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It's A Heart-Mind Game... Are You Ready?

  • #81
  • Jan 19, 2012 5:01am Jan 19, 2012 5:01am
Quoting FX4Newbies
The more "emotional weight" you carry, the more numerous the rules and the more closely you must follow. Why? Because more is at stake and the slightest "failure" can send a trader into a tailspin easily...like having too much weight in the back of the car: more prone to fishtailing.
This idea helps me alot. The more we attach ourselves to something the harder it is to be disciplined, hence the reason we should be less emotional. I remember the first time I traded on a live account, I thought that I was pretty confident having succedded somewhat on a demo. But even with my trading rules and plan, when I traded with real money I discovered that I was very attached emotionally to my money. I got stuck in this wierd tunnel vision and could not think straight. Even though in theory it should have been the same as with a demo it was not. I have since striven to focus on the pips when I am trading and not the money amount I have won or loss. For me this has helped lessen the emotional attachment and focus on my plan better. Because a pip has no inherent value in and of itself, it depends on my lot size and if I can just focus on that I could trade a micro lot to a standard lot and my emotions can be the same. The time to think about money for me know is when making my plan and determining how much I am willing to risk, converting that into pips and then forgetting about the money value and just focusing on the market. It does not always work but it helps.
  • #82
  • Jan 19, 2012 5:39am Jan 19, 2012 5:39am
Quoting PsionMind
This idea helps me alot. The more we attach ourselves to something the harder it is to be disciplined, hence the reason we should be less emotional. I remember the first time I traded on a live account, I thought that I was pretty confident having succedded somewhat on a demo. But even with my trading rules and plan, when I traded with real money I discovered that I was very attached emotionally to my money. I got stuck in this wierd tunnel vision and could not think straight. Even though in theory it should have been the same as with a demo it...
Very honest and very true Psionmind. Doesn't always work, but it helps. It is how we manage ourselves when it doesn't work is what turns us into winning trades. Like someone said, "Every trader is a losing trader. It just depends on how well they handle those losses."

The next post might also help there PsionMind. Let me know .


FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #83
  • Edited Jan 20, 2012 12:33am Jan 19, 2012 5:46am | Edited Jan 20, 2012 12:33am
Okay traders,

The attachment below is an image of a spreadsheet showing some trades. Only a portion of the spreadsheet data is shown. Alot about the heart-mind of this trader can be seen if you look closely. The pip-curve (the graph) below is very important. The break of the thinner red line should have alerted the trader, not just to keep following their system closely, but to watch themselves even closer. Notice the thicker red line. That is a psychological level for this trader (a balance line if your will) and they have already crossed it. Time for them to be very careful on their next two or three trades. Gotta know when you are getting weak. Emotionally, they are driving almost on 'E': on fumes. If they can't get back above 70 pips, and find solid support (in themselves as a trader), they very well might lose the rest of their pips.

Might make the spreadsheet available either today or tomorrow (polishing it a bit). It's part of the next trading challenge: the second thing traders find hard to do...the first is being able/willing to take the loss (after their first click of course ).

Enjoy!

FX4

P.S. SPECIAL THANKS to a trading buddy who took my really rough spreadsheet and turned it into this beauty!!!
Attached Image (click to enlarge)
Click to Enlarge Name: Winning At The Heart-Mind Game-Post 1A.jpg Size: 409 KB
Trade what you see, not what you think or feel. Let the market come to you.
  • #84
  • Jan 19, 2012 7:51am Jan 19, 2012 7:51am
Quoting PsionMind
... The more we attach ourselves to something the harder it is to be disciplined, hence the reason we should be less emotional...
The point with emotion is not so much that it is bad to have emotions but that acting on them can be bad.

For example - some people will trade better after a losing trade. The loss, makes them focus and find another good opportunity. Other people will trade worse, they will revenge trade. Both people had an emotional response but one was appropriate and the other self-destructive.

Quoting PsionMind
... I got stuck in this wierd tunnel vision and could not think straight.
This is a common response and happens to everyone. We will often look back at the same chart and not understand why we didn't see or do what seems obvious to us now.

The key here is not to try to have no emotional response because that is impossible ,despite what many books say, but to recognize that you are emotional and ask yourself how is your emotional state affecting your trading.

When you are on demo your mind knows you are on demo and the outcome does not matter. So it does not bother with an emotional response. As soon as you trade live then your mind knows it matters and you get an emotional response.
  • #85
  • Jan 19, 2012 7:55am Jan 19, 2012 7:55am
Quoting jzw
The point with emotion is not so much that it is bad to have emotions but that acting on them can be bad.

For example - some people will trade better after a losing trade. The loss, makes them focus and find another good opportunity. Other people will trade worse, they will revenge trade. Both people had an emotional response but one was appropriate and the other self-destructive.



This is a common response and happens to everyone. We will often look back at the same chart and not understand why we didn't see or do what seems obvious to...
Yup and Yup...will leave the rest to PsionMind for comment.

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #86
  • Jan 19, 2012 8:04am Jan 19, 2012 8:04am
Quoting jzw
The key here is not to try to have no emotional response because that is impossible ,despite what many books say, but to recognize that you are emotional and ask yourself how is your emotional state affecting your trading.
Spot on buddy. The gurus chant 'remove emotions'. This is not practical advise for most people. I even go so far as to incorperate aspects into my trading strategy to satisfy emotional responses. This may actually lower my profits if I were a robot with no emotions, but since I am a human it increases my profits by addressing my weaknesses. My favourite example is taking partial profits which satisfies fear of losing the profits gained AND satisfies greed because I still have some of the position running for even more pips

This is not to say however that you don't need to keep your emotions in check. If you let emotions dictate trading decisions then you are bound to fail. I am just saying that you can't eliminate them completely.
  • #87
  • Edited 9:54am Jan 19, 2012 8:11am | Edited 9:54am
Quoting Agro
Spot on buddy. The gurus chant 'remove emotions'. This is not practical advise for most people. I even go so far as to incorperate aspects into my trading strategy to satisfy emotional responses. This may actually lower my profits if I were a robot with no emotions, but since I am a human it increases my profits by addressing my weaknesses. My favourite example is taking partial profits which satisfies fear of losing the profits gained AND satisfies greed because I still have some of the position running for even more pips

This is...
@ Jzw and Agro...

Smart guys here!!! One other thing is when you first start trading for the day or session, take some "easy pips" with a small position as a "trading vitamin": a confidence booster. Might help some. Just to see it in your Account History would be like a shot in the arm to your ego. We do need to be careful not to become too overconfident and egotistical, but your ego needs the appropriate boost to get the job done.

Will leave some ideas for others to post. Don't want to let them all out of the bag now .

FX4

P.S. Another trick...watching one or two positive trades in your Account History instead of watching the "Trade" tab where you can see your fluctuating P & L can be more helpful at being a source of en-courage-ment. We've already talked about the need for courage, right? O-kay, closing my trick bag again.
Trade what you see, not what you think or feel. Let the market come to you.
  • #88
  • Jan 19, 2012 8:19am Jan 19, 2012 8:19am
Quoting FX4Newbies
@ Jzw and Agro...

Smart guys here!!! One other thing is when you first start trading for the day or session, take some "easy pips" just as a "trading vitamin": a confidence booster. Might help some.

Will leave some ideas for others to post. Don't want to let them all out of the bag now .

FX4
Ha ha, brilliant. Some people on my level. I do this almost every day as a scalper. Make sure you take what you can get on that first trade and you are not playing catch up. After that first profit it is much easier to let trades or parts of trades run for a few more pips. Again, this is one of the little things I include in my strategy to keep my emotions in check. If I was emotionless then this would probably negatively impact profits as trades would ideally be managed on a trade by trade basis not caring if it was the first, second or last trade of the day, but I am human and have emotions so it helps me in the end.
  • #89
  • Edited 11:04am Jan 19, 2012 8:33am | Edited 11:04am
Quoting Agro
Ha ha, brilliant. Some people on my level. I do this almost every day as a scalper. Make sure you take what you can get on that first trade and you are not playing catch up. After that first profit it is much easier to let trades or parts of trades run for a few more pips. Again, this is one of the little things I include in my strategy to keep my emotions in check. If I was emotionless then this would probably negatively impact profits as trades would ideally be managed on a trade by trade basis not caring if it was the first, second or last...
Sometimes too it is better to take the 8 or 9 pips on momentum while waiting for price to reach your target of 15 or 20 pips, as more likely than not, there will be a minor retracement that might spook you. But, we want to show we are big-time traders with 40+ trades, so we miss the money being given. (Nothing wrong with 40+ trades, but just want to keep it all in perspective. It takes some more emotional fortitude to hold the trade for those big runs while watching the market). If you were late on your entry, you might end up showing -pips with the retracement, then be afraid that price won't get back to where it was....and then the heart-mind games begin. To help with not being part of the game you could walk away for a bit and check back if you "know" your system well.

Like Agro said, work with your emotions. Find a way to manage them, even profit in spite of their effects, because, chances are, they're not going away as long as you remain human.

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #90
  • Edited Jan 20, 2012 4:07am Jan 19, 2012 12:42pm | Edited Jan 20, 2012 4:07am
Why is letting go of a losing trade such a problem? Well, for starters, for some reason when we click, we immediately have an emotional attachment to that trade. Somehow we see it as an extension of ourselves. If that trade fails, we feel that we also have failed. But there are other reasons we can develop that emotional bond to a trade. Let us look at our trader's spreadsheet again.

I circled the trade in question in blue and noted it in the margin. That was the largest losing trade so far for this trader, whom I will call Target Hitter. There must have been some reason(s) why they held that trade.

First of all, notice that they flipped from short to long. Most of their recent trades on Eur-Usd had been short. When they lost on the short, they flipped to long and took a hit there. Was that a desperate move to stay above the thin blue line?

Secondly, they had just made a new high on their pip-curve. Took some days to get there but they did it...and probably didn't want to lose any progress made. That was the trade they had hoped would put them over the top...finally.

Thirdly, when they took the loss on the short, their pip-curve was just above the thin, horizontal, blue line that they had been trying so hard to stay above. Taking another loss (see blue arrow) was something they really didn't want to have to do...so they held off for as long as they could, hoping for a change. Exited at their "ouch spot". Notice how gun shy they were on the long right after?

That losing trade took them out of the battle emotionally. Look at the slope of the pip-curve on that one trade: straight down. They had a major heart-mind drawdown and went full-blown into the Cycle of Market Emotions (Post 47):

Anxiety >> Denial >> Fear >> Desperation >> Panic >> Capitulation (for sure) >> Despondency.

Target Hitter managed to pull the plug on the trade when they realized they were giving back half of their remaining pips on one trade and beginning to break the thicker red line. The blue arrow in the chart shows the start of the loss with the long on Eur-Usd. In the last trade shown on the spreadsheet, they're not too sure of themselves. "Time to refresh and re-group Target Hitter. We're still pullin' for ya!"

How to let go?

1. Never take a trade too personally. Protect your account, not the trade or your ego.

2. Stick to your rules.

3. As soon as you realize the trade isn't working out, get out. Don't allow that paralyzing hope to set in. (This point was discussed in more detail earlier). To make your response more automatic, just practise letting go in your demo account or live with mirco-lots over and over again.

4. If you realize that you are in a potentially vulnerable place per your pip-curve (or equity curve if you use one), exercise extreme caution. Maybe even take a break until you feel like your trading self again, and you have mustered up the emotional energy to push through new barriers to better profits, or keep any losses to a minimum. Good place to reduce exposure (smaller position sizes).

5. Don't allow anything or anyone to drive you beyond your comfort zone at any given time. No stresses. Don't worry about another person's opinion: it's your account.

The reasons why traders become attached to a trade can be numerous and quite varied. Review some of your more devastating losses and examine yourself for the reasons that may have tied you to that trade. Sometimes the reason may not even be directly related to trading so be a good detective here . HINT: Look for things that have strong emotional value for you.

Next...the second most challenging thing for a trader to do.

Take care,

FX4
Attached Image (click to enlarge)
Click to Enlarge Name: Winning At The Heart-Mind Game-Post 2A.jpg Size: 397 KB
Trade what you see, not what you think or feel. Let the market come to you.
  • #91
  • Edited 2:50pm Jan 20, 2012 2:09am | Edited 2:50pm
Okay warrior traders,

Here is the spreadsheet file that was used to create the image you see below. Not all of the data is shown in the image. The trendlines were drawn using Paint.

Some features to be aware of:

1. The columns with the blue headings are the input areas. The columns with the green headings, the Trading Statistics table and the Pip-Curve will be calculated automatically.

2. Once you enter the FX Pair, Direction and Limit or Target Hit (shown here as just 'Target Hit') columns, you should be able to "right-click" and have the option to Pick from drop-down list, any prior entries made under those headings. That way, when you go to make the next entry, you don't have to keep typing in the same info. every time. Some versions may even have a drop-down menu arrow appear in the spreadsheet.

3. Use the date format shown in the data first. Entered it as: 01/02/2012 for example. If it does not work for you, find the one based on your version that would give correct results.

This is the beginning step in figuring out your trading mind. Traders who manage big bucks get a "photo" of their trading mind handed to them or placed on their desk. Exposure to trading capital is adjusted based on the output of their trading "brain waves". If you don't like your trading results, there's an internal coding error or connectivity issue somewhere. Find the problem and use whatever tool you can to help troubleshoot. Here's something for your toolbox .

Hope traders will pay more attention to the heart-mind game which is really what is behind that rising (or falling) equity curve everybody is so focused on. You can download the .xlsx file here.

NOTE: The spreadsheet fields were extended to Row 500.

Enjoy,


FX4

P.S. Could not upload the .xlsx file here.

P.P.S. Got the .xls version uploaded here. Hope it works on your system. I had some compatibility concerns, but everything seemed okay when I tested it. Both versions are available on the blog.
Attached Image (click to enlarge)
Click to Enlarge Name: Winning At The Heart-Mind Game-Post 1A.jpg Size: 409 KB
Attached File(s)
File Type: xls Winning At The Heart-Mind Game Excel 97-2003 Pitchfork Goldmine.xls   699 KB | 382 downloads
Trade what you see, not what you think or feel. Let the market come to you.
  • #92
  • Jan 20, 2012 7:14am Jan 20, 2012 7:14am
Quoting FX4Newbies
Okay traders,

The break of the thinner red line should have alerted the trader, not just to keep following their system closely, but to watch themselves even closer. Notice the thicker red line. That is a psychological level for this trader (a balance line if your will) and they have already crossed it. Time for them to be very careful on their next two or three trades.
FX this does help. I have never looked at my trading in this manner. It helps but into perspective that we are not only trading the market but ourselves. And just as we analyze the market we should be constantly doing the same with our emotions and thoughts.
  • #93
  • Jan 20, 2012 7:20am Jan 20, 2012 7:20am
Quoting jzw
The point with emotion is not so much that it is bad to have emotions but that acting on them can be bad.

For example - some people will trade better after a losing trade. The loss, makes them focus and find another good opportunity. Other people will trade worse, they will revenge trade. Both people had an emotional response but one was appropriate and the other self-destructive.
Thanks jzw for pointing this out. I often wish to be the stoic trader, who has complete control of my emtions, which of course fails. Hopefully I will learn my lesson that emtions will be there and I need just become more aware of my emtions when trading so as not fall victim to revenge trading.
  • #94
  • Edited 10:46am Jan 20, 2012 7:26am | Edited 10:46am
Quoting PsionMind
FX this does help. I have never looked at my trading in this manner. It helps but into perspective that we are not only trading the market but ourselves. And just as we analyze the market we should be constantly doing the same with our emotions and thoughts.
PsionMind,

What I think traders forget is that they are the driving force behind those pips, not the system, though they need one. If you can see your "mental pattern" and have an idea when your "emotional tank" is low, it can be a feather in your trading cap.

Give it a try and let me know how it goes.

FX4
Trade what you see, not what you think or feel. Let the market come to you.
  • #95
  • Edited Jan 21, 2012 4:25am Jan 20, 2012 4:16pm | Edited Jan 21, 2012 4:25am
Does this tool really work? See for yourself. Below is a Pip-Curve for Trader #1 that was created using the Excel spreadsheet in the previous post.. This is being used by permission as these are ACTUAL, LIVE trades. This trader has had a rough start this year, but they are determined to make it.

Do you see the breaks in the red trendlines? Places to be watchful (January 9th and 16th), and may have been times to stop trading live for a day or two. Look at the break of the second trendline. Do you recognize a common price action that you see on price charts when price breaks through a support level? Their pip count tried to come back to test the support line it just broke as resistance. This trader could not break above the line...they should have stopped trading right away and not continue to lose any more money until their confidence got back up. Switching to Demo Trading again would be have been wise. Don't think they understood where they were emotionally.

Don't take this exercise lightly. When a bone is out of joint or broken, the doctor usually wants to see an X-ray so he can make the right adjustments and corrections. Here is your X-ray machine so you can get back on track...and stay on track too. You need to see how your heart-mind state is driving your trading results with each and every trade. This could finally be your year for major breakthrough.

All the best,

FX4

P.S. Next week...Emotional/Mental Stressors and "Drawdowns"
Attached Image (click to enlarge)
Click to Enlarge Name: Trader #1.jpg Size: 77 KB
Trade what you see, not what you think or feel. Let the market come to you.
  • #96
  • Jan 21, 2012 4:15am Jan 21, 2012 4:15am
Quoting FX4Newbies
Does this tool really work? See for yourself. Below is a Pip-Curve for Trader #1 that was created using the Excel spreadsheet in the previous post.. This is being used by permission as these are ACTUAL, LIVE trades. This trader has had a rough start this year, but they are determined to make it.

Do you see the breaks in the red trendlines? Places to be watchful (January 9th and 16th), and may have been times to stop trading live for a day or two. Look at the break of the second trendline. Do you recognize a common price action that...
hm, okay. I want to offer a different opinion on the equity curve you posted.
All in all it's a declining curve, for me it simply means that his system has no positive expectancy.
Now in declining equity curves it is easy to draw some trendlines and say "oh, here you should have stopped trading,...", but no matter what you do, if the system has a declining equity curve, then you account will evaporate over time.
But what if you have a rising equity curve (like in my attachment). You can draw many trendlines, and say here you should have stopped trading. But in fact, if you really did that, then you would miss the trades that catapult you out of your drawdown. And your profits will be much lower than just trading through the drawdown.
Attached Image (click to enlarge)
Click to Enlarge Name: Equity Curve.jpg Size: 89 KB
  • #97
  • Edited 5:00am Jan 21, 2012 4:45am | Edited 5:00am
Quoting Custos
hm, okay. I want to offer a different opinion on the equity curve you posted.
All in all it's a declining curve, for me it simply means that his system has no positive expectancy.
Now in declining equity curves it is easy to draw some trendlines and say "oh, here you should have stopped trading,...", but no matter what you do, if the system has a declining equity curve, then you account will evaporate over time.
But what if you have a rising equity curve (like in my attachment). You can draw many trendlines, and say here you should...
Hello Custos,

The underlying reality is that people are trading and their state of mind will affect their results. I believe you mentioned in an earlier post that you back-test your systems then auto-trade them. Back-testing the system like we discussed earlier in the thread will help to determine the expectancy of the system etc. Forward testing and live trading shows more of the "trader's expectancy" if you will. Therein lies the problem: many traders are still thinking it's their system, when, in some cases, it's them.

To my knowledge, their system has produced consistent returns, so I know it is not the system. If we remain system-focused only, traders will hardly be helped beyond a certain level.

Now, regarding your chart (using it as an equity curve here)...I have drawn some simple trendlines on it. There was no reason for a trader to miss the increase in equity. Look at he horizontal blue line. Now if their pip/equity curve had fallen below it, and dramatically so, it would be time to be cautious and maybe reduce exposure etc...protective measures.

Maybe your solution to the effects of emotions on trading results is to fully automate your approach and do continuous back-testing. That's okay too. But there are other elements to be considered for those who are still doing the clicking.

Thanks for sharing,

FX4
Attached Image
Trade what you see, not what you think or feel. Let the market come to you.
  • #98
  • Jan 21, 2012 5:11am Jan 21, 2012 5:11am
Quoting FX4Newbies
Hello Custos,

The underlying reality is that people are trading and their state of mind will affect their results. I believe you mentioned in an earlier post that you back-test your systems then auto-trade them. Back-testing the system like we discussed earlier in the thread will help to determine the expectancy of the system etc. Forward testing and live trading shows more of the "trader's expectancy" if you will. Therein lies the problem: many traders are still thinking it's their system, when, in some cases, it's them.

To my knowledge,...
okay, I made now trendlines that would all be valid too, but would not allow me to participate in the subsequent winning trades that will get me out of my drawdown.

I believe it's like with any technical tool on charts. In hindsight almost everything works, but if you don't know the future, then the trendlines might hinder us to get to new equity highs.

I don't wanna annoy you. Just expressing my opinion and I like the debate here, cause your responses are constructive and helpful.
Attached Image (click to enlarge)
Click to Enlarge Name: Equity Curve.jpg Size: 93 KB
  • #99
  • Edited 6:41am Jan 21, 2012 5:39am | Edited 6:41am
Quoting Custos
okay, I made now trendlines that would all be valid too, but would not allow me to participate in the subsequent winning trades that will get me out of my drawdown.

I believe it's like with any technical tool on charts. In hindsight almost everything works, but if you don't know the future, then the trendlines might hinder us to get to new equity highs.

I don't wanna annoy you. Just expressing my opinion and I like the debate here, cause your responses are constructive and helpful.
Not annoying me at all . It's a good discussion on how we can use technical analysis on our emotional trading mind.

If a trader is looking for a futuristic outlook from most TA tools and indicators then of course there are challenges. However, technical analysis helps a trader see where they are in the now. I drew in another support level which seems to have "more" touches...maybe more credibility...maybe. If a trader's equity curve went below your black horizontal line, it is just a caution, not a sign to quit outright. Look at what has been happening overall. Note also the blue horizontal line just below it. It should be a sign to them to trade with caution, maybe reduce exposure, demo-trade or examine themselves to see what is happening on the inside or in their immediate surroundings.

Interestingly enough, this concept can also help traders determine their "emotional stop level" in pips when approaching a touchy area.

You just gotta do it to understand the finer points. It's like seeing a chart after the fact: only so much info. there. But when you were there watching as each candle formed...IN THE NOW, and you can see the volatility and momentum (price emotion if you will), it is another story. I'm sure you can agree with that . Not trying to poke fun at you here. Having a way to see where you are trade by trade is powerful (like you'd see the gas level in your car as you drive). That's how I think most traders have been trading...with no emotional gas gauge. The tool above I think can help traders with that. Just my 3 1/2 cents. The truth is, if a trader wants to profit in this business and has a system with the capabilities of doing so, but they're not, something is wrong with them...something else is going on, and they need to find a way to address it.

When someone goes to the doctor because they don't feel well, the doctor takes some tests and asks questions trying to find the probable cause. Where does the doctor get the information? From the patient, right? And then the patient has to pay the doctor for processing his/her information to give him/her a solution. So, traders pay the market to tell them that something is wrong: but not what is wrong. We know this because over 90% of traders lose money but they want to make money; so something is definitely wrong. So, why shouldn't the trader learn to make sense of the information they already have, keep from making some unnecessary "doctor visits" and keep some more money in their pocket? There are emergencies of course, but we should at least be wise enough to know the difference. Some people go to the doctor for everything....and I mean everything. Would be interesting to see what kinds of stats brokers have on newer traders...the sandboxed ones . For example, heard it said that "newbies" like to enter at the very beginning of the trend. How do they know that? Hmm... They're using traders' stats to get what they want from this business. Why shouldn't a trader use their own information to get want they say they want from this business as well. My 10 cents .

Interesting discussion topics for sure...but for now, trying to find a way to help traders troubleshoot from home.

FX4
Attached Image
Trade what you see, not what you think or feel. Let the market come to you.
  • #100
  • Jan 21, 2012 6:44am Jan 21, 2012 6:44am
Quoting FX4Newbies
.
Had to put my 2c in (not a trade so much as extra description) --


Attached Image (click to enlarge)
Click to Enlarge Name: Heart-Mind Game 2A FX4Newbies -- adjusted.jpg Size: 126 KB





Also, great quote, even tho I only do discretionary:

Quoting FX4Newbies
Hello Custos,

The underlying reality is that people are trading and their state of mind will affect their results. I believe you mentioned in an earlier post that you back-test your systems then auto-trade them. Back-testing the system like we discussed earlier in the thread will help to determine the expectancy of the system etc. Forward testing and live trading shows more of the "trader's expectancy" if you will. Therein lies the problem: many traders are still thinking it's their system, when, in some cases, it's them.

It's something I've found where the real training and study are.
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