I received a PM today that I felt went right to the core of the beginner's dilemma. It was beautiful in the simple way it showed the feelings that we all have faced. The questions were directed to the discovery of the mechanical methods that might bring one closer to success. The tone of the letter was slanted towards the discovery of the psychological mindset and tools required. This is my attempt to respond.
My own personal definition of the "Day Trader" is one who tends his or her trade's daily. A gardener is one who gardens. The gardening begins from the first turn of the soil and does not end until the last fruit has been picked. Some days the gardener tills. Some days the gardener plants. Some days the gardener weeds. Some days the gardener waters and watches. Some days the gardener harvests. I believe as long as you are committing time on a daily basis and engaging in daily trading or tending to your trades you are a "Day Trader" or "Professional Trader" . A gardener does not pick all his or her fruit on the same day.
Your trades cannot originate in the mind of your friend, lover, partner, tipster, or mentor. They may provide a seed but ultimately you will be the one who plants, waters, and harvests the trade. If you do not control the planting, cultivating, weeding, and picking your trading account will look like an untended garden. Your garden will be full of weeds, produce little nourishing fruit, and ultimately be a waste of energy and capital. To trade well you will first have to discipline your mind You will have to control the logical processes as well as the emotional processes.
Gardening is a slow physical process. Trading is a high speed mental process, but , growing your capital may be every bit as slow as growing a garden. Most of us are far more familiar with physical processes. Even most professional careers which demand educated thoughtful people are often expressed in a physical form. A surgeon, a lawyer, an engineer, even a programmer all produce a physical product or provide a physical service. These "physical manifestations" are exchanged for money. Even politicians, who many believe produce nothing and serve no purpose, spend most of their time in face to face meetings with people. Their time is spent bringing folks together, negotiating and achieving consensus, for the purpose of allowing societies to stay together and benefit one another through achievement of mutual goals. As much as one may dislike it, for this they get paid.
Trading is a game of the mind. Trading does not take place in the market. Trading does not take place on your computer screen, on the floor, or at your brokers office. The trade is conceived, born, grows and dies, entirely inside your mind. The rest is merely chaff in the wind after the winnowing of the grain. There are no physical manifestations of your work to sell. No one pays you for a copy of your trading slips. Your work brings you into direct contact with money as it flows from the account of one person to another. You can take money directly out of the accounts of the richest, poorest, smartest, dumbest people on the planet, simply by the process of thought.
Here then is the nature of the conflict. We are physical beings who have for our entire lives depended on input from a range of senses to interpret our world and react to it. Reactions which then lead to a physical expression. Trading take us to another world. Trading the market is in fact the original implementation of virtual reality. All of your senses enter a highly active phase and your mind believes you are in a game of life and death in a far away world. Yet, all it takes is a simple command (sell out), then a push of the switch, and that life and death game goes blank. No one is after you or your money.
For hours at a time we suspend all physical activity except the minor tasks of breathing, scrolling, and clicking. For minor diversion we might type in an order, take a drink of coffee, or read a chat thread. During this process we are inundated with constantly moving, changing, and evolving kaleidoscopes of information and money. When we are immersed in this streaming kaleidoscope, it has the power to wrestle control from our minds and capital from our account. We have no control over the flow. Once in, we have to rapidly interpret the information and logically apply our capital in a manner that allows us to capture a portion of the money flow. We try do this without letting the stream suck away our capital or knock us out of emotional balance. Loss of mental or emotional control is dangerous to the trader. Loss of capital is death.
Let's accept the standard story line, at face value, that most who try this career don't make it. Lets also recognize in a number of books written by or about successful traders and speculators we read the same story: "I tried to train 5,20,30,40 or some number of traders and only 2,3,5,6 or so were ever able to make it in this business." People from all walks of life have flunked out of this business. Ask yourself, "Why do so many people fail at this game?" and "Why are there so many doing it that cannot even make a living at it?.
There are literally thousands of college and higher degree people working in the fields of finance, business management, investment research and on and on. Why are many of these people not successfully trading?." Now, ask yourself this "How, How am I going to be different?"
The first step is to realize, trading has no physical corollary. There is a corollary in the world of physics. Because, the study and development of our understanding of physics is also entirely a mental game. It is a game where often, just like trading, even mathematics fails us. Sometimes for no reason other than, we are unable to do the math. To help broaden and deepen your mental approach, I highly recommend you read the book "the elegant universe" subtitle "superstrings, hidden dimensions, and the quest for the ultimate theory" by Brian Greene, (W. W. Norton and Company).
The point of the read? Reading topics, requiring deep thought, outside the realm of trading stretches your mind. This particular book will stimulate your mind to see avenues of profit where others miss them. Trading takes place entirely in the mind. The broader and more flexible your thought patterns are the better equipped you are . If you are not equipped for the task, and many are not, you will not be able to make a career out of it. Take a lesson from the movie "The Matrix". What was the biggest challenge facing NEO and Morpheus? The challenge of getting NEO to think outside the boundaries of what he perceived the physical world to be. That is your challenge and it is a mind bending challenge. It will require work.
As you step into the world of trading your mind is assaulted with a form of stimulation you have never experienced before. The direct result of thinking either gives you money or takes it from you. It can take your breath away. You can feel as if you have been blasted into orbit sitting on top of a rocket. You can also feel like you are trapped in an elevator that has broken loose and is in free fall. In "The Matrix" they gave us the "physical hook" of a telephone call to transport out of danger. You have no hook. You must be able to "Mindport" your way out. If you work in a trading room, or in a "live" online chat room, you may have a buddy who can help bail you out. If you work alone, as I do, you are on your own. You must learn to maintain full mental and emotional control. It will not be easy.
I hinted at in a prior posting that we would go where the highs are high, the lows are low, and there is blood in the streets. (and yes ID you may find out I really am ill…LOL) Before we go there, in my next posting I will present a different twist on the outlook of FA/TA and where it actually leads us. We all initially want to simplify these tasks and organize the flow of information so that we can somehow "know" what we are doing. We want to be able to define the "best" time periods, scanning methods, amounts of money, sizes of trades, etc.. We want to achieve a level of trading that gives us the feeling we control our financial destiny, if not the market. We believe we actually have the answers. Yet so few actually make it…Hmmmm. Where are we headed if we are following the crowd?? While I am writing my next post consider these three questions:
What is the one thing you absolutely must have in the market in order to make money?
What is the mathematical function that allows us to compare or contrast the outcome of one trade with any other trade?
"If you continue to think like you've always thot. You'll continue to get what you've always got. Is it enough?" (K.L.Turner).
Premium trades :-D
KK
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