Custom Search

A Few Thoughts about Self-Control

Underlying all of the above is the very important quality of self-control. As I noted earlier, self-control is mediated and shaped by all of the qualities I've cited above. But self-control is not only important in placing orders and in following a trading strategy or system, it is also important in resisting the urge to overtrade. Some traders confuse overtrading with self-confidence and/or assertiveness. The fact is that trading too many positions and/or trading too large a position can undo you as quickly as can a lack of consistency or self-confidence. In order to preserve your self-control as a trader, I suggest that you regularly ask yourself the following questions:

ж Am I trading only based on signals from my system(s)?

ж Am I getting into trades based on actual signals or upon my anticipation of signals?

ж Am I trading too large a position?

ж Am I trading too many markets at the same time?

ж Am I adding to my positions without systems signals?

ж Am I reacting to news rather than to signals from my system?

Some Additional Thoughts About Day Trader Psychology

Clearly, the task of the day trader is more demanding than the task of the position trader. There is risk in all types of futures trading. The main difference is that everything that occurs within the time frame of a day is more intense than what takes place over a period of many days. Because decisions must be made on an instantaneous basis, the pressure on the day trader is greater than the pressure on the position trader. Therefore, if you plan to day trade, be certain that you are prepared for the increased pressures and the increased level of intensity.

Perhaps the single most important aspect of any trading methodology, whether for the long-term, intermediate-term, short-term, or day trade, is the psychology of the trader. My work with trader psychology dates back to the first trade I ever made in 1968. Having been trained as a clinical psychologist, and having practiced as such for quite a few years, I am very familiar with the limitations of the trader and with the psychological roadblocks that ( traders constantly throw in their own paths.

My book The Investor's Quotient (Wiley, New York, 1980) has continued to be a best-seller through the years, indicating not necessarily that my writing skills are tremendous, but rather thai traders realize their limitations and seek to know more about how to overcome them. There are those who will disagree with me, but I feel strongly that this chapter is possibly the most important one in the entire book. While many of you may choose to either ignore what I have said in this chapter or skip it entirely, I do sincerely believe that to do so would be the worst mistake you can make. Although it is impossible to completely discuss in one chapter what takes several books to explain thoroughly, I will do my best to acquaint you with the pitfalls that await you as a day trader.

Day traders are in the unique position of having a very short-term relationship with the market. For many years day trading has been considered to be the most speculative of speculative trading activities. I believe that this is a market myth that has been perpetuated by those who are unable to day trade or who are afraid to do so. The fact is that the day trader is in an advantageous position. The true day trader understands the limitations of what can be achieved within the day time frame. The day trader is, therefore, the sharpshooter of futures trading. The day trader is interested in finding the most promising target, taking aim at it, pulling the trigger, and bagging the prey. That's what day trading is all about.

The day trader must be consistent, efficient, adaptable, and persistent. These are the most important qualities that a day trader can develop. Because day trading is unique among the many different avenues that are open to futures traders, day trading has its unique brand of psychology. In this chapter I will attempt to acquaint you with the major issues that face the day trader and, moreover, to suggest to you methods that may be used to overcome your limitations and to maximize your strong points.