Wednesday, July 2, 2008

Restoring Your Joy In Trading By Ryan Jones

I'm not a doctor, I'm not a psychologist. However, that
doesn't mean that I should not be aware of things that might
have an affect on my trading. Nor does it mean that I should
not make you aware, and even spark your interest in learning
more. So, in that context, let this email be the start of your
learning on this incredibly important topic...

What is the first thing I would suggest in restoring the joy of
your trading? Moderation.

When someone begins trading, they move forward with a
tremendous amount of zeal. They tackle the venture with every
ounce of energy and are happy to do so.

After a while, the excitement begins to wane. This is true
regardless of whether the effort has lead to success or failure
(90% + fail). After more time, it is harder and harder to keep
the excitement level up, and in order to maintain a higher
level of excitement, traders are constantly trying new
strategies. In other words, the level of excitement associated
with trading becomes almost like an addiction.

The brain is the most fascinating creation ever. The brain
releases chemicals based on certain stimuli that allows us to
experience pleasure. The stimuli can be something simple, like
reading a book, or something exciting like riding a roller
coaster. What happens is that as you experience something more
and more, you generally derive less pleasure from it.

Therefore, it takes more of that experience to keep the
pleasure level high. This is where addictions come from...and
you can literally become addicted to anything that produces
higher levels of excitement.

How do addictions occur? Not enough rest between the
experiences. Someone who drinks a cup of coffee once every few
weeks does not become addicted to coffee (caffeine). But if
someone begins to drink coffee every day, there is not enough
rest between the times caffeine enters the body and it becomes
addicted. With strong drugs, the addiction can occur the first
time because the reaction of the brain is so intense and
dramatic that it literally is shocked into addiction.

Email is a classic example of a moderate stimulus addiction.
Some people cannot go for more than a few hours checking their
email...and worse yet, some people believe that once they send
an email, if they are not responded to in a matter of minutes,
they have been wronged.

With trading, there is an excitement level generated with a
trade. There is an excitement level generated with a trading
strategy. There is an excitement level generated with finding
new trading strategies. The question is whether you are
trading to generate the responses in the brain, or whether you
are trading to succeed.

Most will know the answer to this question by simply doing a
quick examination of their recent trading history. One big
step to restoring the joy of your trading is to simply create
boundaries, commit to a trading plan and then stick with it, no
matter how boring it is after the first 3-months. Stop trying
to find the holy grail...moderate your time and attention spent
toward trading, take breaks, even vacations from it. I assure
you, you will begin to enjoy your activity more.

There is a lot more to be said about this topic, so stay tuned
for the next email...which I am not going to send you until
after the July 4th weekend. This weekend is a great time to
start creating your boundaries and taking some time off from
even thinking about trading.

And that is the Truth about Trading.


Anonymous said...

stewie. i read on wall streak today, you talking to a fellow trader on his substantial losses. i read one of your comments to stop using margin. i was put on 90 day no trading unless i opened a margin account.if one trades small with a margin account.and has the money in cash to cover any losses.looking for setups and only taking small you think this is a good strategy to day trade? have you any info on this in your archives? bill

Stewie said...

margin needs to used responsibly, especially once a position starts to go against you. gotta have discipline to not trade large positions too large for your account to handle. large positions(margin trading) will always create emotion in the trader. Trader who use excess margin usually short bottoms and buy tops and they chase their tails looking for the home run trade to get them out of the dog house. trading has no mercy on the undisciplined.

Anonymous said...

the problem is stew that i was doing well with my cash account, taking small amounts out of the market when they said i could not day trade for 90 days. the brokerage house is basically forcing me to either get a margin account or buy and hold. i dont have a large cash account at this time. trying to build up to it. i really have no choice, correct. so i will buy small positions with margin and stay within the accounts cash boundries, and this way emotions wont take over in the trade.i see what you mean about discipline. yesterday i watched jrcc and many other stocks drop like a brick out of a tree.if someone goes long with no disciplin one can loose their shirt.going short of course would have cleaned up.somthing you probably did. thanks bill

Stewie said...

exactly bill. we all have margin accounts. but you need to force to trade what you can afford to 'lose'. trading with borrowed money should be reserved to the very experienced/disciplined/responsible trader. trade small and don't over trade. today for example: i made 3 trades. I covered my short from yesterday in SM, i bot and sold ENER and i shorted FRE for overnight night hold towards the close. i made $4500 with three easy trades. don't make this game more complicated. have a great weekend.

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