It's Mental

The story I’m about to tell you may or may not be true. I may have tried to recreate events, locales and conversations from my memories of them. In order to maintain their anonymity in some instances I have changed the names of individuals and places, I may have changed some identifying characteristics and details such as physical properties, occupations and places of residence. 

The brown wooden door flung open.

Through the full-wall mirror in front and back of me, I caught a glimpse of an older man came in.

He was wearing a dark shaded jacket and a black shirt. Grey hairs overwhelming the remaining dark ones.

For a moment it felt like I was in 'Inception' as I was seeing infinite reflections of the warmly lit interior of the room and of the grey-haired man who have just walked past my back like a couple of copies of Agent Smith from the 'Matrix'. He went straight to face the wall on the other end of the room to do his business.

The sound of the water from the tap was flooding the room as I was finishing washing my hands. I turned the tap off and shook some water off my hands.

Just as I turned around, the grey-haired man walk towards the sink beside me and started washing his hands. I walked to the other side of the room where the full-wall mirror is. There was a loud tearing noise as I ripped a piece of paper towel from the dispenser.

'Ang haba nung topic niya 'no?'

I lifted my head and faced the mirror on my left to look for the owner of the voice that spoke the bold words.

I saw the grey-haired man shaking his wet hands off as I did moments ago.

'Sayang oras sa Psychology eh', he followed up as I wiped my hands dry with the paper towel that I ripped before he spoke. Still looking through the full-wall mirror.

I'm not entirely sure if he was talking to someone directly or he was just spitting the words out waiting for someone in the room to say something back.

But no one replied.

'Dapat puro TA na lang topic eh. Mas OK pag TA ang topic', He suddenly lifted his head and looked at me through the mirror in front of him and suddenly I felt obligated to reply.

But I didn't.

I threw my paper towel in the bin just below the dispenser and quickly ripped a second paper towel to finish off drying my hands.

'Ewan ko ha, sa 'kin lang naman. Mas OK pa rin TA', he suddenly changed his tone.

Maybe he realized no one was willing to make a 'friendly' conversation.

I turned around and walked towards the wooden door as he was walking towards the paper towel dispenser.

For a moment we were facing each other, he threw his closing remarks.

'Kanya-kanya naman yan eh, 'di ba?', his face trying to tell me to give him a reply. A confirmation. A something. Anything. Just to end the conversation.

But I didn't.

I just nodded and tried an awkward smile.

I reached for the polished metal door handle and swung the door open.

Silently, I walked out of the men's room.

The Mental Game

Most new traders' first move in learning how to trade is looking for the best strategy. I've been to that. We look for the best indicator. We study moving averages, stochastics, the clouds and setups of known people with weird names attached to it. There's nothing entirely wrong with that. But it's just not enough if you really want to be a successful trader.

I am no experienced trader. I've be only in the market for less than a year. I put a halt on my live trading and only been doing pure Virtual and Paper trading since the beginning of the year to focus on learning a setup or two and minimize the risk of losing real money while at it. But one thing that I am starting to realize on this journey is that - trading is more about the emotions than the numbers. That the foundation of a good trader is in his mindset and his habits. It's in his psychology.

Let me share some of my observations on my previous trades through my journal (and memory) that are neither caused nor can be fixed by Technical Analysis, the numbers, or the strategy.


Premium Rush

I was a few weeks into trading. Back then I was grinding it by waking up 5AM (Middle East Time) to catch the opening session of the market. I got no setups nor strategy. I just trade what's hot on 'facebook analysis' or on 'tsismis setup'. Basically just refreshing my the social media every minute and see if a tip or reco would come out. And in this story, PHR (former H2O) was reco'ed.

It gapped up more than 8% at the open. By the time I caught wind of the rally, it is already trading at 18% above from yesterday's price, which was on support. Quite the risk. But for a newbie's view, any stock that are top gainers are good stocks to trade.

Buy! Buy! Buy!

I was excited. I bought my a load of shares thinking that it will be a jackpot trade. But the risk outcome will have a devastating impact on my capital. But I still jumped right into the party.

My heart was racing. My palms got sweaty. I can't sit still. My hands are slightly shaking. Price went crazy and went as high as 24% from previous day's.

Luckily, I got out alive. My large position gained a merely 3% gain.

Not worth the heart attack if you ask me.

Trading should be calm. If you are experiencing those heart-racing moments on most of your trades. It only means that you are taking too much risk on your trading. Trading should not be heart-racing, sit-jumping, or sweaty palms kind of process. It should be a planned and a disciplined approach which you can repeat over and over again but still managing a small risk every time.


Revenge Trading (Makabawi Syndrome)

Have you ever been in a situation where you actually planned the trade. You entered the trade flawlessly and all are going well. Then suddenly the market decided to prove you wrong and went against your bias?

For some traders, they struggle to accept that the market doesn't give a shiz about you and just do what it does.

For me, there was this stock that I am trying to trade during it's several breakout. But the stock always proved me wrong and gave me a fakeout every time. So I decided to buy on consolidation. Went against my rules. And tried to show the market who's in charge. But I was again proved wrong. The stock reversed and quickly fell.

If you feel that most of your trades are not going as planned, maybe the market is telling you something. You can't control the market, so control what you can - yourself. In this kind of situation, it is very helpful for you to take a break away from the screen and breath some fresh air.

The market will always be there. It will never run out of plays for you to trade.


Overconfidence (Superman Syndrome)

I don't have a particular experience on this one - yet -  but have read significant posts about it. I have been on a losing streak though - 11 cut losses, which caused me to have fear and lack of confidence after. Anyway...

There will come a time that you'll sometimes hit a number of winning trades in a row. Every trade going exactly as you planned. In this situation you experiences a mental state that many calls as the Superman Syndrome. It is the feeling that you are invincible.

So you go trade some more. And more. Increasing your position size.

Because...

'What can go wrong?'

Everything can go wrong!

Nothing is certain in the market. It's a game of probabilities. The next thing you'll know is that you're back to square one. Gains are gone. And the market decided to humble you down.

Learn to respect the market as early as we can, while the trades and losses are still small. Because overconfidence usually leads to ruins pretty quick.

So...



Psychology or Technical Analysis?

Neither. Because one cannot exist without the other.

One important realization so far on my trading journey is - self-awareness plays an important role to being a disciplined trader. A trading system by itself, no matter how good the strategy is, cannot be successful if not executed with a rock solid discipline and the right mindset.

Now...

As I've said - self-awareness plays an important role to being a disciplined trader.

Two words.

Self-awareness and discipline.


Self-awareness

Your journal is the key here (or at least based in my experience). The things you write on your journal should be able to give you a detailed overview and insight of the emotions that you get caught in while trading. Maybe your eagerness to enter a breakout the earliest you can or during morning session causes you more whipsaws than actual breakouts or that you get frustrated more quickly by those whipsaws happening in a row or you want to revenge trade those whipsaws right after to recover your losses. Which results to further losses.

Do a detailed review of your trading. Do it daily, weekly, monthly, quarterly and annually. Look back on our trades. Identify what worked and what went wrong.

Are we patient enough or did we rush in?

Was our TP realistic? Did the market respected our TP, stopped short, or blew right through it?

Did we stick to the plan or we modified it? Did we adjust our stop loss? Was the exit as planned?

Can we adjust to get us in trades earlier or help us avoid whipsaws?

Are we exiting trades early? Adjusted our TP? Or just afraid to lose profits?

Do we hold on to losing trades?

How often do we follow our plan? For the one we follow, did we win?

Did we miss some trades? Why? Are the entry signals legit for our system?

Could we have done something differently to minimize loss or maximize profits?

What’s the market sentiment? Uptrend, sideways, reversing?

By asking these questions, you are giving yourself the answers you need to refine your system and build better habits that reinforce the right mindset.

Which takes us to...

Discipline

Trading can be like driving a car.

Imagine a race car.

No matter how well-designed and technically advanced, it needs to be driven by a disciplined driver.

What happens when a race car is driven by an unfit and reckless or a fearful and weak driver? Yes, my friend. Crash and burn.

But give a disciplined driver any kind of car, he will be able to handle it and race it with grace onto the finish line.

So...

As I've said in the beginning, don't just focus on the technical side of trading. Don't get blindsided by fixating your focus on the charts alone. New traders think that it's all about the best indicators or the best anaylis just because it's what they see on the surface. The tangible side of trading.


They failed to look within their selves to get an understanding of their own personality or character. Fear, lack of confidence with the system, impatience, revenge and other emotions are a trader's own demons inside. The charts and analysis won't be able to fixed those emotions for you.

So reflect.

Look back.

Review your trades.

Make adjustments.

Gain confidence.

Develop discipline.

Acquire self-control.

Move forward.

Give as much effort on developing your intangibles so that you can create and refine a trading strategy that lets you feel as emotionally calm as possible while trading.