Monday, March 21, 2011

Initiate the Trade: Triggered or Confident to Pull the Trigger?

So you’ve prepared for the day, accessed a proper state of mind and body, and are eager to get in the flow of the market. This is the time to initiate the trade; easier said than done. For many traders, hesitation and doubt often dominate good intentions and planning. 

A relevant question becomes, "Are you perfectly clear what your entry parameters are for this market and type of trade setup?" Most think they are until they go through a third party review.

Another question to consider is, "Could your son, wife or grandmother initiate the trade on your setups if you wrote it down for them?" This is a good way to determine the simplicity and clarity of your strategy. 

There are two components that support confident trade execution, namely, the landscape of your computer screen and your trade journal. Many traders have the indicator of the month, the latest charting technique, or several markets displayed on their screen that they’ve heard others be successful trading. All of these items may work from time to time, but most probably too much information scattered across your computer serves only to clutter your thinking and detract from initiating trade setups in a timely manner. As Mark Douglas noted, "trading is simple when the mind is not complex." Simplicity supports initiative; thus, competent traders remember to KISS before they trade (i.e., Keep It Simple Smarty).

Secondly, you need to capture notes and times on all your trade initiations. Digital journaling on the screen works expediently. We have helped traders compress the time for this by using a system of codes. Some professional traders even use video recording of their screen as it offers a visually rich post trade review that enhances the clarity of their execution parameters. The point is, if you don't write it, its hard to review it, thus you can't refine it, and therefore you won't be able to initiate it when the next opportunity comes knocking. Traders we've coached all use the art of writing (with chart graphics) to the highest degree. It helps their mind narrow around key trade variables that rests within the bigger context of an unfolding story about their particular market. 

For example, one trader had several different methodologies on his screen at one time: market profile, market delta, point and figure, vwap with bands, and bar charts with moving averages. All these were employed to make the same type of trade on two simultaneous markets. Needless to say, the trader was overcome with anxiety and had little clarity or consistency. By simplifying the computer screen landscape, which meant narrowing the focus down to one or two chart views, the trader began to initiate trades much more consistently and appropriately.

This is the domain of POISED where the rubber meets the road. Often traders accumulate certain blocking beliefs or habits of mind that hold them back from doing what they intend to do. Historical losses that were painful tend to linger in the mind and trigger doubt and a need for more confirming information that unfortunately delays decision making leading to missed opportunity. Assisting a trader in re-scripting negative beliefs into affirming possibilities via emotional processing protocols used to treat anxiety or trauma conditions have proven very beneficial. When blocking beliefs and their binding emotions are resolved, a trader is free to initiate a trade when the strategy and market indicate the time is right to execute.

By streamlining a traders visual charting inputs and helping the mind and body be in a state of even keel, the outcome is often a more efficient and consistent trade initiation. This doesn’t happen overnight, however. More often it is through deliberate practice, reflective journaling, making mistakes, reviewing errors, tweaking strategies, and dedicated hard work, that a trader begins to access the earned state of performance called poised 2 perform.

Tuesday, March 1, 2011

Observe the Market: Am I seeing what I want to see or what IS?

Observing the market is the next skill addressed by the P2P process. But you're probably wondering what's the big deal, every trader is observing some aspect of the market throughout the day. At first impression, observation seems like a simple skill; a trader looks at something, soaks in the information, does some quick analysis and makes a decision. Simple in concept, but the challenge rests in deciding what to look at, when to look at it, and how to make sense of what you see. Additionally, sustaining attention and discriminating good signals from distracting noise requires the right level of arousal, psychological flexibility, and depth of understanding of market nuances. 

Observational skills to a trader is like water to a fish; their intimately connected for survival. How a trader observes information a market presents varies to the extent to how they contextualize that information. Context, is like a frame to a picture, it contains the art piece, but equally can add depth and uniqueness to the observing eye who's making sense of what they see. Traders also need to be proficient at managing cognitive biases that distort "what is" into what they "want things to be." Left unmanaged, these distortions are at the foundation of many a traders ruin. 

"Do you see what we see?"

The P2P process not only helps a trader observe and organize the external market more proficiently, but equally targets the traders internal market where the unfolding story of making sense of things takes place. The integration of external market management (EMM) with internal market management (IMM) is the foundation of developing competence in observing "what is." The use of technology can assist in helping traders express what they see into an organized framework and executable strategy. For example, having a digital journal allows the trader to capture real time observations about market behavior and their thoughts and feelings regarding those observations. Retrieval of this unique data either graphically or via video review, is a key component to refining market knowledge skills and improving the acuity of trade setups.

One trader we worked with suffered from being overloaded with too much information during the trading day. He had two squawks that were inputted into his headphones, one computerized and the other was from the pit trading floor. Instead of trading based on what he saw or observed on the charts and depth of market, he was impacted automatically by sounds from the squawks. Once the squawk was eliminated, the trader went on a tremendous string of winning days. The best traders are able to limit the impact from outside sources, allowing them to access the flow of the market and truly see what is happening.

So as you likely "see," seeing what the market actually is doing is not as easy as it appears. By eliminating distractions, the internal & external noise and managing cognitive bias, the best traders maintain a poised and ready state to respond to what is and not what they wish the markets to be. This allows them to sit on their hands when nothing noteworthy is taking place but also to strike with quick execution when they observe their trade setups developing.