Message From TraderJanie
We traders have just lived through an historic event. According to Howard Silverbatt, Senior Analyst for S&P Dow Jones Indices, the 10.5% loss in the first 12 trading days was the worst start for the Dow dating back to 1897.
And the S&P? The S&P lost 10.05%. This loss is second only to the 10.85% loss for the start of 2009.
A quick Google search brings up the following headlines –
“Stock Market Crash: Is This the Start of a Bear”
“6 Factors that Point to Global Recession in 2016”
Or my personal favorite –
“80% Stock Market Crash to Strike in 2016”
We have been given some respite from this downward pressure the last few trading days. But whether it was just a short-term rally in an overall downtrend or the start of another leg up in the bull market, none of us know. And not knowing can cause a tremendous amount of psychological pain.
How do we deal with it?
As algo traders, we have an advantage over so many others out there. We have a proven system that gets us in and out of the market devoid of emotions. All we need to do is follow the signals. We sleep easy at night, knowing that our portfolios keep going up. Every drawdown is only temporary as our accounts keep reaching higher and higher levels of equity. Sounds beautiful, doesn’t it?
Oh, so much easier said than done. Those nail-biting times when it seems like every trade is a loser. Or we get several small winners only to see our gains disappear on the next losing trade. When our system goes out of step with the market, it feels like we will never make it back. Placing that next trade gets harder and harder.
We say, ‘Let’s wait until we see some winners.’ So we don’t take the next few signals – only to miss out on the next few winners. Back in we go, but undoubtedly this next trade is a loser. And our pain continues.
The system is up but we are down.
And that, my friend, is the rub with trading an algo system or really any trading system. We think we know better than the system we are following.
This past week-end I had the opportunity to watch a talk by Jack Schwager outlining the differences that distinguish top traders. In it he mentions that as human beings, we are poorly designed to be successful in the markets. His reasoning…human beings seek out comfort while the markets reward us for being uncomfortable.
He goes on to state that every system goes through bad periods. The trader that says he can live through a 30% drawdown starts to panic at 10%. Even when they know that their system has a proven edge.
One point that really stood out – all of the top traders Jack Schwager interviewed, kept the majority, if not all, of their own personal money in their trading accounts. Why? Because they felt it was the safest place for it.
Now that is having belief in your trading and your system!
So how do we create the mindset of a successful trader? Maybe it is as simple as telling yourself you are.
Daily Affirmations Help You Create the Mindset of a Successful Trader
An affirmation is a positive statement about what we want to be or have or do. It is stated as if it is already achieved. One such statement might be –
I am a successful trader who always follows the rules of my system.
By stating our affirmation as a positive we avoid negatives, like don’t or doesn’t. I am a successful trader who doesn’t break the rules of my system is not a positive statement due to the use of doesn’t. Our subconscious won’t hear the ‘doesn’t.’ What gets imprinted in our minds would be, I am a successful trader who breaks the rules of my system. Not the message we want to instill.
I have been using affirmations throughout my career, not only in trading, but in all aspects of my life. But I haven’t been consistent. So for New Year’s I made the commitment to write out my affirmations 10 times every day as part of my morning routine. Now this can be with a pen and paper or on the computer. I personally use my laptop.
By stating what we want to have happen as if it has already happened, we begin to condition our subconscious to believe it. As our belief grows, we gain confidence in ourselves and begin to see opportunities where before we didn’t. Taking these opportunities leads to success, which increases our confidence, then more success, then more confidence…we are continuously expanding our levels of confidence and self-trust.
By doing my affirmations during my morning routine, I find that I face the day feeling more confident and relaxed.
Is it working?
Well, these past weeks have certainly been an exciting time for traders. I know that in the past I would’ve been worrying and stressing about my portfolio much more than I am. I would have been second-guessing my signals and hesitant to place some trades. Now I confidently place my trades knowing that QiT has an edge. I face each day with a renewed sense of purpose and confidence. I am accomplishing more, with less effort, and feeling better about myself and abilities.
This is only after three weeks! Imagine the results after 6 months…or a year!
Just Do It!
If you aren’t already using affirmations as part of your Daily Routine I suggest you do.
Start small. Pick one affirmation and write it out 10 times every day. As you feel the power grow within you, add another. Right now, I write out three affirmations – one for trading, one for my relationship, and one for my health. I am seeing benefits in all three areas!
Building confidence in yourself gives you the ability to tune out those negative headlines. Your approach to trading and following your system becomes more effortless. You allow the edge of your system to play out. You will see drawdowns for what they really are – just small steps backwards to ever increasing levels of equity in your account.
Not only that, you will sleep easy at night.
So how did the S&P finish 2009 after starting out down 10.85%? It closed the year out with a 26.46% gain. What about those traders that went to cash right after the decline because they lacked the confidence to continue trading? How did they finish?
Remember, plan your trade and trade your plan.