Decisions, decisions – the sweetspot for trading decisions

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This is a post about finding the right state of mind for trading. Most specifically, what is the fine line between confidence and over-confidence?

Any trader dreams about a day where he can sit down in front of a terminal and bark out trades with supreme confidence — doubling down on losses until they turn to gains, never doubting. That’s a fairy tale. Try it and be humbled.

The best traders in the world ooze confidence yet they constantly second-guess themselves. The first page of any book on trading tells you to make a plan. That reminds me of this sage wisdom from an unlikely place.

Everybody has a plan mike tyson

The other problem with plans is that new information is always entering the market, especially in FX. As the story changes, you have to change. At the same time, it’s easy to lose perspective and you can’t freak out over every little piece of news.

Some sort of perpetual calmness or serenity might be an idyllic state for trading but it’s unrealistic. Even a monk spending hours a day meditating doesn’t have that kind zen. Instead, we try to understand our emotions and guard against the worst ones. I posted a video of Paul Tudor Jones a few months ago (I warned it would be taken down) and he was the farthest thing from serene but he managed his emotions and separated his decision making from how he felt.

Ultimately, I think one of the best qualities is the ability to forget. To clear out all the baggage and re-evaluate. It means periodically asking: Why did I get in this trade? Has something materially changed? Am I missing something?

That last one is the tough one (and we’re here to help) but if you can step outside the emotions, keep things in perspective and manage risk, there’s money to be made. Thanks for taking the journey with us.

Author: Adam Button

Adam Button is the managing editor of ForexLiveâ„¢. He was previously the chief currency strategist at XForex and has also worked with Intermarket Strategy. Adam believes there's an edge in knowing every tidbit of news. He was formerly the head of the markets team at the Canadian Economic Press and is a graduate of Ryerson University. Adam lives in Montreal, follow him on Twitter: @FX_Button.

2013-08-14T15:53:40+0000

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education|emotions|trading psychology

Adam Button

12 Comments

  1. Thanks Adam for the reminder…:)

  2. best-laid plans of mice and men oft go astray .The most carefully prepared plans may go wrong.of mice and men From Robert Burns’ poem To a Mouse, 1786. It tells of how he, while ploughing a field, upturned a mouse’s nest. The resulting poem is an apology to the mouse:But, Mousie, thou art no thy lane [you aren't alone] In proving foresight may be vain:The best laid schemes o’ mice an’ men Gang aft a-gley, [often go awry] An’ lea’e us nought but grief an’ pain, For promised joy.The poem is of course the source for the title of John Steinbeck’s 1937 novel – Of Mice and Men. http://www.phrases.org.uk/meanings/the-best-laid-schemes-of-mice-and-men.html

  3. Thanks Adam..!!

  4. No Adam, Thank YOU, always

  5. ” Pick your edges and let the market fight it out ” – Ryan Littlestone

    game changer

  6. The Tyson quote fits the context perfect!

  7. People keep talking about ‘the plan’ you must do a ‘plan’ of your trade.

    When I started trading all I knew was that if you long and it goes up you make money if it goes down you lose money. And thats all I knew. So people keep talking about this plan and following your plan, that I never understood what they were talking about.

    If I had to break it out for you its like this, having a trade plan will not make you profitable, its a thing that is not essential for you to have. It is actually a myth, if you are wrong about something then no plan will save you. you will lose money.
    Forget about this things and focus on what is really important. Try to get to know what is important, be informed, get a bigger clear picture of what is happening, trade ideas will originate naturally and ‘the plan’ will come in the last step. not the first step or even essential

  8. Even when trading to a plan I find it more often than not feels like I’m forcing myself to take the trade in some way because my plan tells me to. Then there are less than about 5 trades a year that in no way differ from my plan but right from the beginning feel more ‘right’ in some unconscious way. I find that this handful of trades tend to be the easiest to manage and also my most profitable. Yet I cannot differentiate them technically from any other trade I take and I need to take all the other trades for this to happen. Conclusion: that’s trading.

  9. Here are two rules I NEVER break, no matter what.

    1. By design, maximum loss I can suffer in a month is 1.5%. No stops, mostly hedges.
    2. I lock in profits, using options, every +2% gain. I will let the profits run but lock in gains at every 2% profit.

    I always have a hypothesis that is validated or rejected by the P&L, with fixed time interval.

  10. The Plan:

    1. Don’t get punched in the face.
    2. Profit.

    Rinse and repeat.

  11. Words to live by, Denis…lol

  12. Hey Gents,
    Don’t forget to also protect your jewels! Lady Luck is a whore and she doesn’t even blink when she kicks a loser in the nuts! Oh, and she can kick like Tyson can punch!

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