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".