A little mental trick…

I want to share a quick thought with  you today–a little trick in thinking that made a big difference in my trading a few years ago. One of the problems with traders is that we can be stubborn. This happens to everyone, and no one is ever immune to it. It takes a lot of confidence to pull the trigger, and sometimes much analysis and hard work has gone into justifying the trade. What do we do when contradictory information emerges? Well, sometimes the shock of seeing that the trade is wrong can even cause traders to freeze, with disastrous consequences.

I developed a little trick that might seem trivial, but it is very important. Simply put, anytime to you put a trade on, assume that the trade is going to be a loser. No matter how much analysis, how many supporting factors, or how perfect the pattern is, assume that the trade will lose money. This creates a profound shift in your focus because, rather than searching for and possibly discounting contradictory evidence (which can sometimes be as simple as “I just bought and now it’s going down…”), you will be open to and will readily accept contradicting information. Of course you will, because you assumed the trade was wrong to begin with. When you find confirmation for the trade, it is almost a pleasant surprise. Shift your thinking into this mode, and you will be much less likely to overstay your welcome in suboptimal setups that are not working out–you’ll be far more likely to do the right thing, which is usually to pull the plug on the trade (time stop) and look for a better opportunity.

Now, there’s another piece to this puzzle. A lot of writers focus a lot of attention on confidence in trading, and this is important, but it is a different kind of confidence. You must have confidence in your method and know that a profit is virtually assured over a large enough set of trades, and be able to separate this knowledge from the outcome of any one trade which is, more or less, a coin flip.

I’ll write more on this later, but, for now, see if you can subtly push your thinking in this direction and see what  impact it has on your bottom line. For me, at least, this is one of the keys to emotional control in trading.


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.