Courtesy of David at Crosshairs Trader
Successful traders are successful because they have developed the skills necessary to maintain self-control when in the heat of battle. Self-control requires confidence in the face of uncertainty (such as we find in the stock market). In turn, an uncertain environment is best managed with focus, patience, and discipline. Without the proper skills developed via confidence, we experience any number of self-defeating negative behaviors such as fear, desperation, confusion, anxiety, and frustration, among many others, none of which contribute to the proper mind-set… or the bottom line.
Take a look at the following right triangle. As confidence increases, negative behavior decreases, presenting opportunities.
Confidence grows when fed a diet of focus, patience, and discipline. As confidence grows negative behaviors such as fear, desperation, confusion, anxiety, and frustration begin to diminish in opposite proportion. This creates a mind-set that is open to any market opportunity that presents itself. When negative behaviors dictate action, then we are not able to think and see as clearly as would otherwise be possible. Market opportunities are then hidden behind the negative behaviors.
The right triangle mind-set, one of confidence, is built by developing the following skills:
FOCUS: Have you ever stopped to consider how many different trading strategies there are? How about time frames for each strategy? And what about the best instrument to trade that strategy within the time frame selected? What about the indicators? Which ones are we planning to apply to the strategy? If we were to add it all up there are literally hundreds, if not thousands of strategies, just in one time frame! And what about the other traders trading one of these strategies that may be designed specifically to trade the opposite of what you trade? There is absolutely no way humanly possible to master all, or even a large number of, the strategies available to us. Therefore, we must focus on a particular strategy and become a strategic specialist. In doing so, we defeat the ego’s need to know everything, which we know is impossible in the first place. With focus, we can think clearly about our specialized strategy knowing when and where to enter and exit the market since we know exactly what the market is supposed to look like to do either one. This focus helps eliminate the confusion and frustration we experience when the market does not make sense (which is most all of the time!).
PATIENCE: Curiosity may have killed the cat but impatience has been the slow death of many a trader. The market has a way of rewarding those rare individuals who respect the market’s fickle temperament. The market does what it wants to do when and how it wants to do it regardless of our need to be right, right now, about our trade. We can either accept this fact and trade accordingly or we can challenge the market’s authority and risk not only our pride but our money to boot. Pride may be good for the ego but will get us nowhere when our brokerage account is depleted. Patience eliminates acts of desperation when we do things we would not ordinarily do, such as jump into trades when there are none, add to losers, and double up to make up for a recent loser.
DISCIPLINE: Developing a focused strategy with the idea of waiting on the market to reward us for our patience is absolutely worthless if we do not have the discipline to follow the strategy in the first place. We know that all roads are paved with good intentions but on Wall Street good intentions will get us nothing more than a ride down memory lane when the Street blocks the road to our re-entry. Discipline is simply the engine that turns the wheels of focused patience. Without it there can be no moving forward. Fear and anxiety are symptoms of a lack of discipline, paralyzing anyone who refuses to heed their warning signs, such as getting in too late or too early (fear of missing out); not entering a position when given our edge (anxiety over the fear of losing); not exiting when a loss target is hit (anxiety over another loser), exiting a profitable trade too early (fear of the market; anxiety over a winner turning into a loser) etc. Practicing the discipline necessary to succeed requires that we accept losses and winners while trusting ourselves to do what is in our own best interest, every time.
If we are experiencing difficulty it may be because we are not protecting our greatest asset: our ability to think clearly in any given situation. How do we protect our greatest asset? By developing right triangled confidence forged by focus, patience, and discipline.
Originally published at The Crosshairs Trader Blog, THE STOCK TRADER’S RIGHT TRIANGLE MIND-SET
