One of our very bright new traders asked to chat about trade psychology. He feared his needed help and wanted to seek my advice on a trading psychology coach.
Many of our traders work with psychology coaches. The results are often very positive.
I asked the trader to stop by my office for a chat to see if his issues were one of psychology or strategy. It turned out they were issues of strategy.
Bella: Why do you think your issues are psychological?
Trader: I have trouble holding my conviction trades. I tell myself to hold them no matter what and then I end up cutting them.
Bella: You will not sell your positions no matter what you see in the market? That is not a very good trading system. For conviction trades you should always have Reasons2Sell, even if they are few. I wonder if your issue is that you have not developed your strategy of Reasons2Sell for your Conviction Trades.
Trader: Yeah that makes sense.
We talked some more. I sent him off with instructions to start developing Reasons2Sell for his Conviction Trades. I recommended he re-read The PlayBook where Reasons2Sell are discussed in detail and check the blog for our posts on this technique.
If you cut trades without a fully developed Reasons2Sell strategy you might very well be acting rationally mid-trade. There might very well be a good reason for you to exit that you are seeing in the market. And then at a later date that stock may trade higher. But this is not an issue of weak psychology. This is you not crafting a trade plan for Conviction Trades to guide your decision-making while in your best trades.
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Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides trading education in stocks, options, forex and futures. Bella is the author of One Good Trade and The PlayBook.
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One Comment on “Your Head is Fine But Your Strategy Stinks”
Soon trading psychology is going to evolve into a full-fledged
academic course.