Shifting Focus for Greater Success

Sep 20, 2007: 10:10 AM CST

We often become conditioned by our experiences to ‘fear’ or avoid certain things and to gravitate to, or favor other things. The process of conditioning occurs deep within us, and sometimes conditioning occurs with such subtlety, that we may be unaware of the effects of our environment (or situations) on our behavior and perception.

Without opening a deep discussion on the processes of classical or operant conditioning, I did want to communicate one brief thought regarding what we seek and what we avoid in trading.

As traders, we are motivated to make profits in the market – in a sense, we want money. However, a lot of traders are motivated by different things, and money might not be the prime directive for some traders.

In focus, some traders who have suffered outsized losses, or have been ‘traumatized’ by one or more trading losses, their prime motivation – if they continue trading – can shift to “avoiding losses” in their trading performance/behavior.

What might be the ‘off-balance’ motivators for a ‘fear based’ or traumatized trader?

Prime Motivator: Loss Avoidance
Prime Avoidance: Losses (or uncertainty)
Neutral Motivator: Missing Opportunities (rationalized by “at least I didn’t lose money”)

What should be the balance of motivators – in terms of profits and losses – for a proper trader:

Prime Motivator: Profits
Prime Avoidance: Missing Opportunity (not taking a trade when it is perceived)
Neutral Motivator: Losses (they may ‘hurt’ but traders must not be ‘thrown off game’ because of them)

The above list is by no means ‘all inclusive’. However, it can serve as a starting point for examining ourselves and what motivates us in the market. Beyond positive motivation, it can help us see what negatively motivates us, or what we ‘fear the most’ in trading. A proper trader should “fear” missing perceived opportunities, or failing to execute trades based on his or her tested system.

It’s not an easy process for a ’scared’ trader to condition himself or herself from fearing losses to fearing missed opportunities, and from being motivated from avoiding losses to seeking profits above all.

There are many resources that address the same line of thought: “Scared money doesn’t win.” In the markets, successful traders take risk, and they may often feel uncomfortable with this risk. However, risk-taking in the face of uncertainty, and doing so with confidence and a solid structure, is often the hallmark of a successful trader (among other qualities).

  • Digg
  • del.icio.us
  • Facebook
  • E-mail this story to a friend!
  • StumbleUpon
  • Technorati
  • TwitThis
Comments
  • Hey Glyn,

    Yes, the CROX news was, well, 'all over the news,' even making Yahoo Frontpage news at one time.

    I enjoyed reading your experience and know that other readers will as well. Thank you for sharing.

    And congratulations on doubling your account! That is absolutely impressive. It's rare - extremely rare - and it can and does lead to overconfidence. I play by the motto "slow and steady" with my accounts.

    I do offer private mentorship and/or consulting opportunities on the topics you discussed and so much more if you are interested in learning more. I'd be honored to be of help.

    Remember that the experience and knowledge you build now will be a foundation for your trading career. Document everything and write down as many observations as possible, and print off all relevant charts, etc.

    Corey

  • Glyn

    Corey,

    Thx for CROX feedback. I picked up on the news prior, it was that that caused my interest. I'll keep on my watch list - logic suggests this is a fad product and flavour of the month so to speak - sure to correct at some time, skill is getting the time right I guess?

    Like HRGreen I've found this last month particulary difficult. I think its been harder because:
    (a) its my 2nd month of trading options so VERY new to this
    (b) in my first month I doubled my money (clearly more luck than knowledge!)
    (c) having secured the windfall felt like I was stepping on eggs with my trading - too scared
    (d)I have tit bits of a trading plan but mostly I'm still working on gut reaction (clearly not good)
    (e) like HR found myself watching my option choices going down and frankly not being sure what to do next, I think this is a problem of......
    (f) no clear (read from a TA persepctive not a common sense commercial view - clearly markets don't always work that way) idea as to why I've entered and at what point I'll exit a trade
    (g) in my defence I think the volatility over the last month has been very hard to live with - -for a beginner at least!
    (h) I'm clear that I need a trading plan/set of rules (every thing I read confirms this) but I'm not clear on what the rules need to be? Clearly understanding entry and target exit points is vital but reading the charts correctly to make sure resistence and support lines are correctly identified is another.
    (i) Lost too much money on stop losses or perhaps saved money through them! I guess if I've lost money this way its been through (a) poor SL selection as per point (h) above, (b) poor stock selection in the first place

  • Glyn,

    It would appear so, yes. The trendline was broken definitely, and 'old support becomes new resistance' which is potentially the case with the Russell 2000 Index. I am viewing the weekly chart for this comment.

    On the daily chart, we have potential resistance from the support line which was tested three times around 820. Odds could favor this 'old support becoming new resistance' as well.

    Good observation!

  • Glyn

    Corey,

    Is the longterm upward trend line for $RUT (mid 2004) now acting as resistence? I guess the answer is no, at least until retested a few more times?

  • Hey HR,

    I traded 'scared money' and sought to avoid money as my #1 for about a year there. It really doesn't hit you what you're doing until you pull the camera back and start to analyze your behaviors and why you do what you do, in trade selection (scanning), entry, management, and exit. I don't mean this post to be an 'end-all,' but merely to raise awareness that your prime motivator in trading might actually not be what you expect or think it is.

    The last month has been extremely volatile, and I understand your fear focus over the last month. You're not alone, I'm sure! It's been rough. I've actually stayed away from swing trading and focused more on aggressive intraday trading only, as well as researching and backtesting new ideas/strategies.

    It is good that you recognized what was happening and created a new rule (2 red candles) because of it. If you don't know what you're doing wrong in the market, you'll likely never change.

    It takes time, and there are plenty of resources to help, but studying why you do what you do is crucial to improvement. Thank you for the personal experience and comment,

    Corey

blog comments powered by Disqus