Four Poisons May 30, 2009

More trading lessons from Janice Dorn, “The Trading Doctor”:

There is a Korean martial art called Kum Do. This is a brutal game that involves a fight to the death with very sharp swords. The way it is practiced today is with bamboo sticks, but the moves are the same. Kum Do teaches the student warriors to avoid what are called “The Four Poisons of the Mind.” These are: fear, confusion, hesitation and surprise. In Kum Do, the student must be constantly on guard to never anticipate the next move of the opponent. Likewise, the student must never allow his natural tendencies for prediction to get the better of him. Having a preconceived bias of what the markets or the opponents will do can lead to momentary confusion and—in the case of Kum Do—to death. A single blow in Kum Do can be lethal, and is the final cut, since the object is to kill the opponent. One blow—>death—>game over.

Instead of predicting, anticipating, and being in fear and confusion, you must do exactly the opposite if you are to survive a death blow from the market movements. You must watch with a calm, clear and collected attitude and strike at the right time. A few seconds of anticipation, hesitation or confusion can mean the difference between life and death in Kum Do—and wins or losses in the stock markets. If you are not in tune with the four poisons of fear, confusion, hesitation or surprise in the markets, you are at risk for ruin. Ruin means that your money is gone and the game is over.

How can you avoid the four poisons of the trading mind: fear, confusion, hesitation and surprise?

Replace fear with faith—faith in your trading model and trading plan

Replace confusion with the attitude of being comfortable with uncertainty

Replace hesitation with decisive action

Replace surprise with taking nothing for granted and preparing yourself for anything.

Mental Fitness May 26, 2009

“Mental Fitness For Traders” – a free PDF download:

In my career, I’ve come across at least 50 systems that I consider A+, yet I know for a fact the MOST traders that have traded these systems have lost.

Why?

They were not in control of their emotions.

Are you?

Thanks to Chart Swing Trader for the link.

African Queen Syndrome May 10, 2009

Dave Landry, on “African Queen Syndrome”, from his weekly webcast this week (58MB WMV file). While he refers specifically to his own trading methodology, I’m sure the ideas and emotions apply to traders of all ‘persuasions’:

Longevity is key. If you can survive long enough, you’ll get it. You survive through the use of following your game plan and three other things: money management, money management, money management. The highs are high and the lows are low. Balance is also key. You can’t let it go to your head in good times and you can’t get too depressed in bad times. Good times follow bad, but unfortunately, the opposite is also true.

Momentum trading can be streaky. You print money for a while, then underperform. Novice traders who begin following me during good times think I’m God. And worse, they begin to think they are too. They begin to get careless, risking too much and trying to outsmart the system. On the flip side, novice traders who follow me during less than ideal conditions think I’m an idiot. They probably wonder if this guy ever makes a buck. They give up right before the next big trends develop. I call this African Queen Syndrome.

In the movie African Queen, Charlie (Humphrey Bogart) and Rose (Katharine Hepburn) go through all sorts of trials and tribulations with nature and the enemy as they try to make it to the lake at the end of the river. They give up. The camera pans back for one of the most powerful scenes in the history of cinema. They were within feet of the lake. If only they would have hung on a little longer, they would have made it.