XI. Futures Trading Professional Adrenaline Lowering Techniques & Must Do's

¨ANYONE WHO CHOOSES TO BE CORRECTED IS ON THE PATH TO SUCCESS.  THOSE WHO REFUSE CORRECTION HAVE LOST THEIR CHANCE¨. T.B.

It is inherent in the world of futures trading to experience emotional outbursts of joy, anger, frustration, anxiety and hope on a daily basis.  The way to becoming a professional trader includes the domination and understanding of all psychological factors involved in this business. The following manual will  pinpoint these factors in order to create awareness in the reader; based on the premise that in order to solve a problem, one must recognize it and understand it.  If you are struggling as a futures trader, or simply want to learn and understand why things work the way they do, this is for you.

When you finish reading this manual, you will be able to do the following:

 

•  Understand what is going on inside your brain while you trade.

•  Understand what you need to do in order to become a professional trader.

 

YOU NEED TO READ, LEARN AND APPLY WHAT IS EXPOSED IN THE FOLLOWING PAGES.  THERE IS NO EASY WAY, JUST THE RIGHT WAY.

 

 

The Impatient, Greedy and Rule Breaking:

How many times have you analyzed a market during a week-end and come up with a great trading strategy for Monday? You patiently wait for Sunday night because you are trading the Globex and as soon as the market opens you begin to follow it.  You are sitting  in front of your screen thinking about the strategy you are about to execute; you are not using any entry ¨stops¨ and your hand is on the mouse ready to enter at the best possible price you can get. 

Your strategy calls for a buy on market x if the price gets above a certain level of resistance.  The fundamentals are bullish, so you really want to get long on this one.  The market sells-off at the open on Sunday night and now you really like the price (if you liked it at 125,  now you really like it at 105).  Even though you are supposed to trade a ¨break-out¨ of the resistance level, you get long x2 lots when the market is down and use the previous day's low as your ¨stop loss¨ (you think ¨It will go up, might as well buy it now at a better price).¨  The market immediately goes against you and you begin to get nervous and HOPE that this thing goes back up soon.  You use a ¨mental¨ stop at your previously determined ¨stop loss¨ level and you wait in front of your screen.   Thirty minutes go by and the trade has stabilized and looks about to be getting ready to move back up.  All of a sudden you see something that you like on your chart and you buy x2 more a bit lower in order to ¨average cost¨ it down.   Now you are thinking about the huge profits that you'll make when the market moves up and reaches your price objective for the expected rally; you are really laughing now and feel a bit better. 

Another half an hour goes by and the market continues to linger between losses and no losses for your account as it moves in a ¨range.¨  You are even more nervous now than you were before since you increased your risk for this trade (you wish you had not done what you did, but now you're in the market and you don't want to get out with a small loss). ¨Let this trade work¨ you say, ¨give it more time to work.¨  All of a sudden, the market starts to collapse and it goes down very close to where your ¨mental stops¨ are.  Now you are really angry.  All you want is for the market to move back up so you can get out and ¨break even.¨  You just want your money back; you are no longer thinking about potential profits.  ¨Damn this market,¨ ¨I can never be right ONCE,¨ ¨please God make this market move higher,¨ ¨stupid move,¨ ¨you're and idiot,¨ etc.  You continue to wait while you see a large loss on your account status but you still tell yourself ¨wait for the bounce to get out¨ (After all, your ¨mental stop¨ is still intact).  Your state of mind is a mess and you have an enormous pressure on your shoulders; You are very irritated and no one can even come close to your computer because you get even MORE nervous. You are simply PISSED-OFF

All of a sudden, the market begins to move even lower; it goes past your original ¨stop loss¨ and continues to collapse in a manner of minutes.  Now the market has gone way past your initial risk level and you are still long, taking a beating.  You are now holding HUGE losses and are forced out of your original position with a loss that you could have never   All in a matter of hours.  

 

The Patient ¨Top¨ Picker (at least he is patient):

How many times have you been analyzing a chart where you technically know that you should be buying, but you are waiting for the fundamentals to move this market down? As a result, you don't buy it in fear of a collapse, but the market continues to move up every day without you?

 

 

The Lack of Self Control:

You have been looking to buy a certain market on a certain break-out level and placed your buy entry order on a ¨stop.¨  As soon as you get ¨stopped¨ into the market, your position goes in the red.  You place your ¨stop loss¨ order and wait.  After giving it a few hours, the market will simply not move higher; in fact, it is about to break another support level.  You don't want to get ¨stopped out¨ (it is getting pretty close to your ¨stop loss¨ now and you are very nervous), so you figure you'll get out before this next support level gets taken out.  You get out with a ¨market order¨ and end your misery.  As soon as you get out, the market reverses and starts to move up, JUST LIKE YOU HAD FORESEEN. The market goes past your original entry point and you don't buy it again missing ¨the big move.¨

 

 

The ¨Impatient¨ Bottom Picker:

How many times have you been looking to buy a market after new lows have been hit and you THINK: ¨The price is a great buy!¨ You buy it; the market goes your way for a little bit (where you are so happy to ¨own the exact bottom of it¨) but it suddenly reverses and quickly hits new lows. You get ¨stopped out¨ with a small loss (if you get out at all). 

 

The next day, after the market has moved down some more, you decide that NOW is the time to ¨get in,¨ and you buy it again. Once again the market makes new lows and you get out at a new loss.  You think ¨these are only small losses I'm taking; I'll make them all back handsomely when the market does turn around, because IT WILL, IT HAS TO¨ (sure it will, but it could take 5 years to do so!). So you keep on looking for places to buy it. You don't want to ¨miss¨ the imminent move up and after the market sells off some more, you buy it again.  The market makes new lows, and you take another small loss.  The same process repeats itself over and over again until you run out of money to trade the futures market.   You decide to buy calls (since you can still afford them) as you now HOPE that the market FINALLY goes up and gives you your huge profits (your money back basically).  The calls expire worthless and your account has no money.  As soon as you run out of money, the market starts to move higher like you were expecting it to 

Murphy´s Law in Action:

How many times have you been sitting in front of your screen thinking ¨this market is not going anywhere,¨ ¨I should get short if this support level gets taken out, but I don’t think it will get taken out right now,¨ ¨this market is just stuck in this range.¨ You then see a quick sell-off which you expect to be met by buying; you see your support level get hit time and time again but you don’t want to do anything because you are ¨expecting the market to bounce from here.¨ All of a sudden, the market collapses past your support level and begins a huge move to the downside. You sit there having done nothing crying, whining and feeling miserable that you missed a great trade that you KNEW was going to happen.  You continue to kick yourself in the ¨butt¨ all day watching the market go down until you suddenly decide to sell it with a ¨market order.¨  As soon as you get filled, the market starts to bounce; you can't handle the immediate pressure and you get out at a loss not even 30 minutes into the trade. This market has pounded you twice: once for missing out on the original trade and now for taking losses when you should have profits!!  HAS THIS HAPPENED TO YOU?

 

 

¨Trading in a range¨; The Big Pay Day (Murphy´s law again):

Another day, after you have digested what happened the last time you traded, made some adjustments to your ¨system¨ and are feeling a lot better, you get all pumped up thinking: ¨This is it! THIS IS THE DAY   I'm going to get back all the money that I’ve lost in this damned market!¨  You observe that a trading range is developing and place an order to buy a break-out to the upside with two lots.  The market moves up here, gets you filled and gives you some profits which you don't take and it quickly reverses.  The market gets back into the trading range, and it starts to move down to the bottom of it. You are obviously nervous since you are once again, losing money. The pressure mounts until you suddenly make the decision that it will now likely go the other way (after all, it failed to break to the upside); you  sell your original two longs at a loss with a market order and go short with two other lots.  The market immediately reverses once again and begins moving towards the highs.  You are getting angry now and decide quickly that your original entry was correct ¨you dummy, you were right from the beginning!¨ So you take a new loss on the two shorts and get long once again at a price similar to the original long position. Only this time you say to yourself: ¨Now the market will go higher, I'm sure of it¨ so you buy four lots, because this time, ¨you are absolutely positive.¨ Sure enough, the market moves against you once again and re-tests the lows. You get out at another loss because this time you have too many open positions and the pressure is too great. This has you absolutely furious at yourself and at the market, ¨Stupid market!¨  ¨You idiot!¨  You remain at your workstation waiting to get back in at ¨even¨ for the day, thinking ¨I've got to be right ONCE today.¨ You get so frustrated at the fact that the market has moved in a very narrow range (basically has done nothing) and you have a big loss and big commissions to pay out. This anger makes you want to stay with your computer and continue trading until you can be right ONCE (you don’t want to go home with this big loss, you want to get back ¨even¨ for the day).

 

The market is still going nowhere when it suddenly hits you: ¨I’m going to trade the range!¨ You can see that by doing exactly this, all your bad trades could have been good ones today. So you buy at support (that has held for the whole day) only this time, you buy eight lots because you figure that a small rally into resistance will get you back at ¨even.¨ You buy your huge position, and the market (as if knowing what you were doing) does not rally back up and instead breaks support and begins to move down. This forces you out of your position with your biggest loss of the day. You finally had it with the markets and end up going home with a huge loss that damages your account and you psychologically.

 

 

Take The Profits!

One last example: (please note that we are only looking at bad trading experiences because they are the ones that will teach us the most about our habits, patterns and systems).

The next day, you come in with a down beat expectation, after not being able to sleep the last couple of nights because of the losses that you have accrued in your trading account.  The market gives you a buy signal and you get long with only one lot (because you don't want a huge loss any more and you are hurting). The trade begins to work right away and you are a bit relieved that you FINALLY have a profit.  Only this time, you think ¨I better take it before it gets away¨ and you go ahead and close out your position.  Once you get out, the market begins a huge move in your direction and leaves you feeling like an idiot for getting out so soon.  Sure enough, the market would have given you a lot of the money back, but you only took in a very small profit in comparison to what you could have had by the end of the day.  Once again, you are mad and frustrated even though this time, you have a small profit.

I can go on and on, and I would be VERY surprised if none of these scenarios have happened to you at one time or another.  TRADING IS NOT EASY! We get lucky once in a while, but for the most part, successful traders have one thing in common: CERTAIN WAYS OF DOING THINGS; CONSISTENTLY, OVER AND OVER AGAIN, UNDER TOTAL SELF CONTROL.

It is extremely difficult in this day and age to sit in front of your computer and do NOTHING; to wait for the right signal to develop before you ¨jump in¨ and later regret it.  It is hard not be ¨enticed¨ to click your mouse and buy ¨at the market¨ after you see something that looks ¨good¨ at a moment´s notice-especially with today's electronic ¨one click¨ away ¨market orders¨ at your disposal. The mental stress that you experience when trading will be enormous. You will need to learn how to control this stress in order to be able to make money. Throughout this course, we will examine ways in which to do this in order to better our trading ability.

Everyone is different and we all have different mental structures, expectations, needs, wants, methods and experiences, but there are constant factors that we all experience in the markets, during every single trade: OUR HUMAN EMOTIONS.  We all experience the same feelings:  PRIDE, EGO, GREED, HOPE, FEAR and ANGER.  Once you open your first account, dream about the potential profits and take your first loss; you will be hooked into trading. This will happen because of three reasons:

 

 

•  You will always want to prove that you are an outstanding individual. (pride)

•  You will want your money back.

•  You will want to continue making money. (if you had initial profits to boost your confidence)

 

You will always want to come back to the markets (even if you lost all your money before) thinking: ¨THIS TIME WILL BE DIFFERENT.¨  ¨THIS TIME I WILL BE SUCCESSFUL.¨  ¨THIS TIME, I´LL TRADE THIS OR THAT SYSTEM that will FINALLY work.¨

The truth is that NO MATTER what the trading system used, most people will lose their money simply because they can't follow the rules on a consistent basis.  How many times have you broken the rules of your current system in the last month? Why does this happen?
This course will try to make you aware and teach you something that every futures trader should know:  TRADING WITH LITTLE OR NO ADRENALINE; TRADING WITH LITTLE OR NO PRESSURE.

The following pages will cover many new concepts and ideas in regards to controlling your emotions as a trader. They will affect your awareness and point to what needs to be done in order to become a professional. The way in which the material is presented: covering all mayor points, leaving no stone un-turned, MAKES IT WORTH YOUR TIME AND ATTENTION.

WHY DO WE LOSE? WHY CAN´T WE MAKE MONEY IN THE MARKETS THEN? This is a question that every individual that is in the process of losing their trading account has to go through.  Hopefully, it is not too late for you.

This manual could change the way you look at trading forever (if taken seriously). I truly believe that. So read as if you were getting PAID to do so (at least twice).

 

The trading system that we elect to follow has to be chosen in accordance to our specific needs and wants:  risk tolerance, trading beliefs, and trading expectations (more on this later).   We need to be comfortable with what we choose to trade, since the good health of our business depends on the good or bad choices we make from the start.  Everything, from the choice of brokers to the amount of time allocated for education will come to show later on in your trading. A smart decision is to allocate time for education and experience building before you actually trade with real money.  There are several simulated trading platforms that help you get a ¨feel¨ for what you are about to experience in real life. However, no matter how long you ¨paper trade¨ or how well you do in it; it will NEVER be the same as trading with real money.

Why could this be you think? Basically, because you have nothing to lose. When you ¨paper¨ trade, you have no money to lose, so you do not involve your HUMAN EMOTIONS. Once you trade with real money, the trading can and in most cases WILL turn sour in a hurry.  This is interesting don't you think?  We can do very well when we ¨paper¨ trade, but as soon as we trade with real money, we lose; well, there is only one thing that we can conclude from this then:  THE PROBLEM IS WITHIN YOU my friend, not outside of you. 

 

What is this problem specifically?  Can we fix it?  Well, in order to be able to fix something in the first place, we need to understand it completely.

 

Let's now DEFINE and understand our basic HUMAN EMOTIONS and specifically study how every one of them affects our mind and our trading. Note that later on in the manual, we will link all of these concepts together in order to give you a REAL solution; but for now, let’s simply understand what the problems are:

 

PRIDE: 

We are proud to be ourselves.  We are the proud and the glorious.  We are invincible when we first enter the world of commodity trading. We hear stories about how most people don't make it in this business, but we don't care.  We are going to be compared to ¨the best,¨ ¨the big winners¨; because we trust ourselves and we are proud to be what we are (we are the innocent beginners). Only later on, do we learn that the markets will rape our innocence in a very ugly and quick fashion (unless we become professionals).

When we are ¨proud,¨ we will tend to bolster our opinion on the market to anyone and everyone, every chance we get. We will yell our bullish opinion on this market and our bearish opinion on that market.  The next thing you know, you will be trading on that opinion and die defending it.  You will trade a huge position (since this is almost a ¨sure thing¨ in your mind) and watch the losses grow while you continue to defend your stance on the market.  After all, everyone knows what you think now, and you don't want to be wrong in front of them. Completely disregarding signal after signal (to get out) you continue to hold on to your loser until it becomes HUGE.

 

¨THE PROUD END UP LOSERS, BUT THE HUMBLE BECOME WISE¨ T.B.

¨PRIDE GOES BEFORE DESTRUCTION AND ARROGANCE BEFORE A FALL¨ T.B.

¨PRIDE LEADS TO ARGUMENTS; BE HUMBLE, TAKE ADVICE AND BE WISE.¨ T.B.

It is the proud that will always come back into the market after they have lost time and time again: BECAUSE THEY WANT THEIR MONEY BACK.  Every one of us is guilty of this; the difference between those who eventually become successful and those who don't is written in this manual (so keep going!).

 

¨PRIDE ENDS IN DESTRUCTION; HUMILITY IN HONOR¨. T.B.

What do we do to handle this emotion then?

 

 

•  We stay humble and analyze the markets knowing that they can change at a moment's notice.

•  We trade what our strategy dictates, and NOT WHAT WE THINK will happen next.  

•  We remain open to new ideas and learn continuously.

ALWAYS REMEMBER: AN OPINION CAN CHANGE AS QUICKLY AS THE NEXT 30 MINUTE BAR THAT FORMS ON YOUR CHART! STAY FLEXIBLE AND ALWAYS KNOW WHERE YOUR EXIT STRATEGY IS.

Do not defend your opinions.  THE FUTURE IS AFTER ALL, UNCERTAIN AT ALL TIMES.

¨FOOLS FIND NO PLEASURE IN UNDERSTANDING, BUT DELIGHT IN AIRING THEIR OWN OPINIONS¨. T.B.

 

EGO:

The ego is about who you are as a person, what your beliefs are and the way you were brought up as a child. The ego is like pride, but it is a bit more personal and longer lasting.  This is who you think you are as a person, your past achievements and your long term goals.  You can be proud of something one minute and ashamed of it the next without any major impact on your ego.  The ego is an emotion that stays with you throughout your entire life.  It is a bit like comparing ROM (ego) to RAM (pride) if you will. Your subconscious mind will also have something to do with your ego, but we will discuss this later on.  

Your self esteem cannot be tied into your trading.  You cannot feel great one day when you made money and feel really bad the next day when you lost.  You cannot be Mr. nice guy when you make money and smash the walls, scream and be in total rage when you lose.

Like Mrs. Ruth Barrons Roosevelth said in an article called ¨trading without ego¨:  ¨ Self concept has to be strong and durable and not at the mercy of the current, last, or next trade¨.

You have to KNOW that no matter what happens in the next trading session, you are the same person when you walk in and when you walk out.  Once you put on your trading hat, you become Mr. Trader, but no matter what happens, you will take off your trading gear and go back to what you were at the start of the day. This means that you will not behave any differently with your spouse or kids if you had a loss or after you make a profit. The concept here is simple; DO NOT LET THE MARKETS DICTATE OR AFFECT YOUR PERSONAL LIFE. If you are noticing that trading does affect your mood swings in relation to whether you win or lose, you are in trouble.  However, becoming aware of a problem is the first step towards solving it. 

So how does the EGO affect our trading?

 

 

•  When you don't place your ¨stop loss¨ orders with your broker but instead decide to make them ¨mental stops¨ (to get out of a position), you don't want to be proven wrong. YOUR EGO IS DICTATING THE WAY YOU ARE MANAGING YOUR BUSINESS. You can have false FEAR about leaving ¨stops¨ at the mercy of floor brokers who will ¨run¨ them (and execute them), but these are just FEARS that we must learn to control (as we will learn later on).

•  When you overtrade and ¨jump¨ in and out of many positions with no control over yourself, you want to prove that you can be right.  Your ego is dictating your trading by wanting to be proven right, no matter what. (see: ¨The Urge Syndrome¨ below)

•  When you grab a profit too soon.  Your ego wants to fill the need to be congratulated.  It is dictating your trading by demanding a ¨pat in the back¨ as Mrs. Roosevelth puts it.

SOLUTION: Manage your business as a business professional; COMPLETELY DETACHED FROM ANYTHING ELSE THAT IS NOT PART OF THE TRADING SYSTEM YOU HAVE CHOSEN. 

 

GREED:

Greed is our emotion of wanting more and more. We can never have enough, we will always want a better trade than the last one, a better system that can make us more money and miss less good entries.  Greed is what makes you take larger risks that can eventually lead to your downfall.

What does greed do to us? Greed is the voice in our heads that tells us to trade ten lots instead of trading two.  Greed is the one that tells us to add to a losing position because the ¨profits will be great.¨  It is also the one that tells us that we could get all our money ¨back¨ in this next trade if we ¨bet big.¨  We start thinking about huge profits and what we would do with them and forget that we are taking an even larger risk.  Most of the time, this huge profit will never come. Instead, we will be left standing with a huge loss which will only lead us to fail in the long run.

DO NOT SAY ANYTHING OR DREAM ABOUT YOUR FUTURE PROFITS! CONTROL YOURSELF. TAKE THE TRADE AND MANAGE IT PROFESSIONALLY, WITHOUT ANY EXPECTATIONS.

Greed will also be there when we have a good profit going and we don't take any of it; ¨let it run¨ we say, wanting more and more.  

Greed is also the voice telling us that we should try to buy the ¨exact¨ bottom or sell the ¨exact¨ top in a market.  A little experience will tell you that this is simply not possible.  Do not try to find out for yourself!

We will further examine ways by which we can control these emotions; for now however, it is very important that we understand what they make us do.

 

HOPE:

Hope is all we have left when it is no longer up to us to get something to happen.  Hope is the one we'll cling on when we have taken a trade and we want it to move in our direction.  As soon as any trade is taken, we hope.   However, after we see that our trade is wrong and we don't get out, our hope begins to hurt us and becomes ¨pride.¨ ALWAYS USE ¨STOPS¨ WHEN YOU TRADE.  You can hope all you want (as long as the stops don't get hit), but never cancel a ¨stop¨ order hoping that the market turns around at that level.

NEVER HOPE BEYOND A REASONABLE EXPECTATION.  If you get to the point where you need a miracle to get out of trouble, your hope has taken you TOO FAR. By this time, you will usually start to look for different indicators and anything that will confirm your original position. You begin re-drawing trend-lines looking at this or that indicator, start listening to other people’s opinions that agree with yours, etc. If you get to this point, you know you are in trouble.

 

NEVER HOPE TOO MUCH!

 

 

FEAR:

Fear is the body's own natural ¨protection¨ against doing something that can hurt us time and time again. Fear will come upon us BEFORE we take the trade ¨I don't want to lose again,¨ ¨I don't want to miss out on this next trade like I did the last one¨;  It will also ¨pop up¨ DURING the trade: ¨you are wrong, get out before your stops get hit at an even greater loss.¨

 Ironically, this very ¨protection¨ from your brain will be the one that makes you lose money in the end. Why? Because it will be the one that blinds your judgment. It will not allow you to remain objective through the trading process. You will take small losses all the time in fear of bigger downfalls (they add up pretty quickly).

Fear of ¨missing out¨ on a potential profit can also blind your judgment. It will make you enter the trade ¨as soon as possible¨ on a ¨market order¨ in order to ¨be in the market at any price.¨  This entry will be full of emotion and will usually result in bad trade; or at least, one where we will have to hold our position through a period of ¨account drawdown¨ (more on this later). 

To conclude with this section then:

IT IS IMPOSSIBLE TO TRADE WITHOUT ALL OF THESE EMOTIONS ABOVE STATED.  We are all human after all.  However, we must be aware that controlling them and keeping them subjugated to a minimum is what we need to do in order to trade objectively.  We must control every feeling that we have in order to be able to trade with a clear mind and follow the strategy we set out to do in the beginning.

How can we control them then?

This is not easy to do, but by further examining what goes on inside our brains, we can attempt to lower these emotional out-bursts.  

 

 

 

 

What happens when we are trading?  The process begins when we are calmly sitting in front or our computers analyzing charts looking for the next trade to take.  We are calm during this time and our analysis is very easy to see and logical to follow (provided we have a way in which to analyze a market in the first place). We then wait for the market to open the next day or in a couple of hours.

 

As soon as the market opens and we start seeing the price move up and down, we start feeling something (we are all different in our minds and make-ups, but we can all feel something is different now that the market is open).  Some people may feel the excitement of the market and can’t wait to ¨jump in¨ as soon as they can.  Some others may come into the market feeling a bit scared, fearing that the losses they encountered the day before will repeat themselves, etc.  The point here is that you are now EMOTIONALLY CHARGED because the market is open.

 

We must learn to control the initial trading emotions of FEAR AND GREED BEFORE we trade or do anything! After we are in the trade, we will need to keep an eye on these and other feelings, including:  ANGER (STRESS).

How many times do you get into a market that gives you instant profits and never a second of red ink in your account?  For me, I would say that the number is very low.  Maybe around 2% of all trades happen like this. 

 

Most of the time, the market will take money OUT of your account BEFORE the trade works and starts putting money back in it (Temporary Account Drawdown).   This is a simple fact of life.  ABOUT 98% OF THE TRADES WILL BE IN THE RED BEFORE THEY BECOME ANY GOOD.  Even if for a minimum period of time your trade goes in the red, you will feel a ¨PINCH¨ however small it may be. 

What happens when we feel this very common ¨pinch¨ from the markets?  We get ANGRY.  Our body reacts naturally to a state of DANGER where our body prepares to ¨FIGHT OR FLEE.¨ We are losing money, so our brain gets an alert of danger (IT REMEMBERS PAST LOSSES AND FEARS MORE TO COME; IT ALSO WANTS YOU TO GET OUT BECAUSE IT DOES NOT WANT YOU TO LOSE ALL YOUR MONEY) and begins to secrete ADRENALINE AND NORADRENALINE which comes from the Adrenal Glands above your kidneys.  

When these hormones are released, your body releases fatty sugars through your liver which increases your blood sugar.  This in turn will lead your heart beat to increase, your muscles to become tense and your breathing to become erratic and fast. Furthermore, some people will feel some of the following:   scowling, grinding of teeth, glaring, clenching of fists, changes of arms and positions of body (putting your arms behind your head), flushing (getting red in the face or body), goose bumps, chills and shudders, tingly sensations, choking, sweating,  pounding heart, feeling hot or cold, dry mouth, dizziness, feeling faint, shaking,  headaches, stomachaches, paling (losing color), twitching, numbness, fatigue, etc. You are not able to type, write, or concentrate on anything except on what is going on with your account.

Naturally, you will not be able to keep a clear and objective mind when you're going through all of this!   In fact, your senses will be heightened for ¨survival vigilance.¨  You will be more sensitive to noise (telephone, doorbell, TV, etc), to light, smells and even touch.

 

In the words of scientific researchers:

¨Your Neo-Cortex (the thinking part of your brain) shuts down and the survival mechanisms in the middle and lower more primitive parts of the brain take over. As a result, you can react to things and do not think things through as well¨. ¨Basic emotions: Fear and Anger, take over from complicated, sophisticated higher function emotions¨.

In other words, you will not be able to follow your trading rules because you will not be able to stand the pressure.

Let's further read what scientists have has to say on this subject: (Grace Blackwell in an interview with Dr. DeFoore)

"Reptiles are cold-blooded, solitary, small-brained, and self-centered, and their primary motivators are behavioral options of fight, flight, or freeze,"  ¨Hence the adjective reptilian for the part of the brain that controls aspects of human behavior that mimic those of primitive creatures¨. "When people experience extreme fear or anger, their blood can literally get cold as a physiological response to activation in specific parts of the brain—a cold-blooded killer or a cold-natured person."  "Physically our heart rate increases, body temperature either rises or drops dramatically, and muscle tension increases.  While pain and fear are feelings or sensations, anger is an active response. Since anger is a survival mechanism designed to take care of the matter at hand or an immediate threat, our bodies help our effort to focus on the matter at hand and ‘defeat the opponent.' Adrenaline is released into the bloodstream to increase our strength and energy to meet that goal." When we feel especially threatened or vulnerable, scientists believe that even our vision becomes limited¨. ¨If we are "emotionally intelligent," we tend to make conscious and rational choices in reaction to these physical and emotional responses. (Instead of beating the man with 16 items in the express lane over the head with his three loaves of bread, we kindly ask if we can step ahead of him in line.) "An emotionally intelligent person is aware of both the external event and the internal emotion," says DeFoore. "Whereas if we are ‘emotionally hijacked,' we go into a reaction pattern and don't consider our own history and don't think until after the event is over and we have already reacted.¨" The emotionally intelligent person will use his or her whole brain (literally) and take all factors into consideration before acting, while the emotionally hijacked person might use only the reptilian brain and realize that there was a better course of action only after reacting¨.

 

Did you know that adrenaline is addictive? It can become an addiction like cocaine or speed.

THINK ABOUT THIS THEN:   YOU COULD BE SUBCONSCIOUSLY SABOTAGING YOUR OWN TRADING ¨IN NEED¨ OF AN ADRENALINE FIX!!!

YES MY FRIEND, THIS CAN ALSO HAPPEN AS YOU WILL LEARN WHEN YOU FINISH READING THIS WHOLE MANUAL.

To conclude with this subject then:

YOU CANNOT GET ANGRY WHEN TRADING!

YOU MUST MAINTAIN YOUR POISE, INNER PEACE AND BE TOTALLY UN-REACTIVE TO ANYTHING THAT THE MARKET THROWS AT YOU (GOOD OR BAD).  YOU MUST REMAIN CALM AND PROFESSIONAL ALL THE TIME.  YOU MUST CONTROL EVERY EMOTION BEFORE IT TAKES OVER YOU.

ALSO REMEMBER: YOU CANNOT GET OVERLY EXCITED ABOUT A PROFIT EITHER.  This will generate Adrenaline in your body once again and you will feel so good about yourself that the next trade will be a huge loser.  You will risk it all without fear.  BEWARE OF THIS!

 

"It would seem that our glands effect control
far above proportion to their size and this is
true. It is also true, however, that the glands
have their master, probably the most remarkable
creation of life's miracles - the human brain."
(Dr Bernard Jenson PhD)

 

¨THE WISE CONTROL THEIR TEMPER. THEY KNOW THAT ANGER CAUSES MISTAKES¨. T.B.

¨WORK BRINGS PROFIT; TALK BRINGS POVERTY¨. T.B.

I would now like for you to think about the way YOU have been trading in the past and analyze what you have been doing. 

 

 

•  How have you traded?

•  Do you get angry very easily?

•  DO YOU HAVE A TRADING SYSTEM?

•  Can you fully explain what the ¨full set up¨ for entering a market will be?

•  Can you give me specific entry levels or do you choose entry levels subjectively?

Where are we going with this? Before we move on to the next subject, we have to tackle a potential problem for some traders.

SOMETIMES WE THINK WE ARE DOING THE RIGHT THINGS, WHEN IN FACT WE ARE SIMPLY GAMBLING.

 

 

ARE YOU GAMBLING WITH YOUR TRADING ACCOUNT?

To answer this last question, we can answer the following questionnaire by the National Council on Problem Gambling:

 

National Council on Problem Gambling 10 Questions about Gambling Behavior:

1. Have you often gambled longer than you had planned?
2. Have you often gambled until your last dollar was gone?
3. Have thoughts of gambling have caused you to lose sleep?
4. Have you used your income or savings to gamble while letting bills go unpaid?
5. Have you made repeated, unsuccessful attempts to stop gambling?
6. Have you broken the law or considered breaking the law to finance your gambling?
7. Have you borrowed money to finance your gambling?
8. Have you felt depressed or suicidal because of your gambling losses?
9. Have you been remorseful after gambling?
10. Have you gambled to get money to meet your financial obligations?

If you or someone you know answers "Yes" to any of these questions, consider seeking assistance from a professional regarding this gambling behavior.

ARE YOU A TRADER OR A GAMBLER? You are the only one that can answer this question honestly and truthfully.  There is no point in lying to yourself, since it is obvious that you are trying to get better by reading this far!

There is only one type of gambler as defined by Dr. Robert L. Custer that we would be interested in being:  ¨PROFESSIONAL GAMBLERS: They make their living by gambling and thus consider it a profession. They are skilled in the games they choose to play and are able to control both the amount of money and time spent gambling.  Thus, professional gamblers are not addicted to gambling.  They patiently wait for the best bet and then try to win as much as they can¨.

 

DIFFERENCES BETWEEN TRADING AND GAMBLING:

When you are GAMBLING:

 

•  You bet in large amounts in order to ¨win big¨.

•  You borrow money to trade.

•  You lie about past losses in order to continue with what you are doing.

•  You have NO TRADING SYSTEM.

•  You are ¨SLOPPY¨ WHEN TRADING.

•  You trade ¨EMOTIONALLY CHARGED¨.

•  You break the rules of your system consistently.

•  You subconsciously ¨ACCEPT¨ that you can lose all the money AND EVENTUALLY DO.

•  You get in the market for the ¨RUSH¨ of adrenaline that it gives you. It is about ¨BEING IN THE ACTION¨ for you more than it is to make money doing it.

 

When you are TRADING:

 

•  You have a SYSTEM and you FOLLOW it.

•  The more mechanical , less ¨ subjective action ¨ driven; the better the system (more on this shortly).

•  You do not break the rules of your system very often.

•  You trade for consistent profits every month (in ¨small¨ amounts; the amount will vary from person to person).

•  You never risk more than a certain percent of your account on a given trade.

•  You remain calm and in control at ALL TIMES. Win, lose or draw.

 

A MECHANICAL SYSTEM WILL:

 

•  Be based on a certain amount of indicators that will have to mathematically ¨ADD UP¨ in order to create a ¨FULLY SET-UP ENTRY PRICE¨ into a market.

•  Your ¨gut¨ feeling will not be important in this system.

•  Likely to have entry and exit signals given by a computer (although this is not necessary).

 

SUBJECTIVE ACTION:

Action where you trade on ¨gut feeling¨ and suddenly REACT because you THINK the market will be going one way. This leads you to trade on your own SUBJECTIVE OPINION which will be right sometimes, but not likely at others.

You may have a certain ¨way¨ of entering the market. For example: The ¨ooops¨ formation published by Larry Williams on the book: ¨Long-term term Secrets to Short-Term Trading¨. The entry strategy is basically getting short the SP500 at the open of trading; if the market opened higher than yesterday's close (similarly you can buy the SP500 if it opened lower than yesterday's close). Unless you have a certain MATHEMATICAL way of generating an entry signal (how much higher does the open have to be? 3-4 points? What other indicators have to be in agreement? Etc.) you have a subjective entry system that depends on your own gut feeling and opinion.

AVOID ANY SUBJECTIVE TRADING WHEN POSSIBLE (Depending on your experience).

 

 

To conclude:

We need to be PATIENT, IN CONTROL AND FOLLOW OUR RULES AT ALL TIMES WITHOUT EXCEPTION!  

STOP GAMBLING YOUR MONEY AWAY!

TRADING IS A HARD BUSINESS, MAKE IT YOURS!

¨WEALTH TAKEN FROM GAMBLING QUICKLY DISAPPEARS; WEALTH FROM DILIGENT EFFORT AND HARD WORK GROWS¨. T.B.

 

Now that we have gotten through the ¨ugliest¨ part of this manual, (looking at one-self and really finding out what has been going on), we can begin to move on to things that will make us better traders.

REMEMBER: OBJECTIVITY along with a GOOD TRADING SYSTEM is part of the key to success we are looking for here.

Let's continue to tackle the ¨anger¨ problem in order to find ways to relax, gain self control and remain objective at all times during a typical trading day: