As regular readers of this blog will know, I am a sucker for books published by Traders Press. They always give me the impression that their books have more substance, less fluff.
This is a trading psychology book. It’s a thin volume, but it goes through 12 keys areas in the psychology make-up of a successful trader. Each of those 12 aspects are what Ruth calls a ‘habitude’. Her definition being: “When an attitude becomes a habit, we could call it a habitude. An attitude that has become habitual, then, is a habitude.”
Three things that I like the best from the book are:
- Nobody knows the future. That’s why you don’t wait for certainty until you take a position, you need to take timely entries.
- Trade what you see. When you hear yourself saying, “I don’t believe this,” you’d better believe it and act upon it
- Don’t try, do.
All in all, this book is a pretty good read.
THE TWELVE HABITUDES
A successful trader:
- Has a commitment to trading and comes prepared to trade.
- Is detached from the results. He thinks in terms of process and believes in the validity of the process.
- Is willing to accept loss.
- Is at ease with controlled risk.
- Thinks in terms of probabilities.
- Is comfortable with uncertainty.
- Takes the long term view.
- Has an attitude of abundance.
- Is optimistic.
- Has an attitude of open-mindedness and clarity of thought and perception.
- Has an attitude of courage. She is willing to act in the face of uncertainty and possible loss.
- Is disciplined. Discipline is putting into action those behaviors which need to be done to get you to your goals.
Habitude 1: Preparedness
- A successful trader trains his mind for high power trading. If he needs a coach or mentor, he gets one. He takes the time for meditation, self-suggestion and positive visualization. He learns helpful questions to ask himself. He does whatever it takes to prepare himself mentally to trade.
- Set goals
- Put your goal into words. Form a sentence that is specific, simple, short, positive, in the present tense, and achievable.
- Make a mental movie of yourself with the goal achieved.
- Step into the movie and live it and feel it as if it is already true.
- Design the steps necessary to take to get to the goal.
- Commit yourself to doing the steps and make a timetable to do them.
Habitude 2: Detachment
- When you become fully and solely identified with a particular role (e.g. I am a trader), you can become depressed when it’s not going well. It’s hard to detach from trading results when you’re fully identifying with the role, and only that role. So make a list of the other things you do and are. Identify with the whole scope of your being. You are so much more than your trading.
- Experiment with bringing different perceptual positions to your trading. Try placing a couple of chairs near your trading station. Let one represent a mentor. Let the other represent a neutral observer. Sit in the different chairs literally or in your imagination and look at the trading from those perspectives.
- You cannot use the trading arena to prove your worth or your capability. It will just bring your trading and your self-esteem to new lows. To build your self-esteem, ask yourself “what did I do today that I’m proud of?”, and “In what ways am I improving?”
- Anxiety is a forward looking emotion that tells you that there is something in your future for which you need to prepare. Ask yourself, “What can I do to prepare for this?” And do whatever you can. Then in your imagination, go out into the future to just after the successful conclusion of the event you were worried about. Imagine and visualize the successful conclusion of the event. Most people do just the opposite of this. Imagine instead that the trade goes where the probabilities tell you it will go.
Habitude 3: Willingness to Accept Loss
- Taking a loss does not make you a loser. If you are not willing to lose, you may not be able to actually trade.
- Traders who seek to avoid loss frequently end up losing and often losing big. Some miss opportunity by failing to pull the trigger. Some wait for confirmation only to enter when the trade is mostly over. Some lose because they refuse to recognize a losing situation when they’re in it. Some, in a losing trade, will avoid taking that loss only to find it getting bigger and bigger.
- Losses are not failures. They are feedback. And feedback takes us forward.
Habitude 4: Taking Controlled Risk
- Probability is the mathematical center of wise risk. Successful traders risk to win. For the risk taker, this uncertainty between small loss or large profit is where the fun is.
- If you tend to over trade or over risk, you need to pull in your frame of safety. You need to establish trading guidelines that will protect you. You need to be alert to your propensity to over risk and step back every time you catch yourself over extending.
- If you tend to avoid risk, you need to expand your frame of safety. You need to slowly add risk to your trading so that you become emotionally inoculated. Decrease your trading size and / or change to a trading vehicle that is less volatile. When this is comfortable, slowly increase size and volatility.
Habitude 5: Thinking in Probabilities
- Successful traders put themselves in alignment with the probabilities.
- If you know a trade has a probability to make money, you’ll go ahead and put it on in a timely manner. Why would you not? It’s probably going to make money.
- If you know a trade is only probable, you’ll put in a protective stop loss. Since it’s only probable, you’re mindful of other possibilities. It could be a losing trade. Therefore, you protect yourself.
Habitude 6: Being Comfortable With Uncertainty
- Successful traders understand that the future of any trade is not knowable in advance. You are willing to act in a timely fashion because you understand that you will never have certainty until it’s history.
- Some people have an inordinate need to be right. First, such a trader cannot act quickly, she will hesitate before entering a trade and once in she may hesitate to get out because it would prove she was wrong. She’s always looking for confirmation because she needs to be right. By the time confirmation comes, however, it’s usually too late. Second, such a trader may be so overcome with the need to be right that she cannot receive information contrary to her position. If you need to be right, you’ll build your case despite the overwhelming evidence to the contrary. And you’ll pay the price.
- The future is not knowable. A successful trader fully accepts the uncertainty and even enjoys the mystery. Herein lies the art and the excitement of trading.
Habitude 7: Taking the Long Term View
- Project your past and current trading strategy into the future. What will your trading be like if you keep trading like this? Change what needs to be changed.
- Find out what works. Verify that it does work. A trader who takes the long view won’t rush into trading a new method or system until she has fully checked it out to make sure she truly does have an edge.
- By taking the long view a trader ceases to define herself by today’s trading. The long view allows a trader to view a drawdown as a temporary situation. The long view enables a trader to be optimistic about the future even as he remains realistic in the present.
Habitude 8: Thinking in Terms of Abundance
- Successful people believe that life offers a cornucopia of opportunities and that they can identify and take advantage of some of them.
- If you miss a trade or leave a trade too soon, there’s no need to stress over it. Learn from it and vow to do better in the future. After all, there is an abundance of future opportunity waiting for you. The markets will continue to be there with plenty of movement and possibility. They provide us with unlimited possibility. Count on it.
Habitude 9: Optimism
- When good things happens to an optimist, he says it’s permanent, pervasive, and personal. When a bad thing happens to an optimist, she says it’s temporary, specific, and not personal.
- Because the optimistic trader looks with bright enthusiasm towards the future, she is able to be realistic about what has happened in the past and is happening in the present. A pessimistic trader who has limiting doubts about his future trading, may be unwilling to admit what has happened or is actually occurring.
Habitude 10: Open Mindedness and Clarity
- The successful trader stops telling himself stories that don’t square with price action. He knows that if he hears himself saying, “I don’t believe this,” he’d better believe it and act upon it.
- You need to develop some impartial indicator that will let you know whether or not your bias — your hunch — is in fact occurring. You need to create an unbiased set of rules for telling you whether a market is trending and what that trend is. You could call it your no-nonsense detector. Keep asking yourself, “what is my no-nonsense detector telling me now?”
Habitude 11: Courage
- The more you exercise courage in your trading, the easier it is to be courageous.
- Courage does not mean recklessness. Successful traders have respect for their capital. They know how hard they worked to create it and to grow it. They do not treat their capital as easy come, easy go.
- Successful traders have respect for their verified methods. If their method tells them the market is going down, they believe it, and abide by it. If their method tells them it’s time to enter the market, they do it promptly. If their method tells them to exit a trade, they do it. Because of their respect for their method, they would not dare trade on the opposite side of their methods.
Habitude 12: Discipline
- Discipline is doing whatever needs to be done to achieve your goals. You do what needs to be done whether or not you feel like it.
- If I have a goal, then my actions support that goal. If I don’t act upon my goal, then I’m just wishing. Successful traders know what needs to be done, and they do it. No excuses. No evasions. Simple, clean thought and action.
- If you’re trying to do or not do something in your trading and you’re not succeeding, you need to shift something. Ask yourself, “What would I need to believe in order to do or not do this?” “How would I have to interpret this event in order to handle it differently?” “What are my real underlying intentions in regard to this situation?” “How would I have to feel about myself in order to succeed at this?”.
- Don’t try and try again. Do something different. Discipline is doing, not trying. Change your interpretations, modify a belief, alter your guidelines, allow yourself to feel differently about the consequences of the behavior you’re trying to do or not to do.