From the scripture of Mark Douglas in The Disciplined Trader:
As a result, I sincerely feel that success in trading is 80 percent psychological and 20 percent one’s methodology, be it fundamental or technical. For example, you can have a mediocre knowledge of fundamental and technical information, and if you are in psychological control, you can make money. Conversely, you may have a great system, one that you have tested and has performed well for a long period of time, yet if the psychological control is not there, you will be the loser.
Steps I’ve recently taken to increase my mental control (since we all seem to default to focusing on technique):
- Meditation, both “empty your mind” and “visioning”. I took a quick $7 lesson from a local mind+body shop. Still working at implementing it daily.
- Monitor/schedule my sleep. A Tim Ferriss trick is to use a timer rather then alarm for sleeping so I am focusing on my sleep deposit/debt. This works better if I don’t have a required wake time for a job (I don’t). Lack of sleep causes me to be more moody and thus more emotional. Goal is eight hours, so I often start “going to bed” at T minus nine hours.
- Monitor/schedule my eating. Food is the most powerful drug we take multiple times a day (unless you live in a hospital I guess). Smaller meals more often keeps my blood sugar (the brain’s food) more level and thus my mood (emotional state). I also stay away from sugar and manufactured carbs which spike the blood sugar (but not yet conquered caffeine). The theory and application of this is found in The Zone Diet, which is designed to keep the body/mind “in the zone” of optimum energy by controlling what you eat.
- Don’t trade when I’m focused on finances. If I need to pay next months bills with my "planned winnings” then I’ll trade from emotion, rather then if the money has no near-term impact on my lifestyle. Even once trading becomes my only income my plan has me withdrawing once-for-the-next-six-months and eventually to once-for-the-next-year so my lifestyle is unaffected by my day to day market success.
- Plan, plan, and more sticking to the plan. How many times will I trade a month? How many times will I practice in a month? How much cash will I use each time? How many trades in a row loss will cause a “real money hold” period? What charts will I use? What stocks will I use? When do I get out of the trade “when it’s not working” and “when it’s working”? What do I consider “it’s not working”… and on and on. The more details I have documented and the more I review it… the more I tend to be less emotional on entry and exit of a trade.
Just one year from a stock market crash and real estate burst that “we thought” forced us to re-learn the lesson our grandparents knew about leverage: Use it to buy assets, not liabilities. Don’t use it to buy merchandise that doesn’t make you money. I’ve closely followed Macy’s (
What if, regardless of circumstances, you could quit your job and retire within 5 years? What if you could only work 4-8 hours a week and make in a week what you used to make in a year, and do it from anywhere? What if you could leave and take a month to explore something you’ve always wanted to (travel, learn a sport, etc.) and come back with more money then you left?