Book Club - Trading in the Zone June 2022

[Susan 111]

Book Club - Trading in the Zone - June 2022

[Susan 111]

Thank you for joining book club!  Please see the PowerPoint with instructions below through the google docs link.  My chapter 1 entry is below.  Please use as an example and let me know what you think/feel free to comment & give me feedback.  Have a great week & remember to focus on the process:)!!!

CHAPTER 1 ENRTY: (Susan and as an example)

W - Whatever degree you haven't accepted the risk is the same degree you will avoid it

 

A - If you can 100% accept the risk that you could lose $XXX; you will not make emotionally based decisions to enter/exit trades; you will be ok trusting your trade plan to see if it will work or fail.  You fully embody the concept of probabilities and understand sometimes the trade plan will work and sometimes it will fail.  You have sound data statistically telling you your odds and you fully accept the risk associated with playing those odds on every trade providing you with your A+  set up. 

 

A- Decisions do not need to be made during the trade; they are made prior to the trade.  Once the trade is ‘put on’ and the stop loss is set; the only work is to set targets.  Everything else is based on new data and easily becomes emotionally based as we are humans with emotions.  As I gain more experience maybe this emotion will lessen during trading.  I will make rules and can exit prior to target based on rules; not what I think I see - my perception during a trade is not always reality.  My rules are based on many charts/data.  After July if I find one of the rules must be amended - so be it.

 

S - Share next week in Book Club

 

LINK TO NOTES FROM BOOK CLUB ON JULY 7th WITH FORUM POSTING INSTRUCTIONS - https://docs.google.com/presentation/d/1lXABFIVmVdxFwuvhQwTAV4y6n16rl3B0/edit?usp=sharing&ouid=110050039229114204075&rtpof=true&sd=true

LINK TO BOOK CLUB - EVERY THURSDAY AT 2PM ET - WE REVIEW 1 CHAPTER PER WEEK - meet.google.com/sat-khuv-rbh

If you need anything please feel free to contact me - [email protected]

Edited July 7, 2022 by Susan

[JOSECALCAS 11]

Susan, thank you for implementing this initiative, which I think by doing it in a group chapter by chapter analyzing, sharing, and putting into practice the concepts, will make my trading different after these months of working on this gem of a book.

I will try to be this week but I am not sure of achieving it because I am moving, so I share my two chosen sentences and share some reflections....

We MUST learn to redefine our trading activities in such a way that we are truly accepting risk. As this is achieved; we will not interpret market info in painful ways.  If we are not defining the market info in painful ways; we eliminate the tendency to rationalize, hesitate, jump the gun, hope the market will give us money or hope the market will save us from our inability to cut losses.

My main problem is not accept the losing trades, either for the money to lose or be wrong, I know that when I trade with Kyle's Hotkey with the measured risk example $ 30 and I know that is what I could lose, I usually do well, more times I won than I lost and I always felt good when I won or when I lost and many times I lost in a trade I recovered the day in the following. When I didn't use the Hks and didn't calculate the risk in advance and came in with fixed amounts I did very badly in the end.

E.g. 50 shares in $TSLA of course I was happy when I won in a few minutes $250 but the next time when it came against me and without stop, I was not able to accept that level of loss - $250 when I should only lose at most $100 in a day. The worst thing is that the perverse ritual began that the mind prevents you from seeing objectively what the market is doing and commands you not to accept that level of unexpected loss increasingly greater in the hope that it will return in your favor. It seems to me more damage does me that in the end it operates in my favor because it leaves me a severe damage because my mind will believe that it will always be like this and one day destroy my account.

We have to adjust our attitudes & beliefs about trading in such a way that we can trade without the slightest bit of fear, but at the same time keep a framework that does not allow us to become reckless. That is what this book is designed to teach us.

I really hope to work on this and that the book will help me achieve it, I become reckless after a winning streak. For example, on a day that I am winning, I do not even accept a trade that only goes back 10 or 20% of my profit day and, at the end, ends up erasing my winning day. Recklessness, non-compliance with the plan, overtrading etc. causes one to enter a trade that should no longer have entered.

It was changed to assess the risk of the trade in advance for the risk of the spiral without control of emotions and this has been fatal in my experience of trading.

I hope to work hard, and I want to do it, day by day, this is not just reading, studying and voila, I will be a successful trader, NO. As Mark says on the contrary it is extremely difficult and requires a lot of work and perseverance in doing it correctly, for a long time, with discipline and proper mind control, perhaps there will be some relapses, but I hope more and more spaced until they disappear with the new habit acquired, from the appropriate process in each day of trading always.

[WearyBear 12]

On the topic of overtrading:

I've been there. Done that. A LOT. 

These days, I have taught myself to think ahead and ask myself "How will I feel if I lose a portion (or all) of the profits I just made" before entering a new trade. If the answer is "Bad" then I'm done trading for that day,

[Chip S 5]

Chapter 1 Forum Entry

W - The markets can be described as an arena of endless opportunities, they simultaneously confront the individual with some of the most sustained, adverse psychological conditions you can expose yourself to.

 

A – Mark goes on to sum up the nature of trading in one word, “paradox”. Trading goes against our core human instincts. We face constant uncertainty with the very real possibility and reality of losing our livelihood as we think of it. So, we all start out with a handicap in trading. It is a prewired fear of loss.  

Without finding an edge you truly believe in. Without trusting that edge to do its job for you. You will take the risk but not accept that risk. As long as I have any fear, I will never have confidence in the face of constant uncertainty.   

A – I will lean into my edge. Continue to refine my edge through review of my data collection. I will not adjust my edge mid trade. My trades are planed before I put them on to follow my rules and my edge. I can’t hope to refine my edge with unplanned variables made up on the fly as data.

[Susan 111]

Pepo - thank you for sharing & for being so open and honest.  You will achieve what you are setting out to do... 1st we learn, then we practice properly & build the long-term habits... Keep learning & practicing.  Trading we have no control over, but learning we have control.  If you put in the work, study the psych, deal with the tough issues...you will get the psych results:)...Keep going, my friend:)

WearyBear - that is a great way to do a quick and honest self-assessment....it also makes you "pause" and we all have to be able to pause in trading and not be run by our emotions....give our brains a moment to catch up and help make important decisions. Thank you for sharing:)

Chip - great assessment and application to your trading.  Discipline to your plan and your Edge will take you far and we all need to adapt this into our trading.  We all start different places with psych, personality, trading, etc but we all have to get to a place where our Edge and discipline to our plan is our baseline habit.  Thank you for sharing.

I appreciate you all and all your comments made me think about the book, your trading and my trading - this is the point of book club - learning & growing together...feeding off how each other perceive what we read.  I look forward to discussing openly in our group meeting on Thursday and to getting into chapter 2:)!

[Bulldog Trader 3]

W - "If you are unable to trade without the slightest bit of emotional discomfort (specifically, fear), then you have not learned to accept the risks inherent in trading...Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully."

A - The natural human impulse to not lose, in trading this is counterproductive. Thinking this way will make one cut their runners too soon or not gave the room needed for a trade to work out.  Result being in a trader who loses or at worst breaks even (like me). Must learn to accept losing trades as something normal (Baseball analogy, the best hitters fail 7 out of 10 at bats)

[Marco 22]

Chapter 1 Forum Entry

W - The largest group of consistent losers is composed primarily of doctors, lawyers, engineers, scientists, CEOs, wealthy retirees and entrepreneurs.

A - The author wants to tell us that knowledge is not as important as many new traders think. More important is your psych. You will never learn all about the markets to avoid losing. Losing is part of the game. And its up to you to train your psych to accept this.

A - I am also an engineer. I was trained to learn as much as I can. To reduce risk I have to know as much as possible. But in trading this is not possible. I have to learn to accept that every trade can be a losing trade. If I get some losers in a row I don’t have to think about reading the next book or switching the strategy. I have to work on my strategy, to stick to my rules and avoid big losers, revenge trades, or forcing trades. This is enough at the beginning. My edge will come with the time.

[kendal 10]

W: “Many of the thinking patterns that adversely affect our trading are a function of the natural ways in which we were brought up to think and see the world."

      “Confidence and fear are contradictory states of mind that both stem from our beliefs and attitudes.” 

      “your fears will act against you in such a way that you will cause the very thing you are afraid of to actually happen.”

 

A:  As a new trader (still in sim) I do not have extensive experience with fear in trading.  However, I can easily relate to other areas of my life where I am afraid. As a parent, I am very familiar with the emotions of worry and fear and how they can dominate my thinking and are counterproductive to my goals.

In the book Mark says “Many of the thinking patterns that adversely affect our trading are a function of the natural ways in which we were brought up to think and see the world.”  I can easily understand how this can not only be part of trading, but also applied to most areas of our everyday lives. Consciously choosing a different thought process and learning to accept the risk can certainly help get out of this pattern of negativity, hesitation, and fear of failing.

A few months ago, my 20-year-old son (going to be college junior) announced he was going to travel Europe for 8 weeks by himself. My first thoughts were naturally hesitant and less than positive because that is the pattern I have allowed to dominate when something is out of my control. I pictured him getting mugged, losing all his money/passport/lost etc. Back in April when he booked his flight, I happened to listen to a podcast that changed my overall mindset and has built confidence in my ability to quickly change my thought pattern and get out of a funk. I began to practice recognizing my negative/fear thoughts as soon as they come in and quickly choose a different thought. So, in the example of my son, over time I turned my thoughts into things like: he is so lucky to experience the beautiful countries and cultures, he will gain a better understanding of money management and budgeting, he will become more responsible with his possessions and mindful etc.  My fear/negativity has been replaced with confident and positive thoughts.  I still drift to fearful thoughts during the middle of the night, but I quickly recognize how unproductive they are and switch them 🙂  Practicing this pattern outside of trading will hopefully make it easier during my live trading.

I continue to practice recognizing the negative/fear thought, accept that I can change it to something positive because I am a firm believer in Mark's quote  “Confidence and fear are contradictory states of mind that both stem from our beliefs and attitudes….your fears will act against you in such a way that you will cause the very thing you are afraid of to actually happen.”  I can certainly see how I will have the chance to practice choosing confidence over fear daily in live trading and look forward to the opportunity to practice.

[SaskMike 8]

W:  "Confidence and fear are contradictory states of mind that both stem from our beliefs and attitudes. To be confident, functioning in an environment where you can easily lose more than you intend to risk, requires absolute trust in yourself. However, you won't be able to achieve that trust until you have trained your mind to override your natural inclination to think in ways that are counterproductive to being a consistently successful trader. Learning how to analyze the market's behavior is simply not the appropriate training."

A:  Without a doubt, this is the biggest challenge for me. I've been day trading since last August....and did some here and there for the last 15 years. I'm still not consistent and that's been a goal. I am retired from a 32 year in public education, most at the senior executive level and without a doubt, by education and experiences do NOT help me with becoming a better day trader. The concept of probablity and accepting that the market is not in my control is new and something I'm working very hard to overcome. I think I'm making progress!

S: Very impressed with the first chapter. I've been so focused on the technical and develping my trade book. The psychology required to become a successful trader is mission critical to my success. Thank you to all of you for your posts on here. So interesting to read what you are thinking!

[Susan 111]

Bulldog - great observation and so so true!  A tough lesson for many of us to learn, but completely essential.  Thank you for sharing:)

Marco - great insight and I am sure being an engineer you bring a lot of traits with you that are so wonderful to have as a trader.  I have worked a year to develop more "engineer" into my personality type.  There is so much psych involved in trading.  It is something we all have to learn:)

Kendal - thank you for sharing and yes that is really great that you have already started working on mastering/altering those thoughts.  You will be able to apply some of the same tools to trading and I am sure you will learn some new ones along the way that can apply to your life outside of trading.  

SaskMike - glad you have joined us and thank you for sharing.  Yes - trading is definitely a mind game.  We need to learn strategy and technology, but all of that cannot be fully recognized to it's fullest potential without the right psychology.  Most of our backgrounds did not prepare us for trading....unless of course you were raised by traders or professional gamblers (lol).  Pro athletes and military have some things that they may be able to bring with them into trading such as "discipline to process, perseverance, performance focus" but for most of us; we have to learn a new mindset and restructure how we deal with our emotions.  We will get there!!!

 

[Channer 6]

The ability to identify a trading pattern does not make the mindset of a trader

To reach a level of consistency, it's necessary to achieve a different mindset.  A mindset of focus, discipline, and confidence.

My goal is to continually work on this mindset.  

Focus-I have committed to only watching 1-2 tickers per day

Discipline-Adhere to my trading rules (I'm getting better)

Confidence-building by spending more time at the screen during market hours as well as back trading 

I am hoping that working on these will help me overcome the underlying fear of trading and develop consistency. 

[Kath 10]

W: “When you learn the trading skill of risk acceptance, the market will not be able to generate information that you define or interpret as painful. If the information the market generates doesn’t have the potential to cause you emotional pain, then there’s nothing to avoid.”

A: Seems so simple, right? As a new trader, I understand this to mean that the “trading skill of risk acceptance” will set you free. This is the most important goal/ skill to achieve in order to gain consistency . There’s no other way.  

A:  With little experience to share or discuss, as of yet  I feel what will help me as I grow is this knowing that the skill of risk acceptance is as or even more important than a good strategy. There are many great strategies but few talk  about the  “risk acceptance skill.” Now I know. 

[WearyBear 12]

26 minutes ago, Kath said:

W: “When you learn the trading skill of risk acceptance, the market will not be able to generate information that you define or interpret as painful. If the information the market generates doesn’t have the potential to cause you emotional pain, then there’s nothing to avoid.”

This, for me, is much harder than it sounds. Bad past experiences sometimes seem to rear their ugly heads and cause me to be really really really risk averse,

[Susan 111]

Chamber - that’s great & thanks for sharing. Changing our mindset is something we can do, but it’s not necessarily easy. Focus on 1 thing at a time and set new habits. Celebrate small mindset shift victories!  Your mind is going to resist the change; that’s natural. If needed; take the time to remember how beliefs were formed that no longer serve you. If we can figure out where they came from; it’s easier to change them. Looking forward to chatting tomorrow! 
 

Kath - this is a big one. Mark goes on to say the degree we HAVEN’T accepted the risk is the degree we will avoid it - so getting out early, not taking the trade and so many other detrimental behaviors can come up. I don’t know that we can go from zero to 100, but we can keep working at this and focus on accepting risk 100% and only risking what we are truly ok losing. Thank you for sharing☺️
 

Wearybear - you & Kath shared the same sentence; let’s make sure as a group we talk about this Thursday. It’s such a big one for so many of us. It shows itself in our trading by being afraid to enter, being afraid to let the stock pull back, being afraid to lose so maybe we even get angry and move the stop loss - all of these behaviors and more can root back to fear. Fear of losing money to our brains means fear of losing control and security (even if the risk is low… our emotional brains don’t get it & especially not in the moment)… all part of how we have to reframe our beliefs, thoughts & mindset so our actions can then be changed & we aren’t triggering such big emotional responses. I hope that makes sense and thanks so much for sharing. See you Thursday!