Sunday, March 16, 2014

Developing your mental trading edge

"True self confidence is your mental edge" - Dr. Andrew Menaker

While it may not be as glamorous or attention grabbing as a post detailing the latest trading setups, psychology is a very important topic for developing traders.  

Examining one's trading psychology and dedicating time to self-improvement in the hours after the market closes may be the difference between failure and success in your trading career. After all, the most important battle you'll face in the markets is not with other traders - it is with yourself. 

So with that in mind, I'd like to share a video with you from trading psychologist, Dr. Andrew Menaker, that addresses this very topic. But first, a few more quotes - from experienced, big-time traders -  to help convince you!

"The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading." - Victor Sperandeo

"Unfortunately, most aspiring traders find out far too late that the act of trading is 20% intellectual and 80% psychological." - Michael Martin

"I haven't seen much correlation between good trading and intelligence. Average intelligence is enough. Beyond that, emotional makeup is more important." - William Eckhardt

Now, on to the webinar: Develop Your Mental Edge with Dr. Andrew Menaker. 

A few key ideas and tips from Dr. Menaker's presentation...

1). The typical trader who is struggling will look for outside information that completes the puzzle or "holy grail" of trading. Go and look at yourself in the mirror. This is the missing piece in the trading puzzle.

2). Mental rehearsal (of both positive and negative scenarios), positive imagery, inducing a relaxed state of mind, and developing daily rituals can help put you in the flow state of mind for trading.

3). The most important question a trader can ask: "Am I acting in my own best interest right now?". Menaker explains why this question will help you define your risk and maximize your opportunities and trading results.

4). The very largest traders are focused primarily on risk management. Accepting and managing risk is a big part of trading. Some traders have difficulty following rules in this area. We should spend time learning about the mental biases humans have against suffering losses (see: Prospect Theory) and become aware of these showing up in our trading. Keep a trading journal to highlight awareness of these events.

5). "If I was forced to rank the importance of [various aspects] of trading, setups would be at the bottom of the list. Position sizing, risk management, and psychology are really what's going to keep you out of trouble and ahead of the game. The best traders understand this and have internalized it.".

6). You need to learn to do more of what works and less of what doesn't. While it sounds obvious, many traders have difficulty with this as their unmanaged emotions are interfering with their perceptions and trading process. 

Enjoy the webinar, and I hope these lessons help you in your trading! 

Related posts:

1. Overcoming Your Fear of Pulling the Trigger (Trader Interviews).

2.  Lessons from Hedge Fund Market Wizard, Steve Clark.

3. The Inner Voice of Trading: a lesson on ego and risk.

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