A New Strategy: the result of a hypnotherapy session

Bad Assed Trader:  I participated in a training day on clinical hypnotherapy last Saturday which was fantastic.  I learnt how to hypnotise another person and how to hypnotise myself.  I also experienced being in the trance state - a state of deep relaxation with an alert mind.

This is a new skill I want to use more often as part of training my mind to achieve clarity and focus for trading and to be able to recognise when my emotions are getting in the way.

I reflected on my trading after the experience and I realised that my mind had become cluttered with my rules and I had lost sight of what is important.  It dawned on me that I need to simplify things big time and stick with price action as the key to my trading approach.  I had been finding support and resistance levels where they barely existed as an excuse not to place a trade and I was giving too much weight to indicators when price action is, as they say, king.

I discussed these issues with my coach, Emmanuel, on Monday and he agreed that de-cluttering my approach would help, sticking to trading with the trend and using price action as the lead for placing and managing the trades.

My process of reflection following hypnotherapy made me realise that the old trading mantra of "trade what you see not what you think" has been the most difficult thing for me to embrace.  I have traded in a way that has involved thinking/guessing far too much and this of course encourages engagement of the emotions which always ends up working against one.

So Emmanuel has supported me in developing a new, simpler strategy which trades with the trends using the four hourly chart and is led by price action right now.  I no longer set targets, but trail the stop loss behind the swings on the four hourly chart.

I took a short gold trade yesterday using these rules and so far it's moved over 1.5% in my favour - I've managed to lock in 0.5% of that in profit by trailing my stop loss and we'll see how it goes.

My new rules are as follows:

I trade Price Action with cyclicity on 240 in the direction set by the daily backed up by weekly.  I do not think ahead on my trade, I just look at what price action has been doing recently within its context and read what it is telling me right now.

Entry

1.    Identify direction of travel on the weekly and identify the trend on daily – daily is the chart I’m trading: Up, down or ranging, all are ok but clear & unambiguous trend exists

2.    Once clear of trend watch price action on 240 chart and wait for a pullback.  It could be shallow or deep – looking for at least 2 bars against the trend and then a return to trend

3.    Price action must show a reversal bar indicating a return to trend on the 240 chart

4.    Enter on the break of that reversal bar with the stop loss behind the opposite end of that bar (protected by any nearby moving averages or pivot points in case of a retest to that level)

Mixed Signals means indecision and a warning to stay out

Management of the Trade

Make a note of support/resistance levels which may trigger a turning point in the trade and watch price action at those levels.  If price suggests a turn (doji, low/high test bar, two inside/outside bars) when it gets there consider moving the stop loss down but remember that price often reacts to levels without changing direction so always give room to breathe.

Trail the stop loss behind swing highs/lows on 240 chart, protected by any nearby levels of support or resistance eg moving average. 

I let price action take me out of the trade - never kill a trade.

If price is fuffling this is not a reason to delete a trade, consolidation is normal before a move.  

Only take trades where you have a high level of confidence and can therefore sit through the random erratic movements on the way to profit without fear.

  

If market gaps on opening and enters trade at different level then only take trade off if risk exceeds 2%, otherwise leave as it is with stop loss in same place          

The Spiritual Side of Trading

Bad Assed Trader:  When people think of traders it isn't usually a spiritual person that springs to mind.  But the more one learns about trading and successful traders the more one realises that the spiritual side of trading is key to lasting success.

As part of my personal development - for trading and because I want to develop and grow - I've been learning more about spirituality, what it means to be "awakened" and how these qualities are not only applicable, but vital for traders.

It was Emmanuel, my incredible trading coach, who first introduced the concept to me that traders can be, and often are, spiritually, psychologically and philosophically aware.  He happened to mention that he was reading "The Road Less Travelled" by M Scott Peck, a book I read 30 years ago and loved.  Once we found we had a shared interest in this type of subject we often discussed books in coaching sessions.  Emmanuel told me about "The Power of Now" by Eckhart Tolle and showed me on YouTube the videos of Oprah Winfrey interviewing Eckhart Tolle.  These books and videos contain powerful insights and incredible lessons and at the moment I can't get enough of them.

I also recently came across this amazing video on YouTube by Louise L Hay called  You Can Heal Your Life which beautifully demonstrates so much of what is being promoted by spiritual teachers like Tolle. Don't be put off by the title - I didn't feel that my life needed healing but the principles are applicable to us all.

In my research on spirituality in relation to trading I discovered this website, Joe Ross Trading Educators, which I found fascinating.  I don't personally subscribe to any religion but I'm very interested in deepening understanding of values and spiritual awareness so although the Biblical references on that website didn't resonate for me the lessons it promoted certainly did.

What I took away was that to be a successful trader one needs to embody many spiritual traits.  For example:

To trade successfully we need to be able to read the language of the charts clearly - to receive that information clearly.  When one is fearful of anything one is not open to receiving information objectively (let alone acting on it!) - fear gets in the way, it distorts and limits our ability to receive and understand.

Therefore to be most receptive to information from the market we must feel good about the market.   That good feeling needs to include feelings of acceptance, appreciation and respect.  To many people the word "love" conveys appreciation and respect.  We know that when we love someone we accept them, we appreciate and respect them and these are all spiritual qualities.  I've heard many experienced traders talking about need to accept the market the way it is and to respect it - resisting the way it is simply leads one into trouble when trading.

The passion that traders have for trading includes appreciating the markets, accepting their unpredictability and the fact that they cannot be controlled and being OK about that at a deep level.  I believe this takes some significant spiritual growth to achieve.

All traders lose trades but to be successful traders have to be able to pick themselves up, dust themselves off and continue without these losses affecting their self-esteem and sense of self.  Non traders may see this level of resilience as arrogance but arrogance and pride tend to lead traders into self destruction as, like fear, they blind us to the market information and distort our perception (we believe we've become all powerful and everything we touch turns to gold and this optimism skews our analysis).

This resilience is not arrogance in successful traders - it is more about being sufficiently self aware as to realise one's self worth is not changed in any way by market behaviour.  As new traders we all go through countless losses which reduce our trading account and make us feel not only lacking in confidence but, basically, crap.  Having the tenacity to pull oneself through this, the insight to see when it is happening and the wisdom to know what to do as a result are all hallmarks of spirituality.

Spiritual qualities include self discipline, perseverance, humility and yet a deep knowing of self worth due to the belief of being connected to or part of something greater than oneself.  The overlap with trading skills is clear.

Spiritual Qualities:  Applicable even to Forex Trading

Spirituality is also often described as being meek and temperate.  In traders the need to be temperate, or consistent, is fundamental.

To me, being meek as a trader is about not getting angry about trades that go wrong, it's about accepting the market is what it is and that you can only surf it for a little while to make your money.  It's about letting go of trades when the time is right to do so - not outstaying your welcome when the trade has gone the wrong way (by moving the stop loss further away for example) and not by being so aggressive in the chase for profit that we are unrealistic and end up losing that profit.

Meek sounds like the opposite to bold but I don't believe it is when it comes to spirituality or trading.  Having the courage of your convictions and beliefs is vital for finding spiritual awareness and for successful trading.  Being receptive to new and different information that challenges your previous perceptions or assumptions is about being bold and confident enough to learn and think differently.  But this boldness is not born of greed.  Greedy traders end up losing through their greed - all experienced traders are clear on that one.  They take daft risks and lose their perspective.  The boldness is more about having faith in your beliefs about your strategy, your edge and the markets - having faith in your knowledge.

For new traders that is one of the hardest things to gain.  And it is really only achieved through that perseverance, consistency and the ability to retain your sense of self worth whilst you undertake the journey to greater experience and to enhanced skills.

Resistance is Useless...or is it?

Bad Assed Trader:  A recent conversation with my older daughter gave me a different perspective to the power of the subconscious mind in subverting our hope, dreams and goals - trading and otherwise.

We were discussing jogging, of all things.  Now I should start by making it clear categorically that neither of us are serious runners.  We both exercise for our health and to try to keep our weight down but left to our own devices we would not actively seek out running opportunities.  We run slowly with occasional bursts of moderate speed.  So I'll stick to the word jog.

She jogs freestyle, by which I mean she'll don her kit and head off into the park and just go.  I jog in a controlled environment - the gym.  I had not realised just how different the two are until I tried to  freestyle and kept grinding to a halt.

In the gym the treadmill propels me along at varying speeds determined by my expert trainer/coach Chris.  My body just has to keep up but my mind has very little to do other than keep motivated to stay on the treadmill until the programme has done its job.

So I asked her, how do you keep going?  I find my body just slows me down until I'm walking. Then I'll realise I'm not running and make another start at running but very quickly the body seems to become a dead weight and draw me to a walk again.  I'm perplexed that the speed and duration of my run on a treadmill is so difficult to replicate when freestyling.

Her answer was fascinating and it applies completely to trading.  What I learnt from her is that it is all a matter of mind over body.  She made the following points:

• Our subconscious doesn't see the point in running - it is naturally set on a default of Conserve Your Energy - which means walking
• When we run we have to override that default setting consciously
• This means concentrating continuously on keeping the running going
• This means finding a strong reason to run which more than offsets the pain of the lungs from breathlessness and of the muscles from exertion
• The minute we stop consciously concentrating on that motivation the subconscious takes over and before we realise it we've slowed right down 
• After sustained efforts along these lines one has hopefully retrained one's subconscious to accept running as a new default setting which can be switched on at will - the length of time involved being different for each of us

This lesson in running reminded me immediately of the similar struggle in trading to override the impulses of the subconscious mind.  I have often experienced the same issues:

• The subconscious, when trading, is set on a default position of greed unless it has recently suffered losses which has then led to the default setting switching to fear - temporarily
• When we trade we have to override those default settings by consciously getting our mindset into one which is objective and open to receiving all the information provided by the charts - information both for and against taking a trade and being able to judge and weigh it all according to our rules
• This means continuously concentrating on being objective, focusing on the chart information rather than how much money we feel we want/need to make, how much we have just made/lost, how great or crap a trader we feel we are right now
• This means finding a strong reason to be objective, finding an override switch which allows you to turn on that objective mindset
• The minute we stop consciously concentrating on being objective the greedy subconscious takes over (it knows full well we're doing this for the money) and - particularly if we've had a good run - it starts relaxing the rules just like it relaxes our legs when we're out there trying to have a good jog in the park
• After sustained efforts along these lines  one has hopefully retrained one's subconscious to accept objective rule based trading as a new default setting which can be switched on at will - the length of time involved being different for each of us

This subconscious mind is clearly the engine room of our brain, keeping our body ticking away without us having to pay any attention to it which is great.  It's obviously the result of hundreds of thousands of years of programming to achieve certain default settings which worked at the time.

The interesting thing about trading is that to succeed at it we need to rework those inherited default settings - consciously.

The Vogon: A Representation of the Subconscious Mind?

But from a position of great strength (those hundreds of thousands of years of evolution) our subconscious minds are quietly chanting "Resistance is useless" just like the ugly green Vogon in the epic "Hitchhiker's Guide to the Galaxy" who had Ford Prefect and Arthur Dent in a vicious headlock before chucking them into the spaceship's disposal unit ready to be ejected into outer space.

In the story they are rescued by another space ship which works on an infinite improbability drive.  Conscious trading is all about assessing the probabilities of the movement of price action and selecting the highest probability trades.  So the trick is to spot that Vogon mindset and make an active switch to consciously determined probabilities.

Who'd have thought that "The Hitchhiker's Guide to the Galaxy" could provide insight into the role of probabilities in rescuing us from our Vogon subconsciousnesses when trading?

Luck is when preparation meets opportunity

Bad Assed Trader:  Despite my rather erratic performance at the beginning of this year I'm sticking to my  guns and have continued with my usual daily routine of analysing all 30 or so of the currency pairs I trade.

USD CAD: "The Loonie"

I've noticed that after a while one does get into a sort of rhythm with the pairs and can spot which ones are behaving rather wildly (unpredictably) such as the Canadian dollar (shown right - daily chart).  Otherwise known as "The Loonie" this currency pair has been fluctuating in a seemingly random fashion.  This indecisive movement may just be consolidation of price in a down trend but I'm not keen to touch it when it displays such unpredictable behaviour. There's no trade there for me.

Experienced traders tell us not to take it personally when currency pairs don't do what you want them to do.  That seems obvious to a novice, it's only when you've been trading for a while that you understand at a deeper level what they really mean.  If you're looking through your charts for an opportunity and all you see is the likes of the Loonie (named after the Loon bird on the Canadian currency - not a politically incorrect nickname, apparently) bouncing around at random you start to feel a sense of frustration building up.  You feel you can't take action and of course you want to because you want to do some meaningful work and make some money trading.

In the early days you feel it is your own inadequacy at not being able to find a set up for a trade.  But after a while you do start to disassociate emotionally from the charts and you realise that if the charts are all behaving like Loonies then it does not reflect on you or your ability at all, it is simply their nature right now and the moment will pass.  This is what the experienced traders mean by not taking it personally - not being affected by it emotionally, not feeling that frustration.

It does indeed seem that time and repeated exposure to these things gradually numbs one's emotional reactions.  It helps if there is no sense of urgency to trade, no big pressure to perform hanging over one.  Pressure simply gives one a reason for frustration.

Preparation in trading includes the psychological journey taken to learn, at a subconscious level, to let go of feelings of frustration when the market is not offering you opportunities.  One of the biggest dangers is when one finds oneself repeatedly scouring the charts looking for a trade and inevitably bending (breaking) one's rules to give one an excuse to get into a trade.

My way of combating this feeling of redundancy is to at least take action by noting down what is happening in each currency pair so I have it written cleanly and objectively on my initial analysis and then writing what would need to happen in order for me to consider trading the pair.  Every morning many pairs have the words "Clarity on the daily chart" noted because until I can recognise a clear trend (up, down or sideways in a range) I'm not interested in touching that pair and those words allow me to skip those guys with speed.

Patience is also a key part of the preparation side of trading and if one waits long enough then sure enough an opportunity appears.  I've found with my daily analysis and noting what needs to happen for me to get interested that when it does start to happen I can raise my interest level further and start to check whether my rules are all getting met.  As the experienced traders say, you wait for the trade to come to you.  This means preparing your terms to engage with a trade.

Which is why I've chosen the blog title I have today: Luck is when preparation meets opportunity.  Trading luck is about spotting the opportunity but without the psychological as well as analytical preparation one is often not able to take that opportunity.  Those of us who have traded for a little while know full well that if the frustration has mounted and one has "relaxed" one's rules, taken trades that then don't make out and confidence is shot...then one is far less likely to take the real opportunity that then presents....and be bold enough to get a good return from it.

FTSE 100 Short Trade 3 April 2012

So, the happy news is that this week I had a really fun experience with a trade.  I was Skyping with my two lovely trading buddies - both girlie girls like me - and we all took a short trade on the FTSE 100 four hour chart (see far left: entry level marked by pink arrow, stop loss by red arrow and target by yellow arrow).
The daily chart on the right shows that the uptrend had turned to a down trend and we are at the beginning of that down trend, the place where moves are often faster and sharper.  One of the best things about this trade was that the risk (the gap between where the trade was entered and the stop loss, ie where I would exit if price went the wrong way) was only 40 pips so I was able to put a decent sized stake on and make 2.5% within 24 hours.  All the better for knowing that my trading buddies were riding this wave with me.

I don't normally trade the FTSE 100 but it's on my list to analyse every day and so I had duly been watching and recording its movements for weeks before placing this trade.  Not bothered when it faffed about and not frustrated when it made big moves that I missed.  Just doing my prep by noting its little journey through life.  Then, catching it for 100 pips when it happened to track across my radar just momentarily in a way that I expected.

I know this is the mindset I need to keep and that the mantra of doing the preparation to await the opportunity that will inevitably present is the one I need to repeat.  It's all I need to be "lucky".

Clawing my way back to profitability

Bad Assed Trader:  OK, so the end result for the month of March was....break even.  Well actually I was 0.1% up but hey, what's a tenner between friends?  This was at least net after my broker pocketed a good amount of rolling fees and spread - a win win for the broker me thinks.  I certainly earned a lot more for my broker than I did for myself.

Am I disheartened?  Not at all.  It was a better outcome than January and February so I'm moving in the right direction.  I've come to terms with the fact that I almost undoubtedly need to return to faceless bureaucracy (unless I can come up with a more fun income generator) at least temporarily to take some of the pressure off my trading and stop the depletion of my bank account whilst there's still enough present to do all the things I have already planned or committed to do. A new car might be required within the next year after all.

So my time is now split between continuing to analyse the charts and trade and cast my critical eyes over the opportunities starting to re-emerge in our good old NHS now that the big bad Health Bill has been passed.

But today I'm in Bad Assed Trader mode and happy to report that after another wonderful session with my most amazing coach Emmanuel I am now adjusting my schedule to relieve myself of some of the time I had set aside for back testing and historical analysis.  Emmanuel tells me that I'm beyond that stage with my strategy and that I'm also sufficiently experienced to be able to add another strategy to my portfolio.  I have decided on an intraday strategy which I used to trade a lot.  But still following Emmanuel's advice to only trade the "stupidly obvious" ones.

EUR JPY Short trade 28 March 2012

So just to share one of my better March trades, here's a short trade I took on EUR JPY following my usual strategy.  Entry shown by top pink arrow, exit by yellow arrow (in charts on left) and stop loss marked by red arrow.
As you can see, I entered when price broke through a support level I identified at 110.30.
On the daily chart (on the right) we had a double top pattern with the second top marked by a high testish doji bar (a bar which looks like a cross with a long stalk at the top) followed by a reversal (red) bar.  This gave me indication price would go further down.  There was also diversion on the MACD indicator on the daily chart.

On the 240 (four hourly) chart (bottom left) price had made a lower high (the second of the double top which showed on the daily chart) with a large high test bar giving indication that price was testing that high and rejecting it quite forcefully) and on the hourly chart (top left) price had peaked with train tracks (green bar and red bar together in parallel at the top) - another sign of a promised move down.

As you can see, I had to sit through a whole day of retracement after my entry, waiting for my analysis to be vindicated, but it was.  I set my target just above the previous two lows on the four hourly chart which occurred on 22 and 23 March and I was right to do so.  Price troughed at 108.74 and my target was at 108.85 - what with the broker's spread I just about got that trade through by a whisker.  Just as well as price shot up the next day.

And now April looms. I have a couple of holidays planned but will be trading my way through the first one and hopefully my performance will continue to improve.

Well it keeps me out of mischief....

Coaching myself better

Bad Assed Trader:  OK, so it's time to own up and confess that January and February have not gone according to plan.  At all.

Just as I felt I had turned that corner I get two months of draw down. My earlier analysis showed it was to a large degree the way I was applying my strategy so I tightened up the way I was trading which has quite dramatically reduced the volume of trading I've done.  But I've repeatedly seen trades that I would have taken if I'd been a bit more flexible (usually in relation to the MACD indicator not yet diverging) then going the way I would have predicted which has caused some frustration.

Now I do know that frustration can be the name of the game in trading if you let it.  I know I have to accept that I won't get all the moves and that if a trade is not my set up it doesn't matter where it goes but I'm not quite there yet psychologically.  I'm still working on my resilience!

So I was, rather inevitably, feeling somewhat despondent.  Not just because performance wasn't going to plan - I understand that it's normal to get variable performance as a trader - but because I can see that the requirement to get a paid job this summer is now more of a reality if I'm to keep enough of my NHS redundancy cheque to keep trading and have the level of buffer zone comfort blanket I need for emergencies.

I'm coming out the other side of the despondency tunnel and have picked myself up, dusted myself off and decided to do some coaching of myself.  After all, what was the point of getting a diploma in executive coaching last December if I can't use the techniques on myself?

As I can't get myself into two different chairs and talking to myself seems rather odd I did my coaching as a written exercise.  Brett N Steenbarger (in "The Daily Trading Coach") always stresses that when you coach yourself you should be the same as if you were coaching someone else. That means being supportive and encouraging, drawing out the positives.  Not bashing yourself over the head and talking yourself down as we often find ourselves automatically doing.

I liked this approach, it felt much more constructive and I had a pleasant and productive session coaching myself through to an action plan and a revised weekly routine.

For anyone who is interested, I've copied the whole session below.  I've included my weekly routine because people have often asked me how I spend my days as a trader and now I can just refer them to my blog.

Self-Coaching

Coach:  So what are you looking for from our session today?

Bad Assed Trader: Well, I’m not achieving the level of success I want and I'd like help to work through that and come out with some clear action to address that

Coach: Tell me more about the specific areas where you want to improve your level of success 

I currently work from home which I love being able to do but am not earning enough money from doing so

How much more are you looking to earn? 

I want to be able to earn at least what I earnt from paid employment year from trading the forex. I have a trading plan with my goals clearly set out.

So what are you currently doing to achieve this?

I analyse the charts at least twice every day, all the main forex pairs.  I note what I see and set out the conditions that would need to be met for me to place a trade.  I have a strategy which I’m still developing and I wait for the rules to be met before I place a trade.  I analyse my previous trades and note whether I exactly met my rules or not.  I get coaching regularly and have two trading buddies for mutual support.  I watch seminars on forex trading regularly.

What do you feel is working well and what needs to change or improve?

I feel I'm spending too much time looking at charts for trades rather than looking back to see what has worked and what hasn't in the past and developing my strategy to reflect that.  I think I may need to clarify having 2 or 3 strategies for different market conditions so I can be more flexible.  I'm also not fully following a schedule I set out for myself at the beginning of January.

How would you like to shift that balance of looking at charts and developing your strategy?

I need to carve out protected time to do the analysis and strategy development, I need to review my schedule to build this in and to adjust it so that I'm more likely to follow it to the letter.

Is there anything else you need to do to help you to shift that balance and develop your strategy?

Yes, I think my motivation to develop my strategy will be increased if I work on my awareness levels and focus through mindfulness techniques

So considering these issues, what more can you do to improve your trading?

Thinking it through in a brainstorming way I suppose these are the things I can do to improve my trading:

1.       Learn to be more attentive to my thoughts and feelings and notice/exorcise negativity/fear and pessimism, also notice when I’m feeling frustrated and why and find ways to let it go – especially during trading

2.       Develop a clear and short mantra I can remember off by heart and replay regularly to myself through the day and before I go to sleep to remind myself that I can achieve this goal

3.       Use biofeedback to monitor my physical state and the optimum state for trading

4.       Model myself more closely on successful traders – think like them, act like them – by regular coaching with Emmanuel, watching seminars and really paying attention. This means making time to do that, making notes of specific points and reminding myself regularly to think and act this way.

5.       Analyse historical trades and reflect on the pattern of what works and what doesn’t and stick to this plan

6.       Find ways to access the resilience and power within me to stay positive and optimistic about improving my techniques and to read trading coaching books

7.       Get a real forensic grip on what works best through back testing and spend more time doing that than looking at charts – get a better balance

8.       Revise the training I’ve already had

9.       Work on improving my focus through mindfulness techniques – setting aside time to do this

10.   Make sure I go to the gym 3 times a week as this helps me maintain a positive outlook

11.   At the end of every week do a rain check on progress

Great - that’s a lot of things! Let’s go through each one in turn and in detail and work out what is involved, how much impact you think it will have on your trading performance and therefore how important it is to do soon. This way we’ll get a prioritised list which can form the action plan to make the performance improvement happen.

OK, I’ll set it out in a table:

	Action	What’s involved	How important /10
1	Learn to be more attentive to my thoughts and feelings and notice/exorcise negativity/fear and pessimism, also notice when I’m feeling frustrated and why and find ways to let it go – especially during trading	Use a technique similar to that promoted by www.marketpsych.com   which means whilst I’m analysing charts live I set an alarm to go off at random points.  When it goes off I have to write down what I am feeling, firstly physically then graduating to emotions and finally thoughts. This shouldn’t take more than about 15 minutes to prepare (get the alarm and a table to record the findings) I just need to integrate it into my daily routine	8
2	Develop a clear and short mantra I can remember off by heart and replay regularly through the day and before I go to sleep to remind myself that I can achieve this goal	Spend about 15-20 minutes composing something and memorising it	6
3	Use biofeedback to monitor my physical state and the optimum state for trading	Research biofeedback tools for traders and buy one then set it up.  I’m not entirely sure it will work but it’s recommended by various successful traders so I should try it.	5
4	Model myself more closely on successful traders – think like them, act like them – by regular coaching with Emmanuel, watching seminars and really paying attention. This means making time to do that, making notes of specific points and reminding myself regularly to think and act this way.	Put into the diary 3 x 1 hour sessions to watch seminars on the internet.  These will be Midweek Market Focus (K2A), Traders Corner Weekend Roundup and whatever I fancy off youtube. Book next session with Emmanuel and stick to regular times.	9
5	Analyse historical trades and reflect on the pattern of what works and what doesn’t and stick to this plan	Put into the diary 1 x 2 hour and 1 x 3 hour slot every week to analyse historical trades and reflect.	9
6	Find ways to access the resilience and power within me to stay positive and optimistic about improving my techniques and to read trading coaching books	Put into diary 4 x 1 hour slots every week to read recommended books on improving resilience and trading coaching.  Start with Tony Robbins and Brett N Steenbarger	7
7	Get a real forensic grip on what works best through back testing and spend more time doing that than looking at charts – get a better balance	Develop a back testing plan setting out which currency pairs I will test in what order and how. Put into the diary 1 x 3 hour slot every week to back test and reward myself for achieving the balance I need – for doing the historic analysis and reflection	9
8	Revise the training I’ve already had	Put into the diary 2 x 1 hour slots every week to revise the training I’ve had	5
9	Work on improving my focus through mindfulness techniques – setting aside time to do this	Put into the diary 1 x 2 hour slots every week to work through the neurosculpting programme and then other techniques to improve mindfulness and focus	5
10	Make sure I go to the gym 3 times a week as this helps me maintain a positive outlook	Put into the diary 3 x 2 hour for gym	8
11	At the end of every week do a rain check on progress	Put into the diary 1 x 1 hour review and reflection	7

  

Well done, we have a plan!  When will you start to put this plan into action?

I’m going to put the regular things (numbers 4-11) into my diary right away today and make them a routine.  I’ll start the first on the list tomorrow and will do the second before the end of today.  I’ll give myself two weeks to get the biofeedback set up.

What might stop you from achieving this plan?

A number of things but mainly family interruptions (including holidays) and procrastination on my part

How will you deal with the family interruptions?

By setting aside an extra 1 x 2 hour slot a week to carry out whatever tasks I haven’t managed to achieve during the routine scheduling and by making a note whenever I am interrupted as to what I need to do in that “contingency” slot

How will you spot and deal with procrastination?

If I find that I’ve failed to stick to my plan on any given day then unless it is due to an unavoidable family interruption that I couldn’t make up time on that day then I will label the cause “procrastination” and have to get up an hour or two earlier the next day (and all further days as necessary) to make up the time.

If I run out of time and find I have procrastinated on the higher priority tasks then I’ll immediately move them to the time set aside for lower priority tasks to ensure I get the important things done.

How will you reward yourself for sticking to this plan?

For every two weeks that I stick to the plan I will reward myself with a spa session including lunch.

So how is the diary shaping up?

Well here it is….

	6.30-9am	9-10am (Breakfast)	10am-12pm	12-2pm (Lunch)	2-4pm	4-6/7pm
Mon	Live trading	Read (trading)	Mindfulness training	And take shopping deliveries	Gym	Online trading learning & chart analysis
Tues	Live trading	Read (coaching)	Back testing	Back testing then lunch 1pm	Emails and blog	Family time
Weds	Live trading	Read (coaching)	Historical analysis	Historical analysis then lunch 1pm	Family time	Chart analysis
Thurs	Live trading	Read (trading)	Historical analysis	And read then gym 1pm	Gym	Contigency slot
Fri	Live trading	Read (magazines)	Contingency slot	Lunch with friends Read (papers)	Family time/emails	Weekly review
Sat	Rest	Read (papers)	Rest/gym	Gym then lunch 1pm	Family time	Online trading learning & revision hour
Sun	Rest	Read (trading)	Online trading learning & emails	Family time	Family time	Chart analysis

Before we conclude, would you like to review that balance of activities to see if it feels right for you?

OK, I’ll start with the time allocations relevant for trading:

Live trading (mainly chart analysis): 12.5 hours

Chart analysis (preparation for trading): 6 hours

Historical analysis: 5 hours

Back testing: 3 hours

Trading reading: 3 hours

Online trading learning: 3 hours

Coaching reading: 2 hours

Mindfulness training: 2 hours

Weekly review: 1 hour

Well what do you know…it adds up to a 37.5 hour working week, albeit worked in a very flexible way across the week.  That was not done deliberately!  I think that with the exercise programme, the regular reading and also family time put in that I’ve got the balance just right for me.  It helped that I was able to use a similar routine I’d put together for the new year as my basis and been able to tweak that according to what worked and didn’t work.  I’ve learnt now which are my most productive times and which time slots seem to melt away into nothing every week!

Do you see any problems with this that might lead you to lose heart?

Well, there will be weeks when I’m on holiday and can’t fulfil the routine but I suppose I just have to treat that as I would have when I’d been in paid employment – as annual leave.  Also, I haven’t factored in things like my coaching sessions with Emmanuel which are on a monthly rather than weekly basis and need travel time.  But I think I have enough flexibility built into the routine with two contingency slots and Friday lunchtime for friends which will allow me to add in those extras.

When will you review your progress?

At the end of April I’ll have a look and see how I’ve gone with this plan.  I’ll be making a record to chart progress so I can monitor my compliance.

Anything else we need to be aware of before we close this coaching session?

I think a little reward for me might be in order right now for getting this far…

Go for it!

Engaging the Internal Observer

Bad Assed Trader:  I've been reading Brett N Steenbarger's The Psychology of Trading this past week and so much of what he says really hits the mark for me.  But it's one thing to recognise the problem, quite another to devise an effective cure...


He talks about cultivating the Internal Observer within you, that wise person who can be relied upon to be objective rather than rash and who it is possible to engage when you are actually feeling rash.  Research has shown that we have two hemispheres to our brain and that we are often primarily functioning in one or the other.  When trading we are often planning our trade from one hemisphere but then executing it from another, which is why when we look back at some of our trades we say "How could I have done that?  What was I thinking?  I was not in my right mind!" and we are speaking the truth, we really were not operating from our right mind.

Getting in touch with our Internal Observer helps to bring us back into our right mind - the objective and rational one that can see all the information, build a good evidence base for a trade (or against one) without bringing fear or greed into the act.  Engaging our Internal Observer can also help us to stick with a trade when the evidence is still with us, or cut a losing trade when the evidence is against.

I've heard many traders, including my magnificent coach Emmanuel, say that trading well is like being a robot - and I think this is another way of saying that the Internal Observer has taken control and booted the emotional aspect into touch.  This is not to say that emotions are of no use.  As I have said in previous blogs, emotions generate warning signs which are helpful to notice and scrutinise, but they should not guide our actions.  When we get an emotional signal that is the time to engage the Internal Observer and say "What would the wise woman within me think of this situation?  What would she do?".

This helps get the rational brain back into play, looking for objective technical reasons to act.

Here's a lovely story from Brett's book which really demonstrates so well what I have found myself doing a few times and which I am gradually managing to overcome:

"Kurt was overtrading, trying to make opportunities when none were present.  He would experience "seller's remorse" - he castigated himself for a poor trade.  This then emotionally coloured his subsequent trading decisions....Kurt was trading simply to keep his seller's remorse at bay.  By holding onto losing positions or by quickly entering new ones, he didn't have to think about what was going wrong.  This temporarily made him feel better, but it wreaked havoc with his bottom line."

Isn't that so true?  Getting into trades as a way of getting over trades?

I can remember two occasions when I did that repeatedly to the point where it felt like addiction.  What was I addicted to?  I think probably denial!

So what does Dr Steenbarger recommend?  He explains that Kurt was also a successful golfer and "When he made a bad shot - which happens to all golfers - Kurt would focus on the next shot, rather than immerse himself in what had gone wrong with the past shot.  By invoking his golf-challenge state of mind during trading, Kurt was able to treat drawdowns and losing trades the way he handled errant shots on the golf course."

He says: "It is helpful to meditate on past success to cultivate a winning mind-set...people consist of many little I's, many traders running around with different needs and impulses...by focusing on past successes and by placing yourself in the mind-set of another domain in which you are successful you can select the I's that will dictate today's trading."

I have started to invoke my Internal Observer who, I must confess, often chooses to turn to an imaginary Emmanuel sitting on my shoulder to ask for his advice.  I will take the example of a recent winning trade I have on the yen (USD JPY).

Current long trade on USD JPY from Feb 7 2012 (4 hr chart)

I placed the trade at 11.30am on February 7th and it kicked in shortly afterwards (entry marked with yellow arrow).  I set an initial target at about 1% which was near the top of the range in which the currency pair had been bouncing for months.  I took half of one percent off at that point and have been trailing my stop loss behind the daily pivot point and 50 Moving Average on hourly chart ever since (currently at the pink arrow).  I've locked in over 1% profit.

There have been a few moments where I've been tempted to take the profits and run on this trade because on the daily chart there have been some rather over extended bars followed by small reversal bars that can indicate a turn back down.  But on each occasion I've felt tempted to do this I've brought my Internal Observer in by asking "What is the evidence to support such action?" and Emmanuel has appeared (in a virtual sense) and told me to just trail the stop loss to technically safe levels.  He's reminded me "You don't know where price is going to get to."  and "You don't take the trade off, you set the stop loss where if you're stopped out it proves you wrong."

This has made it so much less stressful, just following that advice.  And price has gone up far further than I would have imagined - and of course imagining is not good when you're in a trade because imagining invokes emotions and we don't want to be led by those.

Tilly: Now working as an emotionally charged Stop Loss

Having said that, I did in my last-but-one-blog talk about emotionally charging my rules to help me to stick to them better and this is generally helping me as it's adding weight to them and I feel that if I'm starting to ignore or downplay one of my rules then I'm ignoring a family member and this makes me feel bad.

The Gorgeous Girl trader I referred to in my last blog is also trying out this technique and is emotionally charging her stop loss by making it Tilly, her beautiful cat, because she feels so protective towards her pet.

And looking at Tilly (right)...well who wouldn't want to make sure she never comes to any harm?

And whoever said traders weren't imaginative?