Monday, March 22, 2010

Overcoming Trading Paralysis

Today i got this email from a fellow member: I am seeing more and more guys suffering from similar problems lately:


Can you address how you deal with paralysis due to existing market beliefs? In other words, I'm worried about waking up to a very big down day when I'm taking some of these long swing trades. I haven't let a trade run in weeks other than small scalps here and there. I'm watching your analysis closely but still very hesitant.


Here's what i think:

It is clear that Mike is suffering from trading paralysis. He CANNOT pull the trigger on any trades because he is allowing his beliefs of the economy, the stock market etc dictate his trading decisions. Guys, look, we are NOT economists, stock market predictors or anything like that. We are traders. WHAT IS A TRADERS REAL JOB? A trader's real job is to measure SUPPLY and DEMAND in a market every week, every day, every hour. Let me give you an example:

This morning the S&P500 futures pointed to a weak open and the market gapped lower at the open. I am 100% sure that many of you thought we were gonna have a major down today due to Obama/Healthcare/positioning of the moon/wife was in a bad mood etc etc etc. All this DOES NOT MEAN CRAP to me!! Excuse my language but i am 100% serious here. You need to separate any preconceived notions about market direction, what you read on a blog, newspaper, TV etc etc.

When the futures pointed to a lower open this morning and we gapped lower on the open. DID your short positions work? Probably not. Am i right? What should automatically tell you? For me, it tells me i am FIGHTING THE TAPE. You know a lot of guys who fight the tape and win consistently?? NOT ME.

Trading becomes so much easier once you ask yourself, WHO IS DRIVING TODAY'S TAPE? supply or demand?

On today's open, the answer was obvious to me: it WAS DEMAND! So i started issuing LONG ALERTS. The guys who questioned the move, sat there in amazement as prices ran away and kept going higher and higher.

Place the trade, place the stop loss and walk away. NO EMOTIONS. My best trading days came when i placed the trade and walked away. NO EMOTIONS, NO DRAMA, NO OVER THINKING. JUST price action, market flow, natural price action and allowing supply/demand dynamics to dictate trade direction: WIN OR LOSE, i traded with discipline and i followed my plan and eventually when you trade that way, you will win!

I always say when it comes to trading use the K.I.S.S. principal: KEEP IT SIMPLE STUPID!! The dumber you are the better off you will be!

LESS IS MORE: the less you think the better! The less you analyze the better! The less CNBC you listen to the better, the less you trade the better. LESS IS MORE!!

If you are afraid to pull the trigger on trades, then clearly you are suffering from lack of TRADING CONFIDENCE. IT happens to the best of us form time to time. We are traders, we are human beings. Who knows what could be bothering you in your private life? Don't underestimate how your private life affects your trading 'mood'.

A guy getting a divorce or who just lost his job needs to RUN AWAY FROM THE TRADING SCREENS!!! Trust me on this one. DO NOT LET EMOTIONAL baggage into the trading room: YOU WILL LOSE MONEY! Get your head on right first.

You need to ask yourself: WHAT IS REALLY BOTHERING ME? Why am i not putting on these trades i otherwise would be doing?

Start with very small positions. I always tell people, the best way to get out of a trading slump is TO TRADE THRU IT!!! Take a short break but come back and trade thru this slump!! You would be amazed what one small but good trade does for the self confidence! Trading is 99% mental, you guys know that.

i encourage anyone who is in a slump or suffering from trading paralysis to TRADE YOUR WAY THRU IT (but do take a little break first to allow your nerves sometime to relax). Instead of a 1000 shares, go into trade with 100 or 200 shares to get your feet wet. Increase size as your rebuild your confidence.

I hope this helps!!

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