going to be first on every list - its the foundation and bedrock of every plan.

Know your trading method’s expectancy. In a sea of uncertainty, knowing your edge is the only thing you’ve really got to rely on. Its absolutely 1000% imperative that you know and can trust your method. Remember it doesn’t need to be perfect - its not like you have to have a method that’s right even most of the time. You just have to have a method that makes a profit on balance, that you can execute consistently.

2. Stay Calm Before During and After

Are you monitoring your emotions? Do you have an effective method for reducing the nervous excitement that comes with trading, and which often affect your perception and judgement?

When I’m trading, I’m constantly clearing my emotions - before the session begins, a few minutes before each trade, often during a trade and usually afterwards as well.

3. Accept The Risk

Is the money you risk on each trade real for you? Do you really accept the amount of money you are risking and are you willing to let it go?

I find it helps me to think of risk as the amount of money I’m willing to spend to find out whether my edge is going to work on this trade. Note that I say spend. I actually think of each trade as though I’ve purchased a lottery ticket. I think that the amount of my stop has already been paid to find out if the edge works, so that as the trade proceeds I’m not afraid to lose anything.

This is why the first point about knowing your expectancy is so important - if you trust your expectancy over a series of trades you don’t have to be afraid of the outcome of any single one.

4. Flip a Coin

Do you expect to be right when you call on a coin toss? No, right?

Do you remind yourself each trade you make, that anything can happen and probably will?

In any given trade, pretty much anything can happen, no matter how perfect the set up looks. I use the image of the coin toss as a way to remind myself not to expect to be right, instead to expect that anything can happen.

Having a way to remind yourself not to get attached to being right, will help you stay objective.

5. Don’t Delay the Pain (and earn extra credit!)

Do you look for every opportunity to build your discipline? Do you put off the things that you don’t like doing, or do you bite the bullet?

I realized that I liked putting things off, so for a few months I forced myself to do things that I didn’t like doing every time I saw they needed doing. Taking the early shift to walk the dog, raking leaves in the yard, washing up. I hated it at first but after a while I saw it get easier and easier - because I no longer had a barrier in my head. And believe me Mrs C was over the moon!

6. Think Like Las Vegas

Do you think of each trade as an island, as the great hope, or do you think in terms of probabilities over a series of trades?

Casinos make their money by keeping the odds in their favor over a large number of bets. And that’s how successful traders think too. They don’t get attached to the success or failure of any given trade. Their primary goal is to stay calm, relaxed and open to the market’s opportunities so that they can execute their edge precisely and keep the odds in their favor.

Thats why I make such a big deal about emotional clearing and staying calm. The emotional clearing technique I use is literally worth tens of thousands of dollars to me in bottom line results.

7. Let Yourself Be Wrong

Do you have a need to be right? Do you have perfectionist tendencies? If you suspect that you do - have it seen to!

Seriously, needing to be right can be debilitating to your trading success because it controls so many other trading behaviors. For example when you think you are right, your mind actually shuts out contrary (and potantially important) information. When you think you are right you don’t need to accept the risk of the trade, why would you, you’re going to win. When you think you are right you hold on too long, even when the signs that you should have gotten out were staring you in the face.

When I began trading I used to shout at the charts - “come on baby” - I used to sing “come on baby light my fire” when I wanted the market to go up and “go down” when I wanted it to dive. I was so desperate to be right that I couldn’t have seen any warning signs if a herd of elephants were running towards me.

8. No Hallucinations

This is the crux of why its so important to implement all these other strategies. When you are wound up, anxious, unwilling to accept that you are wrong, avoid and delay the pain of loss, you begin to hallucinate. The chemicals pumping around your body from the emotional tension are distorting your perception. You see signs that aren’t there, you miss the signs that are there. You start to overtrade. Your discipline slides. And soon you are lost. The best thing you can do is walk away - and get some help.

9. Let it Go

Can you let the trade go? Or do you hold on - either to your success or your failure. Both euphoria or the need to be right and win the money back can end up causing serious losses as your judgement is impaired.

In my opinion - spoken from experience - the best help we can get from a psychological standpoint as traders is learning how to let go the emotions which affect and distort our ability to be in the current moment - seeing objectively what the market is offering. The relief of release brings a whole new perspective.

When someone first suggested emotional clearing to me and I read the description of Core Transformation - achieving soulfulness, love and peace - I was reluctant. It was a bit too much peace and love for me and not enough practical solutions to trading problems. I couldn’t have been more wrong. The state of mind that results from emotional clearing is perfect for trading - calm, relaxed, open, detached, intuitive, positive.

10. Affirm Yourself

In both The Disciplined Trader and Trading in the Zone, Mark Douglas suggests using affirmations. Normally I’m not a big fan of affirmations - I don’t think they work very well. However there is one that I have found works. I repeat really slowly “I am a consistently profitable trader”. I savor each word and allow the import of its meaning to soak in. I’ve found that in conjection with these other 9 points it really helps solidify the meaning of being consistent, being profitable and being (and thinking like) a trader.

Here’s a bonus point - if you are married or in a serious realtionship, make sure that things are straight between you about your trading and the money you risk. The Wife/partner can become a silent emotional black hole of doom and non-support (in your mind), unless they are cool with it or you are cool with them not being cool.

Have a great weekend!

All the best

Mo

The overarching premise of Trading in the Zone is learning the mental strategies that allow you to trade without any emotional discomfort - in a carefree, fearless state - that allows you to remain in the opportunity flow of the market.

After years of studying and practicing the principles of Trading in the Zone, here is some trading advice for implementing these principles that really works:

Staying Calm and Fearless

First, a multipurpose strategy for starting out the day in a calm, carefree state. I use this technique just before the market opens, a few minutes before each trade, and after each trade. In this way I’m always clear of any emotional interference that may come from the anticipation of a new trade, the euphoria of a successful trade, or any disappointment of a losing trade. It helps me to stay level headed and perceive the market objectively.

I use a very powerful emotional clearing technique called Core Transformation. I explain more details about Core Transformation here. For the sake of this post I’m just going to say that within a few minutes of using this method you’ll find that even the most intense and stubborn feelings of anxiety or emotional discomfort will be replaced by a peaceful, carefree mindset which is very open to perceiving the opportunities that the market is presenting. In fact I find that after using the technique my natural intuition about the market is heightened.

I know that as traders everyone is trying to sell us something to improve our trading, from hypnotherapy to Navy Seals training. A lot of these programs end up being a disappointment. When it comes to working with traders mindset I’m very firm on only recommending things that I know work from personal experience - guaranteed 100% snake oil free. Core Transformation is as close as it comes to being miraculous in terms of dealing with emotions - and having used it for years I’ve seen not only my trading, but my life transformed. I can’t recommend it highly enough, and it feels great!

Accepting Risk

Learning how to redefine your trading activities in a way that allows you to completely accept the risk is the key to thinking like a successful trader. Learning to accept the risk is a trading skill – the most important skill you can learn. Mark Douglas

Truly accepting the risk of each trade you enter makes a significant difference in the state of calm and equilibrium with which you approach trading. Don’t forget that it is this calm, open and receptive state of mind that will allow you to see clearly what the market is presenting you in terms of opportunity.

Along with other key principles in Trading in the Zone, accepting risk will prevent you from putting your own spin on what is happening in the market - which effectively blinds you to what really is taking place and what is about to unfold.

Here are some strategies that I use to help me accept the risk of each trade:

While I’m preparing for a trade and evaluating where to place my stop, I ask myself “How much am I willing to spend to find out if my trading method, my edge, will work for this trade?”.

For many years I kept a folder with real cash in it. For each trade, once I’d decided the risk, I would take out that amount, really look at it, think about what it represented in terms of things I could buy, and re-ask “Am I willing to spend this much on this trade to find out if my edge will work?” Then I’d put then money in a pouch marked “Spent”.

Another variant of this, if you don’t have time before each trade is to set yourself a maximum daily loss limit for the day. Have that cash in front of you before you start trading, think about what it represents in terms of your mortgage payment, your car payment, a holiday etc. Make that money real. And then ask “Am I willing to spend this today to find out if my edge works?”.

The idea is that you really truly are willing to let go of that money. Its gone. Its spent. You no longer have it. You have to reach the place inside where that’s OK - so that you can then approach the trade without any fear of losing that money. I like to think of it as though I’m buying a lottery ticket. My risk, my stop, is the money I’ve spent to buy the ticket - I may win or I may lose, I’ve really no idea since the market can do anything, but mentally I’ve spent the money to find out.

When I’ve done this - once I’ve established my risk and I’ve let go of the money, I can be really calm as I execute the trade.

This process is going to do any one of a number of things:

a) You are going to get really clear about the expectancy of your method -because if you don’t know what your edge is you can’t truly accept the risk of trading it.

b) Its going to tighten up your decision-making on each trade. If you really accept the risk it will stop you from entering trades that don’t conform to your edge, from over trading, from hesitating etc.

c) If you do believe that its worth spending that money to find out if your edge works - if you feel any emotional discomfort when you think about the risk, about what it represents in real terms of real money - then its presenting you with a fantastic opportunity. The opportunity to clear that emotion using emotional clearing - so that as each day goes by your relationship to risk and to money becomes more and more healthy.

After many years of trading - of failing abyssmally, and then picking myself up and gradually becoming a consistently successful trader, the most important trading skills I’ve learned are in Trading in the Zone and in Core Transformation.

We all have emotions, fear, anger, guilt, worry, shame etc. Traders and investors who are putting hundreds and thousands of dollars on the line each day are more prone than most to facing these intense emotions. Fear of being wrong, a fear of losing money, fear of missing out, and fear of leaving money on the table are the big ones. But then there are also emotions connected with self-worth, with how you judge and value yourself, with perfectionism. These have an enormous impact on your ability to be consistently profitable - to take money out of the market and keep it!

These strong emotions are within us in the form of energy. Traders have tried therapy, medication, exercise and myriad other ways to address these emotions - yet the most effective way to deal with them is to transform their energy from negative into positive. The positive energy then becomes a force for the good in your trading. Once you know how to do it, its remarkeably easy. Once you begin to clear these emotions you’ll find that gradually over time as new ones arise they have less and less hold over you - you begin to master yourself.

The beauty of emotions - is that their energy can easily be transformed into quite the opposite of what you were originally feeling. The reason for that is that the part of you that is feeling the emotion - doesn’t really want to feel bad, quite the opposite in fact. That part of you mistakenly thought that it was helping you by kicking up an emotion that would either warn you, or convince you to do something different. When you learn the technique of emotional clearing using Core Transformation you learn how to identify what that part of you really wants, and quickly convert the negative emotion into its ‘core’ state - which is usually a feeling of peace, love, joy, tranquility or just being OK with things.

Core Transformation is a simple and easy to learn series of questions that you ask yourself in order to communicate with the part of you that is feeling the emotion. You learn to identify what that part wants for you, and then continue to guide it through simple questionning back to its core state - very positive energy. You then simply reverse the process and allow this positive energy to clean out the negative charge that was originally in place.

I’ve had hundreds of experiences of feeling strong emotions before, during or after a trade which I’ve been able to quickly transform into a calm, positive, opportunistic state in which I can see the market much more clearly. In this way I’m much better prepared to execute each trade as a unique opportunity.

If you are interested in finding out more about Core Transformation you can read the book Core Transformation or learn the method in detail through the DVD of the training course.

Enjoy!

What am I talking about? The Trader’s Mindset.

The trader’s mindset is the crux of why so many talented, intelligent people are unable to be successful at trading. Not because they can’t analyze the markets, not because they haven’t found a good trading system - but because the human mind and physiology is designed in such a way as to almost guarantee failure, unless we learn alternative mental and emotional strategies. Because so many traders don’t believe that mindset is important and worthy of focus — quite simply, they fail.

In the heat of the market traders need their objectivity and full faculties of perception the most. And yet at the very same time they are usually dealing with feelings of fear and stress which close down the full range of perception. Traders become quite literally blind to the possibilities. Its why traders so often make poor decisions in the moment - and in hindsight say “Why on earth did I do that?”, or “How on earth could I have missed what was staring me in the face.”

I remember reading the two bibles of trading by Mark Douglas - The Disciplined Trader, and Trading in the Zone quite early on when I began trading. These are both extraordinary books, spot on the mark, which in later years I really appreciated. But at the time it was “yeah, yeah that’s good, now what about my trading method.”

When we’re starting out, reading books, studying up on the markets, we hear the same thing again and again and again - trading is 80% mental and only 20% method. And yet paradoxically most traders ignore this sage counsel - and focus almost exclusively on method.

This is the sad story of a guy I know… a successful business professional, who after one false start at full time trading in which he lost a small fortune, vowed to get it right. He went all out to learn to trade profitably. He spent more than a year researching, back testing, and practicing a method which had a significant edge. He worked like a fiend at his day job to save money to recapitalize himself, and he studied until late at night week nights and all weekend. Finally after extensive testing, fully confident in his edge he began trading….

After three months you would have found this guy sitting on the edge of his bed crying - a grown man reduced to tears because after all that hard work, a year of careful preparation, he’d blown his account. He’d totally under-estimated the impact of his mental state and emotions on his trading. Despite being a smart guy, successful in his career, a highly effective trading method, in the heat of the market he would lose his composure and turn into an over-trading train wreck. His story isn’t unique…by a long shot.

The reason I know this particular guy’s story so well is that he is me. I went through that, and learned my lesson well. I spent and continue to spend a lot of time working on mindset, on developing more effective thinking strategies, and on finding effective ways to clear emotions.

For those of you that are struggling to reach your potential as traders and investors - despite being talented, intelligent and successful in many other regards - I say this - take your mindset seriously. Give it the greatest amount of focus in terms of training yourself for success.

Devour “Trading in the Zone” and read it over and over until your get it. Learn techniques for clearing your emotions. Be persistent - it takes time, courage and willingness to change. At the end of the day, learning to master yourself will pay you back with the success you’re looking for, whether in trading or in any other area of your life.

Safe Trading

Mo

So here’s some trading advice about one of the most crucial skills of the successful trader - understanding how to read multiple time frames.

It doesn’t matter if you are a short-term, swing or position trader. It doesn’t matter what method you use - trend trading, reversals, whatever — you have to understand the effect of the time frames that influence your own trading period so that you can keep an eye out for impending trend changes. Failure to do this can quickly eat up trading profits as you try to enter positions without knowing which side of the trend you are on.

My own preferred method of doing this, as a short term trader of the Dow and S&P futures, is to analyze the cycles operating in the 13, 30 & 60 minute time frames. I appreciate that this may be a little complicated for some so another simple and effective method is to use multiple moving averages. Thanks to Trader Mike for highlighting this method, developed by Daryl Guppy, in his article Another Look at Multiple Moving Averages.

Linked from Mike’s article is an article by Daryl Guppy in which he explains the method in more detail. The gist of it is that the two sets of moving averages show the behaviour of two groups active in the markets - traders operating in the short term, and investors operating in the longer term. The very simple parterns of the two sets of averages indicate and then confirm trend change.

As a stock trader, or equity futures trader, if you watch the MMA’s on the 13, 30 & 60 minute time frames of the S&P500 futures, or your other favorite leading indicator, you’ll have a good sense of what’s coming down the line in terms of significant trend change.

First you’ll see the trend change in the 13, then if its real it will be confirmed by the 30 and then the 60. As you continue to watch the higher time frames 120, 180, 240 minute etc you’ll be able to see the trend being confirmed or at some point rejected. And of course you’ll see this rejection coming by going back to the smaller time frames 13, 30 etc.

As you can see the whole process is cyclical. You identify an emerging trend change in the lower time frames, you watch it confirming or being rejected in each of the higher time frames, and at some point the whole process begins again in the lower time frames.

This is one way to help you keep the overview. And by combining it with key support and resistance numbers you’ll have an even better sense of what is going down (or up!) around you.

Have a safe week,

Mo