The reason why I believed that I could retrain my brain is because when I was in college I was diagnosed with dyslexia. I had been able to mask the problem up until that point because I learned how to adapt to my disability and function in school just like an average student. My teachers nor my parents ever knew. Then when I started college I had a professor who wanted us to write in pen because she wanted to see our corrections. That wouldn't have been a problem if we did it out of class but we had to write essays in class. So I tried to adapt again and buy erasable ink pens. My professor knew that trick. Needless to say she once she saw all the corrections I had to make she knew I had a problem and referred me to be tested.
What I Learned
Once I began getting help with my dyslexia I began to gain confidence in myself and I was able to take more chances and risks as it related to my scholastic career. All this was made possible because they helped me reprogram my brain as to how it processed the information I was taking in and the information that was coming out of it. So once I made the connection with the fear I had in trading and whether or not I was seeing the patterns or the setups correctly with the same fear I had with my schoolwork, I knew I needed to do some research on the psychological aspect of trading.
So in my research I found something called Neurofinance. This studies the relationship between the brain and money. Studies have shown that trading activates the same primitive centers in the brain that are responsible for self-preservation. These are the primal emotional and defensive layers of the brain that do not respond very well to will power (self talk). In fact, the brain is hardwired to prevent you from turning off its primal circuits, its core defensive and reactive processes.
Why? These processes, such as fight, flight and pursuit have great survival value. When these primal parts of the brain are in control of your trading you are most likely to automatically do the opposite of what you consciously intend. It may feel like self-sabotage, but it is not diabolical… it is biological. It is just your self-preservation instincts taking control. It is difficult to manage an instinct, which is one reason why so many traders under-perform and eventually fail.
Normal human instinctual fear, which may be worsened by your genetic makeup, will interfere with trading success because it will make you more reactive to the randomness in the market. Winning traders are either not afraid or carefully manage their fear.
Most traders who trade scared are also trading scarred. Normal losing trades and periods of drawdown are processed normally, as expectable--if somewhat disappointing--events. When losses are substantial, however, they can be processed as traumatic events. Instead of being processed through normal, explicit, verbal channels, they activate the flight/fight emergency mechanisms of mind and body, leaving their emotional imprint. Later, events similar to the traumatic losses--even normal ones--can trigger the emotional and physical reactions of emergency, including paralyzing anxiety.
Once trading becomes associated with painful experiences, traders come to expect losses and betrayal by the market. Because risk cannot be eliminated from trading, the inability to tolerate risk works against you. It makes you late in pulling the trigger (waiting for confirmation) or makes it impossible to stay in a good trade and let winners run.
To trade successfully, you need to reduce fear to a level where it is healthy, i.e. you respect the reality of risk, but your judgment and behavior are not impaired by fear. To eliminate self-sabotage, you have to reduce your fear to manageable levels. You can’t trade well with a scared brain.
How I Overcame my Fear to Take Trades
Once I realized the problem I had to think of ways to train my brain to have a trader's mentality. The first obstacle I faced was the confidence in my ability to identify a setup, plan, and execute a successful trade. My confidence was shot because of what I explained a little earlier. My emotions kept associating the painful experiences when I wanted to enter a trade. I had suffered some losses and had lost over 1/2 of my account. I started believing that I really didn't know what I was doing, which I didn't. So my first step was to become educated. I picked 1 strategy to learn, which was the ABCD long setup that Nate teaches in his DVD. I learned and I practiced using the On-Demand feature on the TOS platform. I practiced making a trading plan by establishing entry and exits and using position sizing to establish the correct risk/reward. Once my education was complete I was ready to move on to the next step.
I then had to convince myself that losing was OK. That taking losses occasionally was part of the business and there was no way around it. It was even more difficult convincing myself because my account was so small. A few small losses and I would have been done. This is the 2nd largest reason most new traders fail or quit. The ones that are smart enough to get the education often only have a little money left to fund an account so mentally it is very difficult to accept losses. Human nature makes you want to protect the little capital you have
I had to look at it this way. I give myself about $150 a week for gas, food, and personal incidentals. I would play the lottery every week spending $100 to $150 a week. I figured that If I'm willing to throw that money away for a million to 1 chance of making any decent money and I was OK with it, then I should be OK risking $50 in a trade to make $100 on something that I have a better than average of coming out a winner. In the lottery I had no control over whether I won or not outside of picking the numbers or the scratch-off and buying the tickets. On a trade I had a lot more control over the entry and the outcome of the trade. The lottery was a gamble, the trade was an investment.
With that I didn't have much trouble entering trades but then another problem surfaced. When I was in the trade I was a nervous wreck. I would consistently take the trade off as soon as I made over $25 if the price action slowed down. I didn't use the exit strategy I had. I found myself watching my P&L. If I was up $40 or $50 and I saw my unrealized gains dropping I immediately sold. I began to hide my P&L and traded the chart and tried to stick to my plan. Some I did well and some I still got scared when I saw too many red candles print and I took it off early. What helped me get better with letting my trades work was studying the charts of my trades every night and seeing how my plan worked but I didn't trade it correctly. I guess the only good thing that happened during this time was that I was sticking to my stops and not letting losing trades get out of hand.
This is how I programmed my mind to become a trader.
1. I got educated. Even being an educator I sometimes forget the value of education and how important it is to have someone help you organize the information so that it makes sense.
2. I learned and became proficient with 1 setup at a time. This helped my confidence as well.
3. Practice trading. I admit I practiced with my money more than I should have at first but once I learned how to use the on-demand feature on TOS I began practicing trades at nights and on weekends. The more I practiced the more entering and letting trades work become automatic
4. I used small position sizing at first to reduce the effect of my emotions. I was more inclined to let a 100 share position size have the room it needed to work. I was able to stick to my plan and let my winners run. I had to in order to make $ with a 100 share position!
5. I hid my unrealized gains so that I couldn't see whether I was up or down on a trade. This also helped to keep my emotions in check and focus on the trade.
6. I never traded alone. I needed to be a part of a community that trades my setups because when I was new, and even today, I need support throughout the trading day. I could always ask a question to a moderator in chat when I felt lost.
7. I found a mentor to give me in depth individualized instruction and feedback. Again I wanted someone who trades the same setups and has the same trading ideology that I have
8. I stopped watching my TweetDeck and chat trying to catch every move. Just because there are people on Twitter and in chat calling out trades all day doesn't mean I'm not looking at the right stocks. I just stuck to my scans and my setup. Besides, 60% of whats called out is BS anyway.
Once you have your education out the way, the key is staying small until you are ready. There is no shame in making $50 a day to start with on 100 share positions when you are trading the entire move. Slowly increase your share size and risk making sure you are completely comfortable at every step letting the trade work. That is what I did. Stick to your stops. 1 missed stop can destroy months of hard work. Remember, no one is perfect. You will make mistakes. I make mistakes. But if you stay disciplined and trade within yourself, you will make it. You will minimize the effects of your mistakes. Work with a proven guru and community. One that fits your style of trading. Everyone knows I have found mine and how it has improved my trading. I know now what they mean by "this is a marathon, not a sprint".
I hope this helps and that this is what those who asked me about this wanted. As always just shoot me an email if you want to.