The final impediments between you and successful trading are your dragons.
Define them, and kiss them goodbye.
As a trader, your workplace is the Zone. We’ve spoken about the Zone before. The Zone is not a physical workplace. It is a mind-space where your nervous system tunes into the market, and starts moving with its rhythm, so much so, that when the market turns, you turn with it. It’s like a flock of birds turning in mid-flight. Nobody cares who turned first. Bottom-line is that the flock turned. In the Zone, you become one with the market. If the market turns, it takes you with it. It’s called connection.
Dragons keep your system from getting into the Zone.
There’s the dragon of ill-health. The other day I was running a fever and forgot my wallet, keys etc. etc. in my friend’s car. When have I ever in my life forgotten my wallet, like, anywhere? See? Ill-health makes you commit critical blunders. It’s the real world, people. Ill-health happens. So when this dragon appears, don’t initiate a fresh trade. If you’ve got any open positions, just play them according to the rules you defined when your system was not diseased, i.e. when you were in the Zone and initiated the positions. You have to understand this: the dragon of ill-health knocks you out of the Zone.
Then there’s the powerful and magnetic media-dragon. See, first there’s the market. Then there are people who report about the market, with all their biases and their opinions. As a trader, are you about to listen to the media dragon’s second- or third-hand opinion about the market? Or would you much rather build a first-hand opinion by connecting to the market yourself? Though the answer to this question is rhetorical, the magnetism of the media-dragon is so powerful that even the strongest of traders gets sucked into it. What’s to be done? OK, indulge in media, but tell yourself that this is your time-off, and that you are indulging / amusing yourself. Don’t take any media report at face-value, because there are vested interests. By the time news arrives in print, the market has already factored it in the price long back. Basically, you need to try hard to not let the media dragon bias you against your trading strategy which you formulated while connected in the Zone.
We move on to the dragon of emotions. This one can knock you out of the Zone in the flash of a second, without you even knowing it. That’s why it’s so dangerous. Other dragons take time to knock you out, they build up to it. This one’s effect is instantaneous. Balance, balance, where art thou? As a trader, balance is your biggest friend. Balance keeps this dragon away. If it still manages to surface, balance keeps it under control till it goes away. As a trader, one has to learn to balance oneself; am working on this myself. Perhaps you could teach me a trick or two here.
Lastly, today, I’ll speak about a fourth dragon. It’s called the dragon of indiscipline. It’s connected to the dragon of emotions, but is important enough to get dragon-status. When the dragon of indiscipline strikes, one initiates disproportionately large-sized positions because of greed, or one cuts perfectly profitable positions because of fear. Or, one fails to initiate a normal-sized position because of fear, even after seeing a perfect setup. The learning curve of a trader forces him or her towards defined discipline. Discipline demands from the trader to always open positions that are proportionately sized to the portfolio size. Furthermore, if a position turns profitable, it should only be cut by the market itself, when a trailing stop is hit. Then, no matter what, if a perfect setup is identified, a normal-sized position needs to be initiated. To the trader, that’s the definition of discipline. And, the dragon of indiscipline causes the trader to act otherwise. Want to deal with this one? Here’s a trick. When the dragon of emotions has appeared, ultimately you will realize it. When you do, just repeat the magic words “I am NOT going to allow the dragon of emotions to summon his ally called the dragon of indiscipline!” At this stage, you need to remember: 1). No opening of disproportionately large-sized positions, 2). No manual cutting of perfectly profitable trades and 3). No let-up in the opening of a normal-sized position once a perfect setup has been identified. That’s all I know about this one.
Maybe some other day we’ll take about more dragons! Till then, good luck taming those you have identified!