A Trading Question from India

Hi Mike, 

I am Nikhil from India, i am a trader trading commodities , i am writing to you as you are an experienced trader , i have only few months of experience trading “live” and around 7 years experience of observations, I developed a crush on the markets when i was only 14! Anyways i want to know how do you cope up with  Greed,Fear,Hope & Regret. In my trading i have managed to conquer fear by accepting probabilities  , More often than not its greed,hope and regret that  kills me by reducing profits or sometime even shows a loss. I have multiple systems for multiple market conditions BUT they are all discretionary systematic , How can one cope to conquer the remaining vices – greed/hope/regret , Every forum i have seen talks about “fear” only , hardly anyone discusses other elements, In your experience how can i work to improve on this.

@mikebellafiore responds

Hope: If you get a chance please read Dr. Steenbarger’s The Daily Trading Coach.  Specifically

I talk about this in a chapter of this excellent book.  As traders we must be careful that we are not coloring the data.

I hope this positions works out.

It would be awesome if this stock explodes.

If this stock does what I want this will make my day.

As a trader your job is to intake the data the market is offering and make a decisions based on this data.  If you really hope your position will trade higher you may miss:

The market getting weaker changing the odds your position will work.

Strong selling in the stock you are trading indicating a likely move lower.

A weakness in the stock’s sector which might cause you to lighten your position.

Question yourself with each trade.  Is this still a good position?  Why?  Am I missing something with this trade? Is this position still as good as when I entered?  If not then lighten up.   Keep talking to yourself and double checking whether this is a good risk/reward opportunity or just you hoping.

Traders can be overly optimistic about the potential of a trading day.  This may cause them to force positions that are not really there.

I really hope I have a great day.

I really need to have a good trading day today.

XYZ has such good earnings.  This is going to be a monster day.

You are one person in the market.  Your job is to enter excellent risk/reward trades and then sit and process the data.  Stocks and the market will do what they do.  Be ready for big gains but do not wish or want or root for them.  If you keep doing the right thing they will come.  But they come not when you hope and wish and want but when the market dictates.

This can be difficult for the ambitious trader.  And let’s face it most of us would never have started trading if we did not expect big things for our career.  And most of us have a history of being able to make things happen for the better.  But it doesn’t work like that in trading.  Our making things better is handicapped to putting on good trades.  The results are not up to us.  The market and its other thousands of participants also get to vote on our positions.  The majority wins and our job is merely to determine what the majority wants.

Greed mostly is a function of underdeveloped Reasons2Sell.  I write about this in my next book The PlayBook.  For every swing position, we say Trade2Hold, you should have a detailed trading plan as to exit.  We discussed this in detail for the training program I built for Singapore retail traders this summer for Phillip Capital.  The idea is to stick to your Reasons2Sell, which you proscribe, with your Trades2Hold.  This helps with greed as your job is to execute on your playbook and not some dollar amount needed by your ego.

Regret is something we all live with as traders.

Damn if I was just in that stock.

Man if I would have bought more of that stock I would have made a killing.

Why did I load up in this piece of $hit.

As you gain experience regret lasts shorter and visits less.  Until then you must work on this psychological hurdle.  It will cause you to lose focus on the next excellent trading opportunity.  I do not have a simple answer here for you.  It is a nice first step that you recognize this issue with your trading.  First, figure out what causes the regret with your trading.  Second, start to do visualization exercises for these setups (See the blog for a detailed explanation).  Third, keep a journal for how much regret is costing your trading.  Finally give this some time as this will take a good six months to conquer.

I hope that helps.

Mike Bellafiore

One Good Trade

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