Mastery of Trading

I get the question from time to time “How do you master your trading”. I think most of us know that mastery of anything, be it trading, a musical instrument, a sport, etc. all take time and it’s an ongoing process, it never ends. Mastery sounds great in concept, when do you really and truly master anything. It’s day to day for most of us. We have good days, bad days, and great days in our trading. We try to keep our head above water on the not so good days and keep our enthusiasm and overconfidence under wraps on the great days. Ultimately we land somewhere in the middle on average leaning toward the high side on most days.

When we talk about mastery of trading, or when you hear the question “How do I master my trading” it’s really the wrong question. Trading really is the easy part. Your indicators are going to confirm long, short, or flat. Your price action will confirm buyers are in control, or sellers are in control. It’s not that difficult to determine which side to trade from, or where your entry is.

The right question is ask is “How do I master myself” because that is really the question and issue that needs to be dealt with. The weight loss industry is a multi billion dollar industry. Cigarettes are something like $8.00 a pack!!! But people still overeat in spite of all of the information about diets and eating plans. People still smoke knowing that they are shortening their life with every drag. Why do people indulge in self sabotage? And it ‘s not just smokers, or people who struggle with their weight. It’s drinking. It’s people who push themselves to death, literally while exercising to extremes. And traders blow out their accounts. They over trade. They take too big of risk. They move their stops. They add to losing positions, and on and on. And they know they are breaking their rules just like the smoker knows they are sabotaging their health.

Trading, just like life, is about self control, discipline, patience, commitment, willingness to follow a simple set of rules. But we all know how difficult is can be. Let’s say for example you have a simple MACD crossover system. MACD crosses up you go long, MACD crosses down you go short. Simple right? But how often will you ignore your signals? How often will you fail to act after a signal is triggered? How often will you NOT exit your trade when the rules say clearly  “Get out now!” We have all been there. We have all done this no matter what our system is. This is why trading is so hard. Not because of a MACD signal, but because we have such a hard time sticking to the program. Like a diet. Or giving up smoking and taking up exercise. Or New Year’s resolutions that fail after a week.

You see it’s not trading that’s hard, it’s learning to be disciplined and patient. To stick to the plan no matter what and there are days it will be excruciating. The real question is how do I master myself which really means “How do I master my behavior?” That is where most traders fail right at the moment they no longer have any excuses left. The method works most of the time. The trades present multiple times per day. But you do not act, or you act impulsively and take trades that are not part of your program. And just like any other program, when you go off the reservation, you will fail, and fail miserably.

Richard Dennis of Turtle Trader fame, a master trader with a proven track record, taught a course for a semester at a university on trading and investing. He said it took about 2 weeks to teach the students the system. It took the rest of the semester to get them to follow it. Now are you starting to understand the implication self mastery has in your trading. Yet the majority of traders will spend the bulk of their time researching all the technicals on the chart and back testing every waking moment. But what happens when you are done with your backtesting? What happens when you now have to sit down and actually take the trades? If you have been trading for any length of time you know the answer. All of your demons will rear their ugly heads and you will fail to reach the level of performance the system created because you still did not work on your self mastery. All the technical savvy in the world cannot act as a substitute for your inner work and mastery of self, your behavior.

It has been said that mechanical systems take all the emotion out of trading. That’s the biggest lie ever told to traders. I used to program mechanical systems and had a few programs that did quite well. There were traders who had those systems and after 3 or 4 losers in a row would call their broker and instruct them NOT to take the next signal. What happened to mechanical systems taking the emotion out of trading? Don’t you believe it. After 3 or 4 losers in a row, traders will stop taking the trades. And can you guess what happened on the next trade that was passed on? You got it….it was a HUGE WINNER! It made up for all the losses with one trade.

The key area traders need to work on is “not caring” about the trade, the result, the profits, or the losses. The more you care, the more emotional you will be as a trader. When you care for anything it implies emotions are high. It’s how we are wired. It’s in our DNA. We have to let go of the outcome, or even the desire to take a trade and just be casual observers, before, during and after the trade, win, lose, or draw. That is a skill that you only acquire over time, and in real time trading. There is no other way, but there are things you can do to help along the way.

1) Learn to control your breathing. Sounds a little too “New Age” for you? It’s one of the first things special forces are taught. Control the breath and you control the mind. Every emotion has a corresponding breathing pattern. You will find when you are in a trade your breathing changes and will mimic the breathing of a fearful individual. Learn to slow the breath and focus on deep diaphragmatic breathing. This will take practice but the rewards will be well worth it.

2) Stop looking for trades. What? Stop looking for trades and start practicing waiting for a trade. Looking for trades is looking for trouble. The trades are going to come to you on your terms in the markets time no matter how much you want to click the mouse. The market runs on it’s own schedule. You cannot force a trade. You cannot make a trade happen. You can only watch a trade unfold. The mindset you want is the same mindset you would have when you are at the movies. You are simply watching the show without any judgment. You are just a casual observer seeing what happens. There is no idle chatter going on in your head when you are watching the movie. Why? Because ultimately you don’t care what happens, you just want to RELAX and enjoy the show. That’s the mindset you want when you are trading.

3) You can’t be a disciplined trader and totally impulsive with the rest of your life. Look around at your life and see if there are other areas where you are not disciplined or patient. There will be clues all around you. Ask a family member or friend to be honest and tell you if you are disciplined or patient. Perhaps not in all areas but these traits will show up. Everything you have ever done, everything that has contributed to who you are, is being brought to the trading table and until you uncover those issues outside of trading, you will live them out through your trading.

4) Begin with small baby steps. You are not going to change in a day. Take your time, give yourself some slack. But take some sort of action. Pass on a trade on purpose. Let your stop do it’s job without moving it and just see how that feels and then let that emotion go. Little by little you will begin to let go of caring about the outcome of any trade because you know based on your method that you will be right the majority of the time. The higher your win percentage, the easier it will be to follow the rules. But don’t stake your entire trading career on the method and the win %. The best method will fail if the trader does not have the ability to control their thoughts and their actions.

Good Trading!