Module 3 Workbook - Amazon S33+Workbook.pdf · Elite traders are able to control their responses to fear and ... So how do you master self-discipline and become an elite ... excited

Module 3 – Master Your Mind

© 2014 StrongForce, Inc 1

OBJECTIVES In this module you will: ! Understand Why Few Traders Crush the Market While

Most Lose Money or Break Even

! Learn the Traits of Successful Traders

! Identify Your Unique Trading Personality

! Build a Plan to Overcome Your Weaknesses and

Enhance Your Strengths



WHAT ARE THE ODDS? In just about every field, you’ll find that there are only a small percentage of super successful people, the Elite, the Hall of Famers. Trading is no different. This isn’t meant to discourage you. In fact, you’re faced with these odds in everything that you do, you just don’t think about it because the risks are not that great. It’s pure statistics, also known as the Bell Curve. 95% of people will fall within 2 standard deviations from the Mean. That leaves the last 5% to be split up between the hall of famers and the hall of shamers.

The problem is that, with trading, the Mean does not represent a break even point. There are far more unprofitable traders than there are profitable ones. In other words, if you are an average trader, you’re losing money. You must be significantly better than the Mean in order to be profitable. And if you want to make big money, you have to put yourself in the Elite class of traders. The consequences of being on the wrong side of the Bell Curve in trading, often means financial disaster. Some studies find that in certain markets, up to around 90% of traders are losing money, while 5% breakeven and 5% actually make money. So those are the statistics, and again, they’re not meant to discourage you. They’re meant to raise your awareness to the

Elite

Mean



task at hand, which is becoming an elite trader. They’re meant to get you focused and ready for the game. So what separates profitable traders from losers? Is it their superior knowledge? Is it their vast amount of experience? Before we answer that, let’s dive into the reasons why traders lose money.

Why Traders Lose Money Ironically, many traders aren’t actually trading to make money. They trade because the like the action or to solve the puzzle of what makes markets move. People spend more time trying to crack the code of the market than they do actually trading the markets. Then when they actually do start to trade, they often stop after a few losses because they think they don’t understand the secrets well enough and go back to studying. The bottom line is that people spend too much time trying to be right rather than just making money. Let’s dig a little deeper though. What are the specific reasons that traders lose money? Why do you lose money? A survey of traders revealed the following as the most common reasons:

• Over-trading • Greed • Not following system • Don’t have a system • Stops too tight • Lack of

understanding • Emotional decisions • Not paying attention • Lack of time

• Going against the pros

• No goals • Lack of a plan • Lack of confidence • No analysis of

mistakes • Compulsion to trade • Preconceived ideas

of the market No doubt you’ve experienced some of these at some point in your trading career. There are probably hundreds of other reasons why traders lose money as well. But, when you boil everything down, there are really just two categories of why traders lose money.

1. Lack of Self-Discipline 2. Lack of Knowledge



Overcoming a lack of intellectual knowledge is pretty easy, and it’s really the lesser of the knowledge problems. Intellectual knowledge, such as learning a specific trading technique or indicator, can be obtained in any book or online. There’s virtually an unlimited amount of intellectual knowledge out there for your consumption. All you have to do is go get it. However, it’s a lack of knowledge about the psychology of trading, or of themselves, that most people have trouble with. Which brings us to the #1 reason why people fail at trading: Lack of Self-Discipline.

Psychology 101 – Fear and Pleasure So knowledge obviously plays a role in success but, the most essential component is self-discipline. Your mental attitude. Your psychology. We know this because a strategy or technique can be taught to two different people, and one will go out and make money while the other goes out and loses money. You see, trading is all about probability. And in order for you to win long term in a game of probability, you must play enough hands. And more importantly, you must not quit when you are on a losing streak. That concept goes against human nature. No one likes to lose and when we lose over and over again, the instinct is to run away and do something different. That will destroy you in trading, which is why there is such a wide gap between the number of profitable and unprofitable traders. A human’s brain is wired to respond greatest to fear and pleasure. These are the two primary emotions. When it comes to pleasure, a human prefers pleasure now over later. Pleasure can be as simple as finding the answer to a question or as grand as obtaining great wealth. We want the answer NOW (Thanks Google), we want to be promoted NOW, we want our videos NOW, we want to start a business and be rich NOW, we want our music NOW. We want everything in the palm of our hand and we want it NOW. Since trading is all about probabilities, long-term results come from playing hundreds or thousands of hands, not playing just one or two. And when the average trader does not get the expected results NOW, they quit. They are not willing to sit at the table and play a thousand hands.



Furthermore, for some reason, many people don’t treat trading seriously. They treat it like a hobby or a game. They don’t have specific goals, they don’t have a detailed plan, they don’t take the time to master it, and they don’t analyze their performance. Trading is a business. Would you start a business without goals or a business plan? Would you run a business without analyzing it’s performance? The answer should be no, but the facts are that people do, which is why 80% of businesses fail within the first 5 years and why so many traders lose money. So why do people go into business without a plan? Why do traders trade without a plan? The answer is because they lack self-discipline. Those things are difficult and take a lot of time. People just want the results NOW. They want the pleasure without the pain of hard work. When it comes to fear, the response is even greater. People will run from fear faster than they will run toward pleasure. Fear is by far the single most devastating thing for a trader. In games of probability, it’s almost guaranteed that you will experience losing streaks. With trading, a losing streak doesn’t just mean you move down a couple spots in the rankings. It means money out of your pocket, sometimes a great deal of money. When the average trader experiences a losing streak, the fear of loss is so great that they quit. They cannot mentally tolerate watching their account balance continue to go down. Elite traders are able to control their responses to fear and pleasure. This is not to say that they don’t experience those emotions, because they do. They just don’t let their emotions influence the actions they take when it comes to trading. They are masters of self-discipline. They’re masters of their own mind.

HOW TO BECOME AN ELITE TRADER So how do you master self-discipline and become an elite trader? Is it possible to learn, or are certain people just born with this ability? While some people may be naturally wired to



be more resistant to fear and pleasure, the vast majority must acquire those skills. Becoming a master of self-discipline is no simple task. Often people who possess incredible self-discipline have developed the trait over the course of their lives as a result of all the experiences they’ve had. But if you’re here, you probably have some work to do in this area and would prefer it take less than 20 years. So let’s get to it.

The Traits of an Elite Trader If you want to become an elite trader, you have to start developing the traits of an elite trader. Research has concluded that the following traits characterize the elite trader.

1. Calm and Even Mental States – Elite traders don’t get excited or emotional over their trades. It doesn’t matter whether they have a winning trade or losing trade, they just continue to follow their plan.

2. Have a Plan – Elite traders have very specific trading plans for everything they do. The plans include goals, trading systems, rules, and anything else they need to execute consistently in the markets.

3. Think in Probabilities – Elite traders understand that

individual trades are insignificant. It is the combined effect of hundreds or thousands of trades that is important.

4. Focus on Profits, Not on Being Right – Elite traders

focus on making money, not on being right. They don’t stake a claim on a market. They go with the market or leave the market when it doesn’t suit them. They accept that losses occur and that it’s inevitable that they will lose. Acceptance rather than fighting the market is paramount to profitable trading.

5. Educated – Elite traders see trading as a lifelong

education. While formal education can often be associated with elite traders, it is not necessary. Elite traders take time to learn the basics and study the market. They are not usually novices who have taken a three-hour trading seminar on how to get rich quick trading. They take the time, and have patience to learn



from the market. They develop strategies after they study. There is no easy way or shortcut here.

6. Strive for Mastery – Elite traders never stop looking for

ways to win and ways to improve if they lose. They practice, practice and practice some more. They’re constantly looking for ways to improve their performance. They analyze their results and always look for the lessons behind each trade.

Elite traders are not superhuman. They are not smarter than you, they don’t have access to any information that you don’t have, and some may not even have as much experience trading as you. They simply think differently, they’re in complete control, and they give trading the respect it deserves. You can be an elite trader. From this point forward, start working on developing all of the traits listed above. You may already possess some of them. Great, keep strengthening them and work hard to develop the others that you lack. The key is that you have to do the work. No one is going to develop a plan for you, no one can study for you, no one can practice for you and no one can trade for you. You develop the mindset of an Elite trader by doing the work and taking 100% responsibility for your results. Here are some rules to follow to help you stay on track.

Rules of the Elite Trader As you move forward in your trading career, begin studying these rules. Commit them to memory and keep them in the forefront of your mind at all times as you trade. Over time, if you follow these rules, you’ll begin to develop elite trading habits. Habits that will make you money and help keep you on track and focused on the big picture.

RULE #1 - I DON’T GET EXCITED OR EMOTIONAL, I JUST FOLLOW MY PLAN

The most successful traders have ice water running through their veins. They remain calm and centered regardless of anything. They understand that a losing trade does not mean they did something wrong and use them as an opportunity to learn. As an Elite trader you must learn to execute flawlessly regardless of the number of winners or losers you have.



Become a machine, a money making machine. Don’t get bored, don’t get excited, don’t get frustrated. Just execute.

RULE #2 - I FOCUS ON MAKING MONEY AND BECOMING A BETTER TRADER, NOT ON BEING RIGHT

Trying to be right causes you to hold on to losing trades and cut profits on winning trades. Wanting to be right means your ego is wrapped up in the outcome of a trade. Elite traders don’t stake a claim on the market. They don’t say, “This is going up.” They say, “If it goes up, I’ll go up with it. If it goes down, I’ll go down with it. If it goes sideways, I’ll go sideways with it.” They never fight the market. There is no right or wrong, there’s just profits and losses.

RULE #3 - I THINK IN TERMS OF PROBABILITIES, NOT

ABSOLUTES

Elite traders know that individual trades are not important. They are the casino not the gambler. The casino only plays games that it will win. The odds are always in it’s favor, even if just slightly. It understands that it may lose on individual hands or even a streak of hands but in the long run, it always wins because of the nature of probabilities. So to be an elite trader, you must learn rigorous techniques and execute them day after day. And when you enter trades, set your mind up for success with proper thinking. Don’t think, “I am going to make money on this trade,” because you may not and then you feel defeated, your ego takes a hit and it starts affecting your decisions. Instead, think, “I will probably make money on this trade but I may lose money.” Or better yet think, “I will probably lose money on this trade but I will make money overall.” You can’t lose with that thinking because it’s the correct thinking when you’re dealing with probabilities. Be the casino.

RULE #4 - I EXECUTE FLAWLESSLY

Elite traders have plans and they follow them. They have specific rules for every component of their trades and they follow those rules. They don’t change the rules every time a trade goes against them and they don’t break the rules for any reason. Breaking your rules, changing your rules, and inconsistently following your plan puts you back in the



gambler’s seat. It skews the probabilities against you and makes it impossible to accurately track your performance. Stick to your original plan regardless of new information, be consistent and be persistent.

RULE #5 - I FIND THE LESSON IN EVERY TRADE Elite traders track everything about their trades and routinely analyze their results. They do this by keeping detailed trade logs and journals. Part of the trade log is tracking the numbers: entry points, stop levels, position size, targets, technique used, percent gain/loss, dollar gain/loss, etc. The other part tracks you as a trader. For every trade, you should be asking yourself these questions and logging your answers into your trade journal or trade log.

• What was my reason for entry? • Did I analyze the market correctly? • Did I follow my plan? • What errors did I make? • Did I enter the trade well? • Did I exit the trade well? • What were my emotions when I entered / exited? • What will I do to improve? • What lesson did I learn from this trade?

Periodically go back and review your log and journal. Look at the numbers and look at your answers. Find out what’s working well and do more of it. Find out what’s not working and throw it our or make adjustments. Just don’t be adjusting your plan every trade. Consider adjustments every 30 to 50 trades.

RULE #6 - I CONTROL MY RISK TO KEEP LOSSES LOW AND LET MY WINNERS RUN TO KEEP PROFITS HIGH

Seems like an obvious and easy thing to do but most traders can’t seem to make this happen. You can’t do this consistently unless it’s built into your plan with specific rules for risk management, position sizing, profit taking and loss taking. If you don’t have rules to follow, your emotions take over and that is a recipe for disaster. You’ll learn rules for cutting losses and letting winners run in a later module.



RULE #7 - I AM A LIFELONG STUDENT Elite traders never stop learning. They strive for deeper and deeper understanding of the market. Lessons come from each trade but they’re also constantly learning new techniques, new systems, new strategies. Market conditions are always changing and what works today may not work tomorrow. As an elite trader, you’ll need to continually absorb new information in order to be prepared for what’s to come. Your trading plan should include a plan for continued education. Read a book about trading every month, attend a trading seminar, take online courses, work with a coach. Whatever works for you. Just don’t stop learning.

Where Do I Start? Now that you understand what it takes to become an elite trader, it’s time to take a look at yourself. As Socrates put it, you must, “Know thyself.” Every trader has their own unique personality, their own strengths and their own weaknesses. In order to transition from where you are now to being an Elite trader, it’s essential that you have a deep understanding of what these are for you. The following exercises will help you pinpoint your own unique trading personality and then identify specific strengths and weaknesses that you possess. Once you’ve done that, you can build strategies into your trading plan that will help you enhance your strengths, and prevent your weaknesses from sabotaging your trading results. EXERCISE_____________________________________________ To apply the information in this module, complete the following assignments.

• Trader Personality Assessment • Strengths & Weaknesses Worksheet • Print and post “Rules of an Elite Trader”

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Documents

Module 3 Workbook - Amazon S33+Workbook.pdf · Elite traders are able to control their responses to fear and ... So how do you master self-discipline and become an elite ... excited