Trading Lesson 7

Managing your psychology

As a trader you must have three pieces working in synch. Your equipment, your trading tools, and your mind. The Art of War by Sun Tzu is a book that has been applied to every faucet of human experience. While originally meant to be a book that taught war strategies the lessons it imparts can and will change your life.

Students of the market are constantly battling between the emotions of fear and greed. The Art of War can help you cut a path between these two emotions and lead you to a mental place that will constantly help you put your best foot forward. In this series I will address various poor trading habits by excerpting and interpreting various passages. While my interpretations are not meant to be definitive by any stretch of the imagination my goal is to get you thinking.

They say the game of golf is not played on the green, its played between your two ears. Trading futures, forex, options, or stocks is much the same way. Your mental game must be up to par. If not, failure is inevitable. In the end I hop you find the discipline to be a speculator and not just your ordinary gambler.

Book 7: Manipulation of Circumstance
Pg 57

"Manipulation must be employed as deception/no-deception... Deception/no deception means you proceed without preconceived notions of victory or defeat. This is accomplished by proper planning... Because of this, the wise warlord will not permit his entire army to chase an objective. He always maintains reserves should the need become evident."

The majority of traders come to trading undercapitalized to fulfill their vision. Many have caviar dreams with only Big Mac money in their pockets. It quickly becomes clear that in order to succeed a trader must manipulate all of the various opportunities in front of him and apply it to the situation at hand. In forex trading your competitive advantage may be the way you manipulate leverage or in futures you may have a clear understanding of average true range or in options you may know Delta like the back of your hand. Regardless of your edge you still must plan. You must have your stop losses in place, stop profits, and your entry points. Even with all of this you must approach each new opportunity with fresh eyes. All traders must set aside their psychological need to be right so that they can be profitable.

Book 7: Manipulation of Circumstance
pg 61

"The spirits of most warriors, with rare exception, vary with time. In the morning a warrior is filled with vitality and seeks to do battle, in the afternoon he may tire if the expectancy of combat has not been fulfilled, and in the evening he will long for home and seek to be there instead of being on the field of battle."

Understand what types of trading works best for you “spirits of most warriors... vary with time” If you find yourself hitting a brick wall with your active trading don't be afraid to move to swing trading or longer. The contest is not how often you trade it's how profitable you can be. Play around with different time frames for different markets. Don't get caught into the falsehood that there is only one way to trade futures or forex.

While it is not easy battling the demons of fear and greed you are capable of doing it with a little planning and foresight.

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