The Common Trading Mistake Nobody Wants to Talk About

by Darrin Donnelly on February 21, 2012

Traders often suffer from "Grass Is Always Greener Syndrome."

Jack Schwager interviewed dozens of the world’s most successful traders for his famous Market Wizards series of books. In The New Market Wizards, Schwager summed up THE critical element that separates good traders from bad traders:

“When asked to explain what was important to success, the market wizards never talked about indicators or techniques, but rather such things as discipline, emotional control, patience, and mental attitude toward losing. The message is clear: the key to winning in the markets is internal, not external.”

Few successful traders would argue with Schwager’s point.

Those who have survived the trading wars year after year will tell you how important the emotional elements are. They’ll tell you how hard it is to persevere during a brutal drawdown, how they learned the importance of staying humble during a winning streak, how the real money is made by having the discipline to wait for just the right moment, etc.

Even beginning traders learn quickly how brutal the emotional side of trading really is.
Not surprisingly, the demand for help with these internal factors has created a large industry of books and services focused on helping traders master their emotions.

These books and services have benefited many traders, myself included.

But through the years, I’ve found one common and devastating psychological issue consistently ignored. It’s what I call the “GIAG Syndrome.” That is, “the Grass Is Always Greener Syndrome.”
This GIAG Syndrome is actually an “effect” of all the internal “causes” traders struggle with. It’s a RESULT of worry, stress, fear, lack of discipline, and anxiousness.

It works like this. A trader hits a losing streak, suffers a drawdown, or just gets plain bored with his recent trading. So, he goes searching for an answer to his “problem.” This answer, the trader believes, lies in finding a new system, guru, or overall trading philosophy.

Instead of trying to solve the internal issues that are creating this urge, the trader erroneously thinks that the problem is the system. The day trader becomes a swing trader, the technical trader becomes a value trader, the stock trader becomes a Forex trader, and so on. Whatever the trader was doing before is no longer working and the new system or guru that has caught his attention would be a much better fit, so he thinks.

This is a losing battle because the trader is trying to solve an internal problem with an external solution.

Ironically, a lot of the well-intentioned books and services that aim to help traders with their internal game actually end up ENCOURAGING the trader to go down this “grass is always greener” external path. They tell traders to go out searching for the system that is just right for them. They tell traders, “There’s one strategy out there that you are meant to trade and once you find this perfect fit, you’ll be effortlessly in-sync with your internal bliss.”

Unfortunately, this causes traders to embark on a never-ending search for the system that fits just right; their own little “Holy Grail” of trading. And thanks to all the financial news and aggressive Wall Street marketing, there will always be an endless supply of trading systems with greener-looking grass just around the corner.

But isn’t there some validity to this advice? Isn’t it extremely important for the trader to find the right system that fits their lifestyle and their personality?

Absolutely. But chances are, you’ve already found it.

Sure, you don’t want to blindly jump into some unproven and over-hyped trading strategy that you stumbled upon when surfing the Internet or browsing a magazine. A little common sense and a lot of thorough research is a must before committing yourself to a trading system.

However, if you’ve been seriously following the markets for any longer than a year or so, chances are high that you’ve looked into a few different strategies and found the one you’re most comfortable with. At the very least, you’ve found the overall trading philosophy that is most appealing to you.

You won’t hear many “gurus” tell you what I’m telling you, which is to stop trying new systems.

The reason you don’t hear this is obvious. Like many other traders, I offer a newsletter that adheres to a specific system (the “Darvas System,” in my case). If you’ve stumbled onto this article, you may in fact be open to trying a new trading system. Yet, here I am telling you that trying a new system – even if it’s MY system – is highly unlikely to solve the trading problems you’re dealing with!

Regardless of this fact, I think it’s hugely important to acknowledge this problem among traders.

To sum it up: If you’re not getting the trading results you want, the system you’re already trading is more than likely NOT the problem. The problem is much more likely to be internal, which can’t be solved by changing your external strategy.

Sure, you want to be certain you’re trading a strategy that has been proven to work and not something being sold right next to the snake oil ads. But once you’ve found a strategy you like and you know it works, stick with it.

Don’t blame the system when you should be blaming yourself.

4 Lin-sane leadership lessons

By René Shimada Siegel | Inc – Wed, Feb 22, 2012 1:26 PM EST

In business terms, Jeremy Lin is the underdog that took on the 800 pound gorilla and won. Here's what entrepreneurs can learn from him.

Lin-sanity, they call it.

On Sunday, February 20, the Knicks played the defending-champion Dallas Mavericks. Jeremy Lin was again on fire, scoring 28 points with 14 assists and five steals, and leading the Knicks to a 104 to 97 win. In business terms, we could think of Lin as the start-up that has the determination, drive, and ingenuity to take on the 800 pound gorillas in its market -- and win.

After all, as recently as January 4, Lin had posted this to his Facebook page: “Everytime i try to get into Madison Square Garden, the security guards ask me if I’m a trainer LOL”

Every once in a while somebody like Lin comes along and defies all the stereotypes. They deliver in such a spectacular and graceful way that you can’t help but admire them. How has this young man inspired so many in such a short time? And as business leaders, what can we learn from him?

Passion and drive trump genetics and environment. What’s the NBA-sized goal for your business -- and do you have the drive to get there? Nobody ever expected Jeremy Lin to become a world-famous basketball player. Yet he was determined,and patient, against remarkable odds. His parents are of Taiwanese and Chinese descent, both 5 feet 6 inches tall. Lin managed to graduate from high school without being offered any athletic scholarships, and didn’t make the All-Ivy League First Team until his senior year at Harvard. Against all odds, he worked hard and never gave up on his dream of playing in the NBA.

Maintain focus. Despite all the Lin-sanity, Jeremy has not been distracted by the hype and attention, at least so far. He remains humble and spiritual. After a loss to the Hornets, Jeremy posted, “gotta learn from my mistakes and move on to the next one.” He’s always focused on improving his game, working with special coaches to hone the style of shooting that lets him drop a three-pointer over Mavericks star Dirk Nowitzki—who towers over Lin by nine inches.

At Harvard and even now, Lin has heard bigoted jeers about his Asian heritage. Believe it or not, ESPN used the headline “Chink in the Armor” on its mobile site after Lin had nine turnovers in New York’s loss to the Hornets. “I don’t think it was on purpose or whatever, but they have apologized and so from my end I don’t care anymore,” Lin said in a TV interview. For entrepreneurs, the lesson is clear: Never let ignorant non-believers get in your way.

Share the glory. Jeremy is not only humble, he’s very smart. Despite all his talent he’s the first to recognize the importance of a team. As an entrepreneur, you may be fortunate enough to be singled out for your success. It’s critical to recognize the people who enable your success and keep it on track every day.

Lin’s a generous player who makes his teammates better, sharing the ball and the glory. “This team is so unselfish and has so much heart,” he posted on Facebook. “Love playing with them!” Does your team know how much you love playing and working with them, too?

Avoid personal fouls. In business it’s tempting to charge ahead recklessly. Many professional athletes disrespect their opponents, bad-mouthing them and throwing their weight around. But Jeremy plays with focused determination, a team approach, and a humble and passionate nature -- the same characteristics that inspire customers and employees.

Now I’m no basketball player -- and a few inches shy of 6 foot 3 -- but I do know smart business owners can achieve amazing feats of success when they play heads-up ball.

The market made an early reversal when it drops in the open.

The bulls are so determined to overcome the bears overwhelming pressure to bring down the market.

Alas, whenever they bring down the market, the bulls are always ready to counter.

Like in today's market as shown from the chart, you can see the bulls determination to react forcefully  whatever the bears are trying to bring in the table.

Two trade setups are viable today, one when it made a reversal at around 10:00 am. ET.

The other when it consolidates at the range 12960 level.

If you are basing on a shorter time frame say 1-min. chart, it formed a cup with a handle pattern.

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You just have to adhere with their trading criteria and will not only help you become a better trader it will also shape your trading career in the future.

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The market made a u-turn again after it drops in the open.

Short sell in the open and buy long in the consolidation are the two sure trades today.

But trading and spotting them needs a lot of patience and concentration.

5 Qualities of All Great Traders

By Guest Author - February 21st, 2012, 7:30PM

1) Loss cutting: Trading has this amazing historical footnote: If you study the great traders throughout history, they all share the same statement as their number one rule: CUT YOUR LOSSES! Capital preservation “keeps you in the game.” It is especially important once you understand the math: a 25% drawdown requires a 33% gain to get to break even; Down 33% means you need to rally 50% to get back to square one; As we saw in 2008-08, a -50% loss requires a +100% gain to get back to even. In sports “Defense Wins Championships.” The same goes for stock trading. Most traders need to focus more on defense.

Even Warren Buffett understand the traders credo: “The first rule of investing is don’t lose money. The second rule is don’t forget Rule No. 1.

2) Confidence: There is nothing worse than seeing a great opportunity but not having the courage to “pull the trigger” and execute the trade. Freezing up due to fear does NOT happen to great traders. These thoughts don’t even enter their mind because they are confident in their plan. They know wht they will do if the trade goes their way, and perhaps more importantly, they know what to do if it goes against them. Confidence cannot be taught. It comes from making decisions, taking action, and learning from experience.

3) No ego: Successful traders may have big personalities, but they separate their ego from their trading. They might have serious conviction behind their positions, but when the market proves them wrong, they don’t argue with it. They simply move on and accept it.
Two things I never argue with: the stock market and women. Both of them are smarter than me, and both are always right! (BR: Spoken like a married man)

4) Consistency: The best at anything are the best because they are consistent. Michael Jordan isn’t considered the best basketball player ever because he scored 30 points ONCE in a game. It’s because he averaged 30 points per game over his ENTIRE career.

Traders should not obsess with their day-to-day profit & loss. Rather, they should shoot for consistent positive months, quarters, and years with minimal draw downs. You do not want to be the “boom and bust” trader who does well in a strong market but gives it back during market corrections. These guys are a dime a dozen and typically get blown out of the market at key pivot points (Last cycle, I knew a few who became mortgage brokers — how is that for timing?)

5) Students of the market: Successful traders NEVER get complacent. They are always eager to learn, constantly looking to improve their skills.
One way to improve is through post analysis of your trades. It is important to look at your numbers and make sure your losses are smaller than your gains.
For technical traders, studying your entry points and looking at charts that worked (and didn’t work) is part of the constant learning experience of becoming a confident and consistently profitable trader.
~~~
Fahmy holds seminars for active traders who want to improve their returns. Readers of the Big Picture who are interested will get a $500 discount on the full day event. Go to TradingBigWinners.com and enter the promotional code: “bigpicture500” for the New York (3/3) seminars. I will be discussing trader psychology and cognitive errors at this seminar.

After the market made a u-turn when it opened high, it just stay idle/sideways within the 13000 level which is the highest points since 2008 as reported.

It formed a head and shoulder pattern, a sign that a bearish trend is in the offing at around 1:30 pm. ET.

Trading the market for long when it made a u-turn and shorting the market at 1:30 pm. ET are the two viable trades that can be initiated.

But trading them needs a lot of patience.