Showing posts with label Trading Psychology Fears and Emotions. Show all posts
Showing posts with label Trading Psychology Fears and Emotions. Show all posts

Monday, October 27, 2014

Difference Between The 2% Mindset & 98% of the Population. 900th Post of Metal Forex Trader

Difference Between The 2% Mindset & 98% of the Population. 900th Post of Metal Forex Trader
Sacrificing happiness for comfort points out the fact that we can choose to be in two areas in our everyday life: the comfort zone or discomfort zone.
1. Comfort zone: 98% of us are being like everyone else. We live with insecurity, fear and regret. We procrastinate, play it safe, settle for less and lead a dull life. Most of the time we are just surviving or getting by.
2. Discomfort zone: Only 2% of the population are living their dreams. They have chosen happiness and living without limits. They have confidence, dare to explore new things, embrace the unknown and act in spite of fear. They are looking for changes, excitement, abundance and fulfillment. They believe in getting the most out of life.
What about you? Are you living the life you really like? Do you have the guts to live the life you always want?

A comfort zone does not equal to a safe zone
But this is easier said than done.
Everybody wants the freedom to do the things they like. But the moment you stop tolling all day in the office, how do you pay the bills at the end of the month? Who is going to support your family? How can you save for your retirement?
You can choose to stay in your comfort zone. But a comfort zone is not necessarily a safe zone. Company downsizing and retrenchment sometimes have nothing to do with whether you have met your KPIs or sales quota, how much past contributions you have made, or how serious your OGIM symptoms are.
Facing regular restructuring announcements in my corporate life, it was imminent for me to have a contingency plan. My Plan B was buying some good properties that could continuously generate passive income for me. If one day my name was in that batch of employees to let go, my tenants would help to pay my bills.
I also started researching about possible ways to achieve financial freedom. It is not about not having to work at all, but more about the freedom of choosing to do the type of work I enjoy, the liberty to spend my time the way I prefer, etc.
Throughout the years, I have seen many people who try different ways to realize their dream of being financially free. Some work while some flop.

Financial freedom: what don’t work
Some people may claim that they ‘have been there’. However, if their financial freedom is not sustainable, and they eventually go back to where they were, I won’t call that a proven strategy at all. These methods include:
1. Following any get-rich-quick program that guarantees to make you a millionaire but sounds too good to be true.
2. Joining any high risk ponzi investment scheme that promises high return in a short period of time. No such scheme can stand the test of time in our past history.
3. Winning the lottery, striking the jackpot or reaping a windfall at the casino that you will quickly spend or lose them all and go back to square one in no time.
4. Receiving a sudden big inheritance or donation with no prior training in personal financial management or investment. Think the woman who spent her $1 million donation after the horrible accident of her husband, all in barely one year’s time.

Financial freedom: what work
Below are three proven methods to achieve financial freedom that I have found to be sustainable in the long term.
1. Investing in good stocks or good properties that becomes a stable stream of income in terms of dividends or rental return, and promises a sizable capital gain when cashing out one day.
2. Building a solid and sustainable business that offers a reliable source of income in the long term.
3. Having a wealthy spouse who has high earning power or the financial means to support your lifestyle, and is generous to you (note: to you only).
It is good to be able to achieve one of the above. But it is best to attain all of them if you know what I mean!

Monday, August 11, 2014

What A Wonderful Thing To Understand. Metal-Forex-Trader 700th Post, Thanks To Everyone, Keep on Reading.

What A Wonderful Thing To Understand. Metal-Forex-Trader 700th Post, Thanks To Everyone, Keep on Reading.

This is what implied to our trade too, holding a position which is in loss, give us the same stress and worries, if we are not following stop losses. It's an individual capacity how long he can hold.
Remember to put the glass down as soon as possible.

Sunday, July 6, 2014

What's Your Trading Brain Type ?

Five Types

To summarize, there are five general brain types. Among traders and investors, the three most important brain types are Compulsive, Impulsive and Anxious.
What's Your Trading Brain Type ?
Left Brain - Right Brain
People with Compulsive Brains tend to get stuck in a particular thought about the market. “It’s too high.” “It’s too manipulated.” “It’s too risky.” It’s too…” whatever. People with Compulsive Brains tend to operate entirely on their own terms and are generally not open to feedback or other options.  
People with Impulsive Brains are the exact opposite. They are unpredictable and lack impulse control in trading/investing and in daily life. Without much discipline, they start many more projects than they finish. They live for creativity and for what’s possible.
People with Anxious Brains live with a rain cloud overhead.  They pay more attention to the obstacles to their own success (or the success of others) than to the ways that something might work. They don’t like to try new things and don’t appreciate novelty.
The fourth type is the Depressed Brain. These people tend to feel victimized by the market. They have a ‘Rodney Dangerfield’ mentality, believing that they never get a break or a fair shake. They blame the Fed, the robots, the news, company management, or whatever for their investing and trading troubles. This type of thinking rationalizes and justifies their pre-existing mood.   
The fifth type is a combination of Compulsive and Impulsive. These folks tend to be compulsively impulsive, which may mean that they have an addictive relationship to the market and to trading. They overtrade because they are trading-to-trade, like a mouse pressing a lever to generate pleasure signals in their brains.

Free Quiz

If you are curious about your brain type, you may download a free Brain Type Self-Assessment HERE.
What's Your Trading Brain Type ?

Wednesday, January 1, 2014

Think and Grow Rich by Napoleon Hill

Think and Grow Rich - Napoleon Hill's Thirteen Steps Toward Riches
Think and Grow Rich by Napoleon Hill
I admit, I was pretty sceptical in the first place. Being overwhelmed by the law of attraction, you would not blame me right? Yes, this is one of the earliest books using the principle of the law of attraction. I was quite uncomfortable reading the language style – not our modern day style but of the yester years (note that this book was written in 1930s). Thus, a little more concentration is needed to understand the author’s message. Believe me, it pays to persevere and read the entire book, if not several times. The 13 principles are indeed very powerful and critical for your success, even if it isn’t about being rich. Basically, you will know the necessary ingredients for attaining any goal you want in life.
My favourite paragraph from the book:
“Examine the first hundred people you meet, ask them what they want most in life, and ninety eight of them will not be able to tell you. If you press them for an answer, some will say – security, many will say – money, a few will say – happiness, others will say fame and power, and still others will say – social recognition, ease in living, ability to sing, dance, or write, but none of them will be able to define these terms, or give the slightest indication of a plan by which they hope to attain these vaguely expressed wishes. Riches do not respond to wishes. They respond only to definite plans, backed by definite desires, through constant persistence.”
If you are one of the ninety eight, you MUST READ THE BOOK NOW!
Book Summary:
“When you begin TO THINK AND GROW RICH, you will observe that riches begin with a state of mind, with definiteness of purpose, with little or no hard work.”
Be success conscious and not failure conscious.
I am the Master of my Fate, I am the Captain of my Soul. We must become money conscious until the desire for money drives us to create definite plans to acquire it.
There are 13 principles that lead to riches:
1) Desire – Strong desire that makes a person determined to accomplish a certain goal. Burn all bridges behind you so you have to do it or perish. There are 6 definite steps to achieve it:
  • Set a specific amount of money you want
  • What do you intend to give in return for this amount of money
  • Set a definite date that you intend to have it
  • Create a plan to put into action at once
  • Put the previous 4 steps on paper – black and white
  • Read what you wrote once before you sleep and once after you are awake. Visualize, feel and believe yourself as being rich as you read.
Dreams are necessary before they can be realized in physical forms. Reach the state of mind, then you are ready to receive what you want.
2) Faith – A state of mind which may be induced, or created, by affirmation or repeated instructions to the subconscious mind, through the principle of auto-suggestion. This is the reason people fail to succeed because they possess negative thoughts in their subconscious minds. Thus, one should pass your desires to the subconscious mind so that it will be translated into physical forms and realities. Formula for Self Confidence:
  • Believe you have the ability to achieve your goal and demand that you persistently act towards it.
  • Using 30 mins of each day to visualize the person that you want to become.
  • Dedicate 10 mins a day to develop self-confidence.
  • Do not stop trying to attain the goal until you gathered enough self-confidence to attain it.
  • Love and believe in others besides yourself, so that they will help and believe in you.
3) Auto-suggestion – or self-suggestion. No thoughts can enter the subconscious mind without auto-suggestion. Reading the statement of desire daily is a form of auto-suggestion and it must be done with emotions attached in order for the subconscious mind to register. The price to pay for success is persistence to apply these principles. As you concentrate on visualizing the amount of money you specified, demand a plan from your subconscious mind and act on the plan immediately when it appears. However, do not use your own reasoning when implementing the plan. It is important to visualize yourself rendering the service in return for the money.
4) Specialized Knowledge – General knowledge does not attract money, only organised knowledge with a definite plan and endpoint is able to draw money. First, you need to identify the specialized knowledge you will require which can be determined by the major purpose in your life. Next, you would need to find reliable sources like libraries, night school or courses, where you can increase your specialized knowledge. Paying for a course may be good because it forces you to complete it to make your money worth. Schooling is not able to furnish a person useful knowledge as it is too general and unorganized, thus signing up for additional courses after graduation is necessary.
5) Imagination – Gives shape and form to desire and formulates into plans for action. Synthetic imagination helps one to combine old concepts into new ones. If synthetic imagination is unable to solve a problem, creative imagination is needed to create totally novel ideas. Keep your imagination active as it may weaken if you do not use it. Ideas are products of imagination.
6) Organized Planning – Gather a group of people needed to carry out the plan. This group will be known as the “Master Mind” alliance. In order for them to help you, you need to address the benefits or compensation method for each of them. You would need to meet up with this group at least twice a week until you have formulated a concrete plan. Harmony within the group is paramount to success. The reason to have people to help you is because no one is equipped with sufficient knowledge, skills, ability and experience to acquire large wealth. Plans should be formulated together or at least be approved by the Alliance. It is crucial to have the persistence to continuingly replace failed plans with new plans, until a plan that works. “No man is ever whipped, until he quits in his own mind”. Remember, “A quitter never wins and a winner never quits”.
7) Decision – Lack of decisiveness and often, procrastination, are the major failures to riches. It is necessary for cultivating a habit that “reach decisions promptly and change them slowly”. It is also important not to be influenced by opinions on your decisions as they would not be your own desires. Heed advice only from your “Master Mind” group.
8) Persistence – One of the major causes of failure where people lacked of it, will give up at the first sign of opposition. By having a stronger desire, it may strengthen your persistence. “With persistence will come success”; “Be persistent no matter how slow you may, at first, have to move.” Having a master mind group helps you to persist when problems arise.
Four steps that will lead to persistence:
  • A definite purpose backed by burning desire of fulfilment
  • A definite plan, expressed in continuous action
  • A mind closed tightly against all negative and discouraging influences
  • Alliance with people who will encourage one to follow through with plan and purpose
9) Power of the Master Mind – Power has been defined by the author as “organized and intelligently directed knowledge”. Power in turn can be attained from the Master Mind – “Coordination of knowledge and effort, in a spirit of harmony, between two or more people, for the attainment of a definite purpose”. To put it simply, being in a Master Mind group works on the notion that “two or more heads are better than one” with the condition that all heads work in harmony, and will achieve a multiplying effect. “No two minds ever come together without, thereby, creating a third, invisible, intangible force which may likened to a third mind”.
10) Sex Transmutation – Sex is man’s most powerful desire which often drives them to even risk their lives in order to indulge in it. This desire cannot be suppressed but can be diverted to useful channels. Transmutation of sex energy may lift one to the status of a genius, where the mind is functioning at a higher rate of vibration than a normal mind; thereby the person goes beyond ordinary thought with abundance of creative imaginations. High sex drive is actually an ingredient for success! If only the energy is used in other areas, instead of dissipating it physically. However, it does not mean that there should be no sex. The emotion of sex must be balanced with the emotion of love to make the person more sane and reasonable. It is also because the emotion of genuine love lasts longer, if not for eternity, where the person can constantly harness the energy. “Man’s greatest motivation or desire is to please woman” and by “[taking] woman out of their lives, and great wealth will be useless to most men”.
11) The subconscious mind – The subconscious mind cannot be controlled but can be “installed” with your desire or plan into it through autosuggestion. It operates 24 hours daily, recording thoughts voluntarily without your notice. It must be remembered the subconscious mind responds more readily to emotionalized thoughts. Hence, it is important not think of negative thoughts predominantly. The importance of the subconscious mind is that it connects the human mind to infinite intelligence where the answers can be seeked.
12) The Brain – The brain uses the broadcasting principle – Creative imagination is the receiving station where thoughts are received. The brain must be stimulated to a higher degree of vibration in order to be more receptive. One of the stimulants can be brought about by sex transmutation. The substation is the sending station where it must be told what to send before thoughts can be received. Auto suggestion is where one plants the desire into the subconscious mind. It is important to operate your brain in this way.
13) The Sixth Sense – This can only be achieved when the first 12 principles are mastered. The mind receives ideas, plans and thoughts readily. You may call it hunches.

The Universal Principles of Successful Trading by Brent Penfold.

The Universal Principles of Successful Trading by Brent Penfold.The Universal Principles of Successful Trading: Essential Knowledge for All Traders in All Markets (Wiley Trading)
Brent Penfold believes that there are universal principles that are applicable to all traders, regardless of which trading systems, time frame and instruments you trade.
A typical journey of a novice trader
I found his descriptions of a novice trader’s journey accurate as I can relate to some of them. The novice trader will lose money in the beginning as he interact with the market. Many traders give up at various stages as they fail to accept the losses. It takes a lot of self awareness and acceptance to learn the ropes of trading. Here is the typical journey:
  • React to news and tips
  • Begin a trading education
  • Switch methodologies
  • Switch gurus
  • Switch markets
  • Switch time frames
  • Switch client adviser
  • Blame psychology
Imagine you have to go through this to learn more about yourself and the market? And meanwhile you made these mistakes, you are constantly losing to the market. Not easy I would say. Brent thinks that the turning point to become a profitable trader is when you learn to apply money management rules to minimise your losses.
Brent has 6 universal principles of successful trading.
#1 Preparation
He thinks that the first principle is about preparing your mind to have the right perspective of the market. The belief to plant in your mind is that the market will put up many obstacles to prevent you from profiting. Since you are bound to lose, make sure your losses are small. The best loser is the eventual winner.
#2 Enlightenment
He believes all traders must have 0 percent for “Risk of Ruin”. Risk of Ruin is the probability that your accumulated losses are so huge that would make you stop trading. You can find “Risk of Ruin” calculators online to do your calculations.
Second, you must understand that it is the expectancy of your trading system that matters. It is not the accuracy. Casinos use a slight positive expectancy to win over the gamblers. The edge of a trading system is positive expectancy. You can find out more about expectancy here.
Third, the more opportunities you can trade, the more money you can make for a period of time. Your trading system must allow sufficient trading opportunities.
Fourth, the trading system must be simple. Brent said it must pass the McDonald’s test – the trading system is not good if a teenager cannot understand your method. Ultimately, trading is about identifying resistance and support, do not complicate it further.
Fifth, you must search opportunities that are contrarian to the crowd, since 95% of the traders lose.
Sixth, test your system backwards but not to the point of tweaking it such that you curve fit it perfectly according to the past data.
#3 Trading Style
Here are some of the key characteristics of various trading styles and time frames:
  • Short-term swing trading (time-frame: days to a week, small capital, small drawdowns, high accuracy)
  • Medium-term swing trading (time-frame: weeks, small capital, medium drawdowns, high accuracy)
  • Short-term trend trading (time-frame: days to a week, small capital, small drawdowns, low accuracy)
  • Medium-term trend trading (time-frame: weeks, small capital, medium drawdowns, high accuracy)
  • Long-term trend trading (time-frame: months, large capital, large drawdowns, low accuracy)
Brent believes that each trader must find the style that best suits his capital size and personality – tolerance level for drawdowns and accuracy of the system.
#4 Markets
Brent favours the Futures market. Some of the good attributes of a market or instrument are:
  • Price and volume transparency – Reflect the true price and volume
  • Liquidity – healthy demand and supply so that you can buy and sell easily
  • Zero counterparty risk – good governance to enforce honoring of trades
  • Volatility – you need decent volatility to make money
  • Growth – the market volume must be able to accommodate your increased position as you grow as a trader
There are a lot more attributes stated in the book. You should trade an instrument that satisfy most of the attributes.
#5 Three Pillars
To him, there are three main pillars to trading:
  • Money Management
  • Methodology
  • Psychology
Money Management – The chapter on money management is simply the longest chapter in the book. I cannot describe it in detail and I urge you to read the chapter as money management is one of the most important component to successful trading. Brent explained the various money management methods and ran tests with the methods. Based on the results, he found that the “Fixed Percent” and “Fixed Volatility” had the lowest “Risk of Ruin” but they are not suitable for small accounts. The methods suitable for small accounts are “Fixed Risk”, “Fixed Capital”, “Fixed Ratio” and “Fixed Units”. There are pros and cons for each method and Brent has stated them clearly in the book.
Methodology – Brent talked about mechanical and discretional trading. He advise that it is easier to start with a mechanical approach when you are a new trader, as it would provide structure and consistency to your trading. As a Elliott Wave and W.D. Gann trader for 15 years, he shared his disappointment in predictive indicators. he also discourages the use of technical indicators like moving averages and stochastic. To quote, “most indicators are derivatives of price that contain adjustable parameters. Consequently, they represent second-hand curve-fitted information.” To him, traders should focus on price and volume and use tools like breakout analysis and market profile. He also emphasised the importance of having a system that is objective. There are not 2 ways to interpret the data.
Psychology – Brent suggests we should manage our greed, fear, hope and pain. He even has a list of affirmations to manage his psychology from time to time.
#6 Trading
This Principle is about learning the mechanism of trading. The different types of orders that you can use to your advantage.
In the final chapter, he interviewed 15 traders for a piece of advice. In conclusion, I think this is a good book for all aspiring traders and existing traders who are having problems with their trading. If you are able to understand and apply the principles in this book, you would be able to become a successful trader.


The following is for those traders who, with a fixed mind-set, think…
…success is something over there
…trading is about being right, not about making money
…trading is too challenging
…the stock market is fixed with too many obstacles
…trading is about finding the effortless holy grail
…losses are to be avoided at all costs
…others’ success is threatening

In many years of research, We have found that some people hold a "fixed mindset" about their personal qualities (like their intelligence or talents). They believe they have a fixed amount and that's that. This belief often makes people so concerned with how much they actually have, that they will close themselves off to challenging tasks for fear that they will reveal (permanent) deficiencies.

But other people hold a "growth mindset" about these same qualities. They believe these qualities can be developed with effort and instruction. As a result, they are ready to take on challenges, they are not afraid of mistakes, and they bounce back from failures. And they often end up accomplishing more.

Mindset: The New Psychology of Success

In the book, It will show how these mindsets operate in educational settings, in business, in sports and in relationships. I also show how parents, teachers, and coaches promote the fixed and the growth mindsets. For example, my work has shown that praising students intelligence can be harmful because it creates a fixed mindset. More about this later.

It's such a simple concept, really, but revolutionary for all that. Freeing ourselves of that fixed mindset is incredibly liberating, also a bit scary. How do you teach people to radically alter a way of thinking that has been entrenched for so long? Is it a difficult and painful process? Can you give some examples of how this works?

You're so right--freeing ourselves of a fixed mindset can be incredibly liberating, but also scary. Why is it so scary? Well, maybe our "fixed" intelligence or talent made us feel special, a bit better than others, and it's hard to give that up. Or maybe we used our lack of fixed talents to explain why we haven't succeeded or as an excuse for not exerting effort. That's also hard to give up. In short, a fixed mindset offers a simple way to see the world (everyone has fixed traits) and an easy way to understand why some people succeed (they have high fixed ability) and some don't (they have low fixed ability).

But people can be taught to embrace a new way of thinking--to replace a fixed mindset with a growth mindset. First, people should be aware of the new neuroscience, which is finding that the brain is much more malleable than we ever imagined. Cognitive psychology is also identifying the core components of intelligence and showing they can be taught.

Next, people can look into their own experiences for evidence for a growth mindset. What is something that you weren't good at and are now very good at? How did this happen and what does it tell you about ability and how it can be developed? Or, think of someone you thought could never do something, but he or she did it.
Finally, look at the diagram below. Every time you find yourself thinking a fixed mindset thought, transfer over to the growth mindset side of the chart and replace it with the growth mindset thought. Use the diagram to learn to think and talk to yourself from a growth mindset place. (By Carol Dweck, Lewis and Virginia Eaton Professor of Psychology at Stanford University.)


Sunday, July 7, 2013

3 Bias That Affect Your Trading. What is Bias Mind ?

What is the meaning of BIAS ?

Biases are human tendencies that lead us to follow a particular quasi-logical path, or form a certain perspective based on predetermined mental notions and beliefs. When investors act on a bias, they do not explore the full issue and can be ignorant to evidence that contradicts their initial opinions. Avoiding cognitive biases allows investors to reach impartial decision based solely on available data.

There are 3 bias that will affect one’s trading:

1) Gambler’s fallacy bias
People tend to believe that after a string of losses, a win is going to come next. Take for example that you are playing a game of coin tossing with a capital of $1000. You lost 3 bets in a row on heads and cost you $100 each bet. What will you bet next and how much would you stake?
It is likely you will continue to bet on heads and with a higher stake, say $300. You do not ‘believe’ that it can be tails consistently. People fail to realize coin tossing is random and past results do not affect future outcomes.
Traders must treat each trade independently and not be affected by past results. It is important that your trading system tells you how much to stake your capital which is also known as position sizing, so that the risk-reward ratio will be optimal.

2) Limit profits and enlarge losses bias
People tend to limit their profits and give more room to losses. Nobody likes the feeling of losing. Most investors tend to hold on to losses and hope their investments will turn around soon, and they will be happy if their holdings break even. However, chances are that they will amount to greater losses. On the other hand, if they are winning, most investors tend to take profits early as they fear their profits will be wiped out soon. Thereafter, they regretted that they didn't hold a little longer (sounds familiar?).
One of the most important principle in trading is contrary to what most investors do – Traders have to LIMIT LOSSES and let PROFITS RUN. Losses are part and parcel of trading and hence, it is crucial to protect the capital from depleting too much – live to fight another day is the mantra for all traders. Large profits are thus required to cover the small losses – so do not limit profit runs.

3) I am right bias
Humans are egoistic in nature and we want to prove that we are right. High accuracy is not important in trading but making more money when you are right is. Remember what George Soros said, “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”