Trading is 90% Between the Ears

"Trading is 90% Between the Ears" - This is a comment that Don Miller has mentioned several times in his blog. Mental discipline is also the focus of Mark Douglas's "The Steps to Success" from "The Disciplined Trader".

I thought that I would share some thoughts from Linda Raschke on Mental Toughness and Discipline taken from her trading manual that you get when you attend her 3-day seminar.

"There are two kinds of traders...those who have had a slump and those who will! Think about this...the most successful traders are the ones who have lost the most money. The majority of great traders have gone through long flat periods at some point in their career. Winning and losing periods can seem to come in streaks. But just about all extended slumps have a psychological reason behind them.

Why is it that nobody thought it was possible to run a 4-minute mile, yet when it was broken, within a few weeks 7 other runners also broke this barrier? The human species did not change... a psychological barrier was broken. Your belief system is always going to be your main weapon in pulling yourself our of a slump.

You must believe that there is a strategy you can use and fall back on. You must have a game plan for every day.

Focus on the numbers, patterns, and tendencies to get an edge. Knowledge will give you an edge. So will understanding your own game. Preparation will give you your final edge.

The following comments were inspired from Brad Gilbert's book, "Winning Ugly", which was written about tennis. There are many parallels between tennis and trading, both being individual performance disciplines.

• The most successful players are the ones who have a burning desire to win.
• Don't check out of the game. Never give up! DEFY FAILURE!
• Improve your consistency. Stay active, stay involved, and keep your feet moving.
• Be patient. Do not force a trade that isn't there. Wait for the play to set up.
• When you get a good trade, go for it. Manage it. Trail a stop. Don't be too eager to get out.
• Be flexible if what you're doing isn't working, change.
• When down, get a little rhythm and confidence going. Don't worry about being too ambitious.
• Stay with your game.. Don't let outside distractions bother you. They take energy and break your concentration.
• Match your particular strengths to the type of market conditions.
• Hate making stupid mistakes and unforced errors. This includes not getting out of a bad trade when you know you are wrong.
• Many players will play their best game when they are coming from behind.

WHEN THINGS GO BAD

• Talk about your fears or problems. Acknowledge them. This is the first step in learning how to deal with it.
• Make sure you do not sink into an investment mentality. The market has a different personality every day and can be traded in both directions.
• Go back to basics. Do some research. Study the simple trading patterns.
• Manage you lifestyle. Keep balance and perspective and guard against burnout.
• Do your homework. Ask yourself, are you a trader today? Then follow your plan.
• Jumpstart some other part of your life such as an exercise program or hobby.
• Keep your mind occupied. Do not dwell on damage done that can't be undone.
• Learn how to channel your stress. A physical outlet is an excellent way.
• Build a support network. Have a friend or family member you can confide in. Develop other trader friendships.
• Don't forget to remind yourself about the things that you have done right in the past.
• Make sure to note the patterns within yourself so the negative ones do not repeat themselves."