Here’s how my strategies and the mental game of trading link up for me. If you’re struggling, this could really help. It puts the control in our hands, not the markets.
It allows you to trade your own game, not the market’s. You can win at your own game, but if you try to trade the market’s game you will lose because it will exploit every weakness in your mental game and strategies. On the other hand, if you trade your own game within the price action of the market, you can utilize all the positive aspects of your mental game and research/strategies.
Here’s how to do it.
As I watch the chart I am collecting data points. Seeing if the market is exhibiting certain characteristics I want to see prior to a trade. This is my strategy (could be any strategy): what the market needs to do in order for me to take a trade.
Just before taking that trade, I form a view/ internal projection of how the trade MUST unfold for me to stay in the trade (see Scenario Planning). I’m no longer trading the market. It will do whatever it wants. I only control my actions in relation to my projection. I don’t control the market.
It’s like having boundaries in life. We can’t just let someone or something walk all over us (which the market will do). We must define how we want this trade to treat us. And if it doesn’t treat us well, we exit. If it does treat us well (our expectation), we stay with it.
If the trade unfolds on projection, I stay with it till it hits my target or exit point. If it doesn’t unfold according to my inner projection, I get out or implement a very aggressive trailing stop loss because this is not the trade I was projecting in my mind.
It doesn’t matter what the market does. I was in this trade for a specific reason expecting a certain outcome. If that fails to materialize, I get out, because the market is going against my boundaries. Staying in it is just a gamble; it’s not doing what I thought.
“Getting out” means letting the price hit my stop loss which is my boundary for the trade or implementing a trailing stop loss because the price isn’t acting how I thought it would and I want to be out if it reverses on me.
When I’m trading, I’m not trying to predict where the market will go. The trade is now entirely internal in that what happens meets my internal criteria or it doesn’t. If it doesn’t, I DON’T stay in a trade hoping or trying to find evidence it will work.
That’s the market’s game to lure you into that trap. Luring you into trying to figure out where it will go. While it may seem like I am, I’m not doing that. I’m using the market to play my own game where I only stay involved if it does what I want. If it doesn’t, I stop playing till it does.
The game of prediction doesn’t happen DURING trading. It happens before, in strategy testing. I have developed strategies that indicate a reasonable probability of my target getting hit.
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Once I’m trading, there’s no thinking about where the market will go. I only focus on waiting for the market to produce the conditions of my strategy. As those conditions are created I form my internal view of what the market must do for ME to stay in the trade.
It then does or doesn’t. Research/strategy creation time is when I try to figure out how price moves. While live trading, it is almost entirely internal in that I have boundaries and criteria that must be met. This allows me to trade on my terms, where I’m in control, not the market.
This requires knowing my strengths and limitations. My strengths ONLY come from what I have tested, which then creates my method. My weakness is anything else. This means as soon as the price produces conditions that don’t look/feel like what I’ve tested, I stop trading.
ANY condition I don’t know…I stop trading. Almost every trader who struggles is stuck playing the wrong game. They watch the chart and try to figure out where price will go while hitting buy/sell buttons.
For me, that is done outside live trades, in my research/practice time. Live real money trading isn’t practice time. It is a time to respect myself and the time put into the method. To wait for the strategy conditions, as I understand them now, to develop and execute if it happens. Then stick with it as long as I recognize the conditions.
I say “as I understand them now” because we can only ever trade as the person we are in this moment. You may just be learning a strategy. When you trade, trade based on KNOWN information. That doesn’t mean we know where the price will go on this trade. We don’t. It means we know that these are conditions we have tested, based on a strategy we have tested, and thus there’s a reasonable chance of profit if we trade these same criteria over many trades.
Look for conditions you do know, follow those. This is your internal game. Not letting the market make you guess or try to predict it. If you know one pattern and a few conditions that should be present (context), that is your world in live trading.
Respect what you know and don’t. Accept who you are and what you know right now. Trade inside that. It’s a much smaller world, that you control. It’s your own game, not the markets’.
When you control the game you’re playing, results dramatically improve
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By Cory Mitchell, CMT
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.