An interesting thing happens when newer traders are asked about their greatest trading obstacle. Much of the time you hear things like, “I need to stick to my plan more,” or, “I need to learn how to hold my winners longer”, or some other isolated behavior. What newer traders need to realize it is not an isolated behavior, but instead their entire thought framework.
Entire thought framework? You ask. Yes, if you are a relatively newer trader (a year or less) and you find yourself struggling (most likely you are) it is because of the way you have been conditioned to reason and you are applying it to something that is not relevant to conventional logic: the market.
As a newer trader it is important to realize that you must stop exposing yourself to conventional market wisdom and opinions of others. Conventional market wisdom comes from main stream sources such as books, magazines or blogs about “investing” ideas. Information that you consume from mainstream sources should be categorized for entertainment purposes only, not for taking risks on. Even when you observe technical opinions on the market, you cannot use that as a source for actionable information unless you analyze it from the filter of your own well defined methodology.
Now combine years of that conditioning with your own preconceived ideas and irrational behaviors that occur as you process unfolding market information. Not a good combination when it comes to operating effectively in an ever random environment. This is what I like to think of as an undefined mental framework. You just go by “gut feel” and try to make sense of many sources of information while trying to relate it to unfolding price action.
Another example of conditioning is to think of trading in a linear format. People always like to compare trading to a day job. If you can make $250 a day trading, that’s like having a good day job, especially if you don’t have to put in a full 8 – 10 hours. Well this type of thinking doesn’t fit when it comes to trading and that is because trades are not scheduled. Opportunities emerge whenever they do, you can’t force them and you will have losses. So by trying to think of trading as a day job already sets you up for forced trades and unnecessary pressure.
If this sounds like you, don’t worry it is normal, but in order to be an effective trader you must become aware of your thought process and perceptions and then replace them with a structure that is much more relevant to the natural market process. So do you know your biggest obstacle at this point? It is not something external, it is simply you. As a trader our greatest challenge is overcoming our limited thinking while keeping our emotions in check.
Irrelevant information mixed with emotional reactions is what drives the average market crowd in my opinion and it is for this reason that a trader with a well defined methodology can thrive. The professional trader depends on the impatience, lack of discipline and lack of perspective of the average trader. The elements that make you your own greatest obstacle. The solution is not tough to find, you just need to come up with or learn a well defined way to observe and act in the market. The hard part is to stay committed to the learning process long enough to see the results and that is assuming you have a mentor.
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Marc Principato, CMT,
*No Relevant Positions