This is a guest post from Tino @tradersreality. This article originally appeared on tradersreality.com and is reposted here with permission.
Since my last post regarding Martial arts and trading, I have been consolidating my thoughts on ways to improve our mindset of when we trade. Let’s face it. Mastering any craft, has no destination. Pit stops maybe, but you are forever on the journey to mastery. As long as you are humble to the concept that mastery is a journey then you will be open to ways of developing every skill that you feel will provide you with an edge in this ever so challenging game of speculation and uncertainty.
Which leads me to a concept that is probably not considered much and given little attention to.
How can time help your trading?
Now I am not saying that if you trade for 1 hour a day, and only 1 hour a day, your trading will improve drastically. The idea of this post is to understand what we are doing in the “time” that we are exposed to the market. How is it that time can improve the way we trade and what can we learn from it?
To understand the concept that I am delivering, I will introduce to you Trader X. Trader X is someone who has subscribed to my “Review My Trading Journal” service and sends me his trading journal every week. I then explore patterns in his trading and areas that he may or may not be struggling with that he cannot see yet.
Trader X Bio
Trades Stocks, Swing trader turned Scalper, (might have been my fault that happened).
Pretty decent track record, he came to me when he had lost half of the value on his account, through perseverance and dedication he has now managed to regain that capital and is going on to having many great trading weeks.
I approached Trader X after exploring his journals and I could see a pattern forming. Trader X would always try to allow his trades to hit his profit target and keep his risk to a minimum. He would get a little bit frustrated when price would be close to his target and he would leave it on, only to see it reverse and his stop get hit later. Trader X would document how he would feel and quite rightly, he didn’t allow it to bother him and he would go on to the next trade.
I decided I wanted him to try something out. I approached Trader X and explained to him I wanted him to try out something that would, if done correctly and if he sticks to the criteria, would allow him to determine any flaws he may have in his trading.
I wanted to determine if we can develop the skill of taking a win and taking a loss. What impact would this have?
Trader X agreed…
I asked Trader X to take a series of trades. These trades would be closed within a set time period. E.g Scalpers would either choose 5 minutes,10 minutes, 15 minutes. Literally a stop clock counting down.
Now whatever happens. once the timer has completed. THE TRADE MUST BE CLOSED.
Set the risk parameters, only because anything can happen and you don’t want your trade to be exposing you to a draw down and you not preserving your capital all for the sake of a stop clock not triggering.
This exercise is not engineered to make you money. The idea is to understand how you can handle the concept of FOMO (Fear of missing out) and how well you manage your behaviour once this FOMO kicks in.
After a week, Trader X sent me his thoughts and pictures of the trades he took:
What’s going on Tino,
Here are the details of the trial period that you had me do.
I was a little nervous at the beginning. I followed my trading routine as you already know and executed the same strategy for all my trades during this trial. There was no hesitation when it came down to execution, There was no problem when the price was going against me, I have been used to that type of exposure and as long as price does not hit my stop and when the price hit my stop then I would get out without any problems and accepted the trade did not work.
The emotions started to flare up when the timer had 2 minutes left and the trade was going in my favor. I asked myself with some of the trades, it hasn’t hit my target yet and I doubt that it will hit my target in the next 2 minutes. What if I get out of the trade and then it hits my target? I would be missing out on making some serious percentage gains to grow my account.
I felt anxiety, that’s the best description I can give you of my emotions during this trial, it was like I knew the price was going to hit my target. On some of the trades, I stayed in for an extra 20 to 30 seconds to see if the price would hit my target but then I felt like shit because I was violating my commitment to your teachings.
So, I would get out and take a deep breath. I wrote down all this information and it took me until the 3rd trade to figure out that I have not fully accepted the concept of uncertainty because if I did, I would not have those types of emotions. So I did this exercise while on the trial, I kept repeating to myself that I would get out of the trade when the timer hits, no matter what and that’s what I did.
Even though I did not want to get out of the trade. I got the f*ck out and accepted the outcome of the trade. I watched most of my trades hit my targets after and I would just sit there accepting that I am never going to know what is going to happen in the future, and accept the outcome of the remaining trades on this trial. A very powerful exercise for sure, it definitely, brought more awareness to my trading. Now it’s time to head back to the lab and keep working on improving.
As you can see, this is from a trader who is happy with his trading, takes his trades sets his stops and targets. Yet time has taught him something that had been lingering within his mind.
Is it possible that Trader X has realized a flaw in his trading that has been laying there dormant, ready to come out? Maybe its presence will arise at a time and cause Trader X to lose a hell of a lot of money.
What Trader X has accepted is he really does not have any control of what is happening.
This is what I wanted to achieve with this trial with Trader X. He now knows that, even if you are winning in trading, great, but always, always be aware that the irrational behaviour of the “Monkey Mind” will always be present. We will do things that in hindsight we will say “f*ck sake, why did I do that?”
What to take from this?
From Trader X’s perspective, its evident that he was struggling to accept that his trades, had he not had a timer in place, he would have been profitable and earn himself decent percentages on his account. But lingering behind the frontal cortex of his brain was his emotional centers, that were being triggered and his need for certainty came out.
The truth of the matter is this. The point of this exercise is to get you to realise that when you are trading, you will never know what the market will give you. Setting profit targets are great, but you can fall into the trap of being “married” to a target and price could fluctuate and be within a couple of pips or cents and still not hit your target, you as the trader will be thinking “Yeah it’s going to hit it.” and then you are in the position where price has completely pulled away from your target area and is more likely to hit your stop…This has been done many times with my own trading and i am guilty of it to this day.
Try out the trial above and see if you can actually be committed to closing your trade within a set time. Explore your emotions after the trade and let me know.
Trade well friends…
P.s The Trend and Time are your friend.