July 3, 2019
More than 20 years ago, when we started golfing, there was an old guy always at the driving range who could barely walk but hit a golf ball very consistently. Instead of barking random advice like so many others trying to help my young game, he would just say the same thing over and over again, every time we swung. After a few swings, we would start hitting the ball better. He would continue saying the exact same phrase for another few shots. It was soothing. It relaxed my mind. Instead of trying to think about a hundred different things I just focused on the thing he was saying. One day we may be hitting shots a little “fat,” and other days pushing it out of the right. No matter what the particular problem was on any given day, he had a small little phrase that helped us address it. These, we later learned, are called “swing thoughts.” We each know certain problems we have in our game; the objective is to create very short phrases that address these particular problems, and/or keep us focused on only one thing instead of hundreds. If you golf, you know that thinking about a bunch of different things while you swing is a death blow to your score. Trading is the same way. About 10 years later I began trading as my sole profession. This thought exercise has become an important part of my everyday life in this field as well.
Traders usually face the same few recurring issues or compulsions. Since each day is a bit different, some days may stir a certain issue more than another type of day would. For example, when the market is swinging wildly this may induce a fear response, which makes you more afraid and less likely to take valid trade setups when they come (see Overcoming Trading Anxiety). When the market is very dull you may feel you can get a good read on it, and so you over-trade. These are just examples. Take a moment and think about what you typically struggle with. Trading thoughts can help. As soon as you see what sort of day it is, or sense you are about to do something which goes against your trading plan, think of your trading thought for that specific problem. Keep a few relevant thoughts in your head throughout the day, reminding yourself of them every few minutes.
Trading thoughts aren’t magic, but they should be personal. Our trading thoughts may not work for you because you may have slightly different tendencies. Trading thought should be short and concise, letting you know exactly what you need to do (or not do). One that we constantly use is: “Keeping talking.” A bit strange, but while day trading we want to keep a constant dialogue going in our head about what the market is doing, and how that affects our trading decisions. As soon as that dialogue stops we are more prone to making impulsive trades. The dialogue keeps us constantly planning, so we remain in control. Related to this, if the market is unfavorable for trading, we constantly remind ourselves “Unfavorable” or “Step aside.” This keeps us out of the market when it isn’t moving well for our strategies. If the market is moving well we say “Favorable,” and will often attach to this the strategy we want to trade under these conditions. This way, when a trade setup develops, there is zero hesitation. We know the market is moving well and we are prepared to implement my strategy the second an opportunity occurs. The trading day is filled with movement a trader can potentially jump in on; yet are all those upticks and downticks good trading opportunities? NO! “Stick to the plan” is another phrase we repeat throughout the day. To us, this means only trade valid setups based on proven strategies in my trading plan.
Come up with key trading thoughts that help you manage specific trading related issues. These should relate to specific issues you have noticed with your trading. Bring these trading thoughts to mind when certain issues arise. Better yet, constantly and regularly repeat your key trading thoughts throughout the day. This way, you help the problem from ever arising in the first place. If you tend to over-trade but are constantly reminding yourself to “Stick to the plan” or “It’s unfavorable conditions” you alleviate the compulsion to make impulsive trades.