Perfect Trade ??

Trader Quest ~ What is a perfect trade?

Plot Course ~ Set up some simple guidelines to determine for yourself what constitutes perfect. One set of guidelines used recently with a trader amounted to the following statement, "A perfect trade is a controlled entry and a controlled exit." Another definition frequently used is, "I followed my strategy’s written entry and exit rules." What ever the definition that you come to use, make sure it’s defined enough so that you can fairly and consistently rate your trades.

Ride Wave ~ To put this into practice requires a definition as stated above, and also that you perform this review post trade. So for example, you made 15 trades today in the mini S&P. 10 trades you defined as perfect since you entered them per plan and were either stopped out or reached your positive target. The remaining 5 trades you did not count as perfect, and here comes a variety of reasons:

"I anticipated...I waited...I got out early, etc." 

Initially, it’s ok just to do the tally and score yourself 10 out of 15. The deliberative practice that will elevate your trading will be to begin to notice patterns in the non-perfect trades and analyze deeper into the conditions, emotions or biases that may have steered you away from the defined perfect trade. As coaches we strive for 80% perfect once the definition is set and 90% shortly thereafter. 100% means that you are an algo.

~ Keep Curious, Coach Mark

PSYCHOLOGICAL CAPITAL - Do I have it? Is it enough? How can I get more?

As a trader, you're very familiar with the term "capital," it's money. You know, that stuff you seek on the other side of the risk you endure. You hope you win enough of it to keep you showing up in order to get more of it. Isn't that the purpose of trading, getting more and more capital?


Another kind of "capital" that I believe is foundational to the art of earning and maintaining the financial capital you seek, is PSYCHOLOGICAL CAPITAL. 


What is this stuff called Psychological Capital (PsyCap) anyway? Is it just a nice intellectual concept to make me sound smart, or you more secure or rich? Researchers in the field of positive psychology have come to define it as the positive and developmental state of an individual characterized by high self-efficacy, optimism, hope and resiliency (Luthans et al.). 


So the next questions to consider are:

• Do I have enough self-efficacy (confidence)?
• Do I have enough optimism (good things are on the horizon)?
• Do I have enough hope (I believe in positive outcomes)?
• Do I have enough resiliency (I can endure and bounce back)?

My experience coaching traders has taught me if I'm not addressing these questions in a pragmatic and deep level, I'm not helping a trader grow their psychological capital, and thus not helping them perform optimally to sustain a successful trading career. My job is to coach traders in the art of self regulation so they earn the confidence to manage what they can influence, i.e. their internal market. Once they experience a consistency to positively influence their inner market i.e., emotional arousal & decision making, they begin to shift into believing that good opportunity is on the horizon. When set backs occur, which they always do, traders recognize they're entering an opportunity to practice resiliency. Bouncing back and recovering perspective is imperative to maintaining a long, stable and prosperous trading career.  


Psychological capital can fluctuate just like P&L, thus, some days you have lots of it, while other days you can't locate it at all. Growing PsyCap requires a commitment to self awareness and self regulation, two core components of emotional intelligence (EQ). Knowing what to do and when to do it, like in trading, makes all the difference between being a winner or a loser. I have been on a several year journey researching what types of actions I need to coach traders into doing to optimize their ability to grow their capital, both psychological and financial. The psychology of human performance has demonstrated there are deliberate routines that when practiced, develops a performer towards expert status. 


In future posts, I will elaborate on what kind of deliberate practice seems to make a difference in growing a traders psychological capital. Rest assured, it's not going to be a simple recipe or a one-size fits all, but more so a customized fit to the unique qualities of each trader. A trader knows that without clarifying the components of their strategy into a written and executable format, they often cannot do what they think. Similarly, without clarifying the components of how to grow your psychological capital, you likely won't produce the state of mind that supports coherent and profitable decision making.  


~Keep Growing, Coach Ken

Maintain State of Mind in Slow Markets ??

Trader Quest ~ How do I remain in a state of mind where the market action seems to slow down, not speed past me where I am continually missing trades?

Plot Course ~ This frame of reference can happen for one of two reasons. First you are not getting enough trading repetitions or secondly, you are in some sort of slump; mentally burdened or emotionally off kilter. The cure lies in the quest for consistency. The more consistent you are at placing trades on each of your strategy’s signals, the more you will find that you are anticipating that next signal beginning to form.

Ride Wave ~ "That’s great" you may be saying, "I know I need to be more consistent, so does every other trader." Right, but perhaps you are experiencing some hesitancy that has morphed into anxiety and now you’re seeing set-ups late. By simplifying your trading down to its most basic components, by removing excess charts and indicators of the month, by turning off financial news feeds, you will remove the stream of distracting noise and allow yourself to “see” in real time, on one or two key charts, your trade set-ups developing right in front of you.

~ Keep Curious, Coach Mark

Tweak and Improve Current Strategy ??

Trader Quest ~ Where do I look for ideas to tweak and improve my current trading strategy?

Plot Course ~ You can set out to look at your market’s candlestick charts, price ladders, profiles, point and figures to find setups or new observations. That sounds like a lot of unfocused work. One smarter way is to review your trades setups each day, both the ones that  you actually traded and also the ones that you missed.

Ride Wave ~ One idea to consider is the use of digital recording of your trading screens to capture and zoom into the whole trading day just prior to, during and immediately after you trade. This could give you the ability to see how prices and quotes were moving, what a chart was indicating, or perhaps even recall what you were thinking at the moment. Sounds like a lot of painstaking work at the end of a long trading day you say, you're right, it is! Guess what, there are traders doing this work and variations on the theme and this is your competition. 


In a recent article in SFO magazine, Mike Bellafiore of SMB Capital stated "Technology has accelerated this business infinitely since I started, and it has transformed training for the trading stars of tomorrow. For example, today’s traders can videotape their daily trading and play back their work, just like a football team."


These type of traders work deliberately to remove glitches, hesitancy and doubt whenever possible. If you don't want to invest in video capture software, you can use a modified process with your trade journal or execution log from your trading platform to capture exact times. Most software can go down to a tick chart or even a one minute chart can be helpful. This method can work either for swing or position type traders by just lengthening the timeframes.
 
~ Keep Curious, Coach Mark

Capture the Majority of a Move ??

Trader Quest ~ How do I stay in a trade long enough to capture the majority of a move?

Plot Course ~ In order to think about this, I'd like to break the trade into two separate components. First, the reason for the entry. Second, when considering maximizing the outcome, you need to have a methodology to monitor the trade for continuation. Where many traders get caught is they trade to force the reason for the trade to give them indications to stay with the trade.

Ride Wave ~ Once the trade is placed, as far as I am concerned, the reason is gone. No one else is using your particular reason so its immaterial. Therefore, now you have a trade on with a directional bias, neutral and time decay option strategies are not included in this conversation. Your focus needs to shift to "What are the criteria that I need to see that will give me the probability for the next period of time that the trade will continue in the direction of my trade?" One real life example is using a one minute bar chart for a short trade. As long as the high for the bar in which you placed the trade is not exceeded in the following minute, you can allow your trade to continue for one more minute, and so on. A lot of times when a market spikes up to an excess or there is a big sweep, the market suddenely retreats. These events instantly cause fear and greed and uncertainty. If you already have your monitoring decided upon, you may be able to ride these moves profitably or even exit them quickly for a loss if the move is against you.

~ Keep Curious, Coach Mark