I ALONE AM RESPONSIBLE
Chris Czirnich, author of the Globetrader blog, was one of the first contributors I considered for this chapter. Uniquely among market writers, Chris is sensitive to the psychology of trading. His blog consistently combines market insights and psychological ones; its a useful resource.
I posed the three-pronged question to Chris, asking him what has been most helpful for his self-coaching as a trader. The floodgates opened and Chris came up with 10 ideas, not three. His response was so well considered that I decided to summarize all 10 of his insights and their implications for self-coaching:
1. Being able to observe myself.
3. Having an edge.
4. Accepting that I alone am responsible. 5. There is no holy grail.
6. Having trust in myself.
7. Being able to stand up again, after being beaten down. 8. Being lucky from time to time.
9. Keeping a trading journal and writing a blog.
10. Dont panic.
Building the External Observer
The external observer is a concept I came across after reading your first book, Chris explains. It allows me to see myself trading, to observe and interact in case Im in a position from a teachers perspective. It allows me to argue about my trade, to see the pros and cons, to notice price behavior I might miss otherwise. Its an invaluable resource in a trade because it is not affected by emotions and will guide me, even in a fast-moving market. I rely on it to always know what I should do. I might override it, but it is the clear voice in a turbulent market, where I can always turn to find the safe way out.
Discipline is so elusive, so difficult to maintain, and yet it is something without which you wont succeed at trading, Chris explains. Am I a disciplined trader? Alas no, unfortunately not, but after all these years I have learned that I have to follow certain rules or I will do a lot of damage to my account. Lets look at a concept that every trading book tells you is wrong and will lead to disaster: adding to a losing position. Admit it, you have done it at times, because you were certain that you were right and the market was wrong. My biggest loss came from adding to a losing position; still on a range day, adding to a losing position is the way to trade, because otherwise, you will die the death of a thousand stops. Yes I add to losing positions, but now I have the discipline to stick to the twice wrong and Im out rule. Meaning, if the add-on does not work, Im out. Of course you can be wrong and a trade signal might go against you, but if you have two signals in a row that go against you, then you have to take a step back and see why your signals arent working properly.
Rules promote discipline.
Having an Edge
Without an edge you are doomed, Chris asserts. Very simple. Of course you might throw a coin and trade a 50:50 chance system. But only a professional will have the discipline to stick to the necessary money management rules to trade a 50:50 system successfully. Having an edge means you can statistically prove that your trading system works, that it would have paid your commissions and costs of doing business and made you profits in the long run. You might be a mechanical trader, you might trade fundamentals, you might trade price action or some arcane indicator or a combination of all of them. It all comes down to one thing only: You must be able to prove to yourself that your trading system works and will make you profits in the long run. If you cant prove that to yourself, if you dont understand the mechanics behind your trading system, then you wont trust your trading system and you will not be able to trade it. The best trading system will produce losses in the hands of a trader who does not believe that that trading system works.
I Alone Am Responsible
I came to trading because I came into real financial difficulties after some clients of mine went bankrupt and did not pay their bills Chris recounts. Trading seemed the solution to me, because only trading gave me the promise of instant payment, of knowing that when I did it right I would get paid. But that promise came with a responsibility I did not fully understand: I alone am responsible for any action taken. There is no one but me to blame, if I have a red day, a red week, a red month or year. Each and every day I can look back and tell you where I was wrong, what trade I should have taken, where I missed the opportunity to make it back. Its only me who is responsible. And if I alone am responsible, then there cant be any guru to whom I can turn to tell me what to do. I trade my system. I can tell you what I do, but whether you will be able to use that knowledge depends on you alone.
The need for a guru confesses an absence of self-guidance.
There Is No Holy Grail
The charts of the best traders have price bars only or they trade without charts at all, like many forex traders, Chris explains. They are not magicians, but they follow the price of the instruments they trade for such a long time, they no longer need indicators or charts. But if you ask them, they will tell you that there is divergence on price and that a bottom or top might be near, that right now will be a great buying or selling opportunity. All these traders have looked at charts, they have used all the common and not so common indicators or oscillators or volume analysis and after a while they removed them from their charts until they were back at the beginning looking at a bare chart, but now knowing that there is no holy grail among these indicators. Nothing will give you 100 percent winning trades, so its futile to search for it. You need to focus your efforts somewhere else to succeed.
Having Trust in Yourself
Im a discretionary trader, Chris points out. This means that I have certain trade rules, which provide me with a trade setup, but I decide on a, lets call it gut feeling whether I take the trade or not. I have tried a few times already to build a successful mechanical trading system, but I was never able to boil my trade rules down to a mechanical system that I could trust enough to trade. On the other hand I have accepted that my subconscious mind is a better computer than my mechanical skills will ever be. Maybe if I tried my hands at neural nets, I could come up with a working mechanical trade system, but then I would not understand the rules any longer and that means I would not trust it enough to trade it. The subconscious mind will not give clear instructions; it communicates through feelings. You need to learn to listen to them, if you want to use its power. But if you do, it can be a nearly unlimited resource you shouldnt ignore. To teach or program your subconscious mind to do its job, you need to invest a lot of screen time. You need to expose it to as many situations as possible . . . to de
velop that trust in yourself, the trust that you will always do whats right for you.
If you dont trust yourself or your methods, you will not find the emotional resilience to weather periods of loss.
Standing Up after Being Beaten Down
Being bankrupt, having a real bad day: yes it happens, Chris explains. Many traders trading for their own account will have gone through such a slump not once but multiple times before they manage to develop their account. When I started trading, I had lost a huge amount of money in funds. I had trusted the fund managers to do a good job; instead they did a lousy job and I decided I could do better! It wasnt easy. Somewhere I read that if you cant trade 1 futures contract successfully, why do you think you can trade 10 contracts successfully? That was a statement I could accept and actually still follow to this day. So I gave myself a $3,000 account and started trading futures. (I never encountered the problems I had in my trading when trading in demo mode, so I traded real most of the time). I went bankrupt (actually below $2,000, which was the limit I had to maintain to continue trading) at least five times. I funded my account with about $20,000 over the last seven years and made it all back within three months, when I finally got it right. Im not out of the woods today, but I have started taking out money for my living from my account. I still have days where I screw up big time and need to build myself up again; where I need to question my plan, myself, and my approach to the markets. But I know today that I can trade and that I have an edge. I trust myself to do what is necessary to do, even when I screw up. I know I will stand up again and make it back.
Mastering great challenges yields great confidence.
There is no room for luck in trading? Dont believe that for one second, Chris asserts. How many trades did you do and looking back you know you were just lucky to get out breakeven or make a huge windfall profit? I always think Im entitled to two or three lucky trades per month. But make sure you know you got away lucky. Dont bask in the glory of that wonderful trade, when all you did was violate your rules, add to that lousy entry, and then have the luck to ride a spike against the prevailing trend right to the tip.
Keep a Detailed Trade Journal and Write a Blog
You need to be totally honest with yourself, Chris advises. There is no rock to hide under if you screw up. It shows in your account and you need to document it. Otherwise you will do the same mistakes over and over. Believe me, you will still do the same mistakes over and over again, even when you write a journal, but at least now you know you made the same mistake again. A trading journal can provide you with the statistics necessary to develop trust in yourself. It will tell you if you have an edge. It can tell you which approach to the markets works and which was a big failure. The trading journal I use today goes back more than four years now, and I made about 5,500 trades in that time. It is an invaluable source of information about myself and the ways I handle certain types of markets. If I encounter a rough patch in the markets I can look back and see if I had a similar experience in the past. I can see how I handled the situation then, whether my solution was successful, or whether I should better try a different approach today. Usually before I screw up big time, I have a few days with smaller and smaller profits. Looking back I see that I felt insecure in the markets: something was changing and I was not changing with the market. So I struggled to keep the green until something snapped and suddenly I was totally and absolutely wrong. The next day or two, I often make it back before I have a second deep red down day. After that I usually get back on track with smaller profits. The account starts to consolidate before I manage the next trend move.
Writing the Globetrader blog I maintain to this day has made me accountable. I started the blog because I hoped that by sharing my approach to the markets, older, wiser traders would read it and question me or point me in a different direction by commenting on my ideas. Fortunately for me some of the comments I received proved invaluable and are now an integral part of my trading system. You dont need to write a public blog, but writing about your thoughts in a trade, how you see the markets, or what constitutes a trade setup structures your approach to the markets. Right now Im at a point in my development as a trader where I try to dissect that gut feeling I wrote about earlier, so I can consciously see why my subconscious mind just gave me a clear Go ahead and take that trade signal. Or why it just questioned an
otherwise wonderful looking signal and is proven right a minute later. By writing about these trade setups, I can relive the feelings I had when the trade opportunity presented itself in real time. Eventually I can see why the trade setup actually was not an opportunity. The blog is also the place to deal with all the demons and obstructions you will encounter in your trading. Writing about the problems is the first step to solving them. As long as you have no mechanical automated trade system, you have to accept that you are human and will make mistakes. You need to deal with them and you will have to find ways to avoid or integrate them or you will not make it in trading. But the first step is always to bring them in the open, so they can no longer hide.
Start a blog as a great way to journal your ideas and interact with others about them.
These are the famous words found on the cover of the Hitchhikers Guide to the Galaxy by Douglas Adams, Chris explains. They are so true in trading. If you panic, your instincts take over, and these instincts will surely cause the maximum possible damage to your account. If the market suddenly starts to drop big time and you are long, dont be frozen; believe what you see and act. Or decide not to act and execute your contingency plan. You need to have a plan for every situation. Usually you will pay for every lesson the market gives you. How much you pay is totally up to you . . . So if Im suddenly in an unwanted position, I look at the chart and see if I like the position or not. If not, Im out. Simple as that. Otherwise I manage the trade. But never ever allow panic to take over.
Chriss lessons are the result of hard-won experience. His attitude of taking full responsibility for all aspects of trading lies at the heart of selfcoaching: you are the author of the story of your trading career. Your actions will determine the plot and ending of that story. One of Chriss lessons that I like best is the notion of standing up after being beaten down. His success came as a result of resilience: he lost small amounts of money many times before he started to trade well and trade larger. Your assignment for this lesson is to create a disaster plan for your trading that explains how and when you will cut your trading size/risk when you are not trading well, but also how you will stand up and persevere with your best trading ideas to bring yourself out of drawdown. The best traders are quick to pull in their horns when theyre not trading well, but they are not quick to give up on their trading. If you develop and follow your disaster plans, you take responsibility for your trading and place yourself in control of your market participation. As Chris notes, we cannot repeal uncertainty, but we can avoid the poor decisions that come from panic and lack of preparation.
Make sure your trading journal highlights important lessons learned, so that it becomes a constructive tool for review months and years later. The value of a journal is in its review, not just its initial writing. If you ensure that every journal entry has a lesson for the future, you also ensure that todays learning can enrich tomorrow.