The Spiritual Trader

To Trade or Not to Trade…. a lesson in discipline

spirittrader — Thu, 27 Aug 2009 15:11:40 +0000

Discipline… a common variable in the successful trader’s characteristics. There are common aspects of discipline that are very easy to see as applied to a trader. These can be categorized in the statement “following your rules”. You need to follow your predetermined plan for your trade… everytime.. no matter what. If you have had any instruction at all for trading you have heard this before. So, let’s look at what a simplified version of what “rules” are for a trade. (Notice I say simplified due to the fact I am generalizing for any trade… choosing the stock or investment vehicle for example could be a “rule”… but for the trade itself I will use the two fundamental components of a transaction.)

1) Entry- Being able to recognize when the market is providing you with a predetermined edge. You need something to trigger you to say.. “hey, the probabilities are in my favor, right now, in this moment.”

2)Exit- Being able to recognize either a) your probabilities are no longer present, based on your reason for entry b) your profit target has been achieved for your particular predetermined strategy

These two components are straight forward and are widely accepted as good practice for a trader. But, there are lessons in discipline within these components that are not so obvious. They exist on the opposite side of the stated. In other words the “yang” of the “yin” or the shadow from the light. What I am talking about is this, when applying the rules above it is easy to see when to take action as it is stated exactly how… but it also says when NOT to take action by NOT stating it. In other words, if you do not have an entry, a predetermined edge (predetermined is critical) you have no entry thus your action is nothing. If you entered a trade and the probabilities are still in your favor, your action is nothing, and you stay in.

I bring up this lesson as I have noticed that in todays market, August of 2009, the probable edges are becoming more difficult to find. This could be attributed to a number of factors…

-August is typically a difficult month due to lack of volume, traders taking vacation. However, the SPY volume, on a monthly comparison is huge this year compared to last. Yet the probabilities still seem to evade.

-The market is in a very abnormal state. This seems to be very true as you will find trader after trader seeing their once profitable strategies going up in smoke.

So, no matter what the reason, the probabilities are not presenting themselves near as often as they once did. In this type of environment a disciplined trader trades LESS. This might seem straight forward and easy to do. Yet, the common discipline destroyers: greed, ego, and self-image provide resistance to following this particular component of discipline ["no action"].

-Greed: When a trader makes money one day he/she makes a mental note or asking or thought of “I want to make that tomorrow and the next day and the next day.” This is a fallible way of thinking and undsciplined because it overrides the “no action” component. You do not know exactly when the probabilities of a specific trading strategy are going to come up again. Your mind becomes pointed in the direction of “I HAVE to make money today”. Thereby, you feel a sense of loss when you dont make the same amount of money on the following day. Trying to make up for that loss leads to forcing trades. If, the trader kept a thought process of, “I want to find that probability/edge again.” then greed can be lessened or eliminated.

-Ego: If a trader is wanting to prove something having to do with his/her trading skills.. whether that be to another trader, his/her spouse, him/herself, etc… there is a tendency once again for a feeling of failure if they are not trading. Again, finding themselves needing to make money in order to prove themselves. So, they find themselves “inventing” probabilities for the possibility of making money. Creating/forcing trades in the hopes that maybe, possibly the market will go in their favor.. IE guessing/gambling ..”if this one will work out, I will be validated in the eyes of… whomever”.

-Self-image: Most of us want to, believe we are/be seen as, hard workers. Why? We feel a need to prove to ourselves and others that we are worthy of prosperity through sacrifice. (This in and of itself is a failed perspective as we all are worthy of prosperity regardless of our actions.) When we dont trade, we can feel lazy. We start to worry that we are not doing enough to prove our worthiness, thus not moving forward towards prosperity. This correspondingly leads to action, when our discipline says “no action”.

The lesson: Discipline is both.. action and no action. A recognition of the destroyers of discipline can lead to a balance of the two sides; bringing better chances for success in the market.

A lesson in forgiveness

spirittrader — Tue, 11 Aug 2009 15:21:52 +0000

Forgiveness is a new topic for me in my trading career. Being the competitive person that I am; losing is not fun for me. I’m sure its not fun if your not really competitive either. But for me, it’s akin to taking a baseball bat across the bridge of my nose… it hurts that bad. My drive to win has caused me to be hard on myself in many areas of my life.. but especially in trading. I work for months and years to develop a trading strategy with solid disciplines for success, only to blow my entire month or a string of months by falling into a couple ”discipline blow-up days”…. (if you are a trader you know what I’m talking about… a day where every rule you have ever been taught or learned has left your mind). These days rock me to my core. They set me back and take my breath away. They have a knack for shaking my confidence and making me sick to my stomach. Then after I gather myself from all my physical ailments, I begin to bash myself mentally. Thought after thought after thought of “how could I let this happen.” ”How many times do we have to go through this?” etc etc etc… I am learning that this internal “ass chewing” is very very destructive. I have learned that each thought we have attracts another thought like itself. So, beating myself up only leads to more beating myself up and puts me on a path towards the very place I dont want to go. I am sure you have heard the saying, “As a man thinketh, so he is.” The more we think we are something the more we become it.

The way to prevent a cyclic downturn is to learn to forgive yourself.

Forgiving oneself doesn’t mean that it won’t still hurt to lose. It doesn’t mean that you have completely forgotten your missteps. But what it does is release you from the negativity in your heart… the all destructive judgement. And thereby opens you up; it makes room for positive thoughts and steps forward. In Mark Whistler’s book “Trading with Passion and Purpose” he quotes Catherine Ponder on her take of “The Vacuum Law of Prosperity.”

“if you want greater good, greater prosperity in your life, start forming a vacuum to receive it!”

In other words, we need to clear ourselves of the self loathing judgement, and make room for positivity and prosperity in our thoughts. So by releasing our judgement about ourselves we clear our minds for positive thoughts of esteem. Our focus shifts from finding all the things we have done wrong, to what we do right. We then are able to break the cycle of negativity and easily follow our disciplines for success.

Spirituality and the Stock Market

spirittrader — Mon, 10 Aug 2009 17:10:59 +0000

“Spirituality and the stock market”…. sounds like polar opposites, doesn’t it? For most, the “stock market” brings images of greedy, “win-at-all-cost” types of people. People who will run over anyone to make a dollar. This of course is in far contrast to what one would consider spiritual; the holy, loving, giving, selfless types of folks. However, the stock market trading experience, for me, has been much more than a money making endeavour. It has taught me things about myself that I don’t think I could have learned in any other profession. It has forced me to deal with myself. Be honest with who I am and what I want. It has taught me patience and humility. It has taught me to forgive and forget. It has shown me who I am. It has taken me down a path, not of greed, but of a spiritual awakening.