As portrayed in Hollywood movies, when a demon takes over a person’s mind, it is said to be “possessed” by it. They no longer have control over their own mind or even their actions, because the devil has taken control.
As a trader, you may feel that you are possessed by a trading” Demon ” at times, as if you have no control over your actions in the market, as if someone else is controlling you. You find yourself entering operations when you know you shouldn’t, leaving positions when you know you shouldn’t, or risking more than you know you should. It can really seem as if you have no control over your own shares in the market sometimes. Almost like your possessed! Does that sound familiar?
In today’s lesson, I will discuss some of the most vicious trading” demons ” that possess the minds of traders and give you the power to exorcise them once and for all. This lesson is about taking the negative and turning it into the positive. I’m going to show you how to demolish the negative thinking patterns and habits that prevent you from achieving the commercial success you want and deserve.
Trading Demon # 1-Hesitation. Second divination
You see a potential trade setting, you see ‘perfect’. Then, instead of setting it up and moving away until tomorrow and staying focused on the time frame of the daily chart, you start looking at the 1-hour chart; you start thinking. “Maybe I shouldn’t take this exchange after all? Hour 1 seems to be in a downtrend even though the Daily is in an uptrend, damn it, what do I do?Let the second divination begin.
You decide not to enter the trade after running out for 2 hours searching and finding things online that agree with your reasons why you shouldn’t take the trade, even though the setup is there on the daily chart and objectively you know it is perfect. This is a good example of how the “demon of slaughter” can infect your mentality and lead to destructive actions in the market. Your mind is a very, very powerful tool, but it can also fool you if you’re not careful. In fact, you can think too much, over-analyze and obsessed about the smallest little thing you don’t like about an otherwise perfect looking trade.
Such scenarios are the reason why most traders lose. People think too much, lack confidence, usually just give in to all the negative voices in their minds about why a trade might not work.
The number one way to eliminate fear in trading is to reduce the amount of money you are risking per trade until you are no longer afraid. People are afraid to trade once they suffer a couple of bigger losses than expected and start seeing their hard earned money get reduced faster than they thought possible. Any trader who is not a risk manager first, will lose money, usually pretty fast. I have discussed the fact that an easy way to measure whether you are risking too much or not is to test whether you can sleep with your risk per operation or not. If you find that your mind is worried about your operations, then you are risking too much. Mark down your risky dollars per trade until you literally no longer focus on money and instead focus on trading.
Trade demon # 4-lament
The demon regret can wreak as much havoc on your trading account as any.
How many times have you felt consumed by repentance after not entering a trade you wanted? Or, how many times have you regretted not staying in a trade any longer, because it exploded in your favor right after you left to make a small profit? There are many ways repentance can creep into your mind due to the different experiences in the market. However, one thing is certain, you must learn to eliminate the regret of hurting yourself, because if you don’t, it can destroy your trading account as fast as any of the other ‘demons’.
To stop being controlled or consumed by repentance, you must stop doubting perfectly good operations that meet your predefined criteria and to stop doubting, you must stop being afraid (see how all these demons work together to work against you?).
It all starts with having a well thought out negotiation plan that follows with discipline. If you begin to deviate from your plan, you will begin to put yourself in situations where repentance can creep in. You don’t take a trade that fits your plan because you hesitated and were afraid? You’re gonna regret it. If you regret it, then you’re going to start feeling like you want revenge on the market, which is the next commercial demon we’ll discuss.
To be a successful trader, you really need to have ‘ice in your veins’, i.e. you must have the ability to go ahead and get back on track no matter what happened in your last trade. When you start letting your previous trade or market disorder influence the next decision you make, you’re basically becoming a purely emotion-driven trader, and those are the kind that burn very quickly. A professional trader does not let repentance control their actions in the market, because they know that the market will be there tomorrow and use every failure or mistake as an opportunity to learn and grow as a trader, so that they do not make that same mistake again.
Demon trade # 5-revenge
As I mentioned earlier, if you start letting repentance slip through, it will soon be followed by revenge. Trading with a sense of need for ‘revenge’ is a very slipper slope that perhaps faster than anything else can lead to blowing your account.
Revenge can sneak after repentance as mentioned, or it can sneak after a great loss. Essentially, revenge and anger are the same problem for a trader. You may feel angry after losing a good trade (because you hesitated and thought about it too much) or you may feel angry that you left too soon and did not adhere to your trading exit strategy, whatever the reason, anger will quickly lead to a trade revenge, and these may be the most dangerous type.
A revenge trade is usually done in a hurry and with too much risky money. Usually traders feel they want to “get back” the money they just lost, or they may feel they want to make money because they missed a good trade. Revenge exchanges almost lead to larger than desired losses, which leads to repentance and that leads to fear or more revenge. All this is like a big cycle of commercial demons, if you will, where one demon leads to another and another, and so on, until you have no money left.
The best way to eliminate the revenge trade is to eliminate the feelings that cause it. Therefore, do not deviate from your trading plan and take stupid trades that lead to repentance and do not take too much risk by trading that leads to big losses; both of these lead to revenge trades that lead to more losses. You must break the cycle somewhere. Then do it here and now.
Business Demon # 6-hope or greed
Hope may seem a strange thing to label as a commercial “demon,” but let me explain…
How many times have you been in a trade and instead of taking profits where you had planned, you move your profit target further because you expect the market to move forward in your favor so you can get a bigger reward (greed)?
You see, hope and greed are close cousins in the market. Traders become greedy when they have hope. They begin to expect that by taking more trades they will earn more money, or they begin to expect that they will get a great reward by doubling their risk; they are being greedy.
There’s an old saying on Wall Street that sounds as true as ever to this day, it’s something like: bulls make money, bears make money, but pigs are killed. What it means is that pigs are greedy (they eat a lot) and if you are greedy in the market, it’s only a matter of time before they kill you, losing all your money in the market.
Once you become possessed by greed, you are doomed to lose your trading account. Trading shouldn’t be about making a lot of money. Instead, it should be about earning, becoming the best in the trade you can and then, as a side effect, you will earn money. When people start putting money first, they are being greedy and losing. You must do the right things to earn in the trade, and this usually means that you earn money very slowly at least at first. Therefore, if you are greedy and want to earn money fast, you are not going to run the proper trading mechanics that will lead to long-term success.
Commercial demon # 7-ignorance
The last commercial demon we’ll discuss is ignorance. Obviously, this is easy to diagnose because if you are ignorant about trading, you will not make much money.
However, where I think many traders encounter problems is that they often do not even realize that they are ignorant with regard to trading. They are studying the wrong things, like indicator-based trading or they are obsessed with day trading, which can get you stuck and make you study and study for years only to end up with nothing to show. There’s a much simpler way, a smarter way.
Knowing that you can’t control the market and that you can only control yourself, is a great first step to not being an ignorant trader anymore. Once you start focusing on controlling yourself and not on the market, you will set aside things like indicators and daily trading, because ultimately, such trading devices are used by traders to try to gain more “control” in the market, whether it is possible (it is not). But, these things cause the illusion of control, make traders feel as if they are controlling the market more. As for small time frames like a day-trader or plastered 5 indicators on your charts will bring you the feeling of control. But all he is doing is complicating the technical analysis process too much, which is a very ignorant thing.