A Personal Lesson in Trading Psychology

On Friday (yesterday), I was in a live trading event sponsored by my good friends at TradeGuider.  As always, I prepared for trading the night before.  My nightly analysis indicated that I should look to play to the short side around the 1513-1515 level. In the overnight Globex market, the ES rallied to about 1510, and then stalled just before the US open.  I thought, “OK, maybe the market is a bit weaker than my analysis suggests.  No big deal.”

I shorted around the 1507 level, as supply came in just before the US open.

The market then traded sideways.  I checked market internals, expecting them to be weak.  I saw, however, that they were much higher than yesterday, and although moving down, they were clearly holding gains after the initial trading off the US open.  Not good for my short sell trade.  I knew what I needed to do.

Trading live in front of a large audience of other traders, I certainly felt the pressure to ‘produce’ a good trade (as if I could, ha!).  I had thoughts running through my head that told me, “If you take the trade off and then it does go down, you will look foolish in front of all these people.”  Being human, of course, I hesitated — probably too long.

Fortunately, I’ve worked hard at my mental skills.  When I cleared my head, what I saw was: Gap up open, holding the gap, internals positive and holding.  Decision: Get out!  And, I did.

I don’t post this to show you how clever I am — believe me, I do my fair share of bonehead trades and then some.  I post this to show the importance of psychology in trading.

My game plan was to go short.  I did, though a bit earlier than I anticipated.  Then, the trade wasn’t working (the best trades start moving right away).  Rather than scratch (exit), I started to listen to my mind.  Because I was trading in front of others, my ego got into the picture (never a good idea).  What my ego wanted and what the market was doing were two entirely different things.  It took a while, but I eventually came to my senses and followed what I knew, deep down, was the right move for the trade–a High Value Action–and scratched the trade.

Next week, I will be doing a series on trading psychology.  This is different than you have seen before.  If you have been limited in your trading because you listen to what your mind is telling you, you might want to check out the Winning Trader Psychology program  starting next week.   I did this in my Deep Practice program to rave reviews.   You can learn more here: Wining Trader Psychology