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Part
8 of ProSignal's
FREE
Forex Trading Training Course
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see:
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No
Experience Necessary!
Psychology
of
Trading
It
is not an easy endeavor to make money in Forex.
This truth is hard to communicate to anyone; it is only
possible to experience yourself.
Only small number of beginning traders understand
what psychological and financial burdens Forex
trading might bring.
Many beginners after experiencing their first
losses, decide to give up on trading; others that get
some humble positive results continue to work with a
hope to improve their trading results.
The
number of great traders is very limited. So what
separates those traders from many others who sometimes
can not even make two positive trades in a row? Many
scientific researches indicate that there is only one
sphere in trading that distinguishes highly professional
outstanding traders from the regular ones and that is
- individual psychology. The success of a
trader lies in two qualities that supplement each other:
ability to preserve emotional balance when you have to
face some losses and ability to make decisions
independently from other people opinions.
The
above conclusions are made on simple theory. This theory
asserts that because the trading is a risky and intense
occupation, losses and missed profits can evoke negative
emotions. When this kind of emotions prevail for a long
time, traders start to look for psychological protection
and gather into groups and start to react the same way
to each change in any situation in the market. If this
change is unexpected then it can catch off guard most of
them.
Why
does this happen? Well, the unconscious part of our mind
very easily determines our behavior. Scientists have
estimated that 97% of our mind work happens
unconsciously. This, very important number tells us that
the biggest part of our daily behavior consists of some
memorized reaction to familiar irritants. Our experience
in learning the world around us, especially in our
childhood, is decisive in our behavior. To correct
already gained stereotypes in later life stages is a
very hard task.
Imagination
is used to create internal picture of an outside world.
This picture is perceived by our mind as reality and it
generates emotions that evoke automatic reactions.
Individual behavior is not that common as we might
think. From this, we can draw two conclusions: firstly,
irrational behavior has more probability to originate
within the crowd, rather than in situations where a
human is acting alone.
Secondly, logical thinking processes are not
enough to escape irrational behavior because logics can
be based on very strong, originated within the crowd,
feelings.
Our
mind has 3 separate components - instinct, feelings
and reflexion. Each human
psychology is based on these three components
but there is a difference in how each of us uses them.
Some of us are driven by instincts, other by emotions,
and some are very reflexive. Our characters are
determined by which of the three components is used more
by our mind.
How
do we use the above theory in Forex
market trading? Our automated reactions create
vulnerability spots in our conscious. Forex market
figures out those spots precisely and evokes automatic
reactions that bring us to losses. To fight this, we
need to find those vulnerability spots in ourselves and
understand reciprocal reaction mechanism.
In each human character we can single out a
protection center and probable model of reaction to some
identified threat. This is similar to well coordinated
search radar system and a reciprocal weapon: the radar
searches for the threat and when finds it, triggers
automatic reaction.
Although
the threat could have some physical form, in our case it
is psychological. It is sensed when there is a
disconnection between our subconscious expectations and
real results. In Forex the threat is sensed when the
profit expectations fail. As a result we have a stress
that evokes one of possible automatic reactions.
Let
us look at some of possible reactions.
Each reaction forces us to avoid some particular
situations. What do we have to do when there is a
situation that provokes automatic reactions such as
"avoid something" and what happens with a human when
he/she senses certain type of threat? Each personality
type has its own initial reaction to identifies threat.
Of
course, the reaction that we going to look at are only
general and in each situation they will interact with
other reactions creating "matrix" of reactions.
Nevertheless, they will be a driving force for each
individual at any identified threat. All of us have our
own strategies to avoid situations that have caused us
the most psychological damage in the past; and when we
face similar situation, we always use deeply rooted
physical, emotional and logical model for our behavior
in such situations.
Now
let us examine how each behavioral group would be
affected by certain market conditions and how they would
react on that. To begin, we first need to identify main
characteristics of any financial market, including
Forex: permanent price movements, permanent fear of
loosing money, influence of several factors on price
movements.
Each
individual is more vulnerable to one of the above
mentioned market characteristics, so the security center
will be activated by one of the mentioned
characteristics. Here is a description of how each group
would react.
First
group - instinct oriented group - most of the times
individuals within this group have sharply developed
feeling of self-esteem and a desire to protect personal
space. They either try to control everything that
happens around them or avoid everything that can
penetrate their personal space, especially other human
beings. To support their security feelings their world
is divided in to two parts: one is permanent that is not
threatening them, and another one active and potentially
dangerous.
Forex
market is always on the move, there are millions
invisible individuals involved in trading that make
deals for reasons that are not known to anyone. People
that are instinct oriented find themselves in a
situation that they really do not like and afraid of -
they are surrounded by people that they can not control
and that can indirectly penetrate there personal space.
They
can react to losses in three different ways - with a
desire to fight the market, with turning off their
emotions and attention or by suppressing their anger.
Non of the three ways contribute to successful trading.
First way - fighting the market after it went against
you - makes you think that you are right and the
market is wrong. At the end you might be right but as
John Keynes suggested: "At the end, all of us will
die" Second way - turning off your attention to
avoid the anger - usually makes you take up wrong
market positions, which will become even worse with a
time. At the end, inability of a person to orient in
reality, makes hum turn for help to others. Third way to
react - anger suppression - means that most of your
energy will be dedicated just to doing that and will be
taken away from the market; as a result, the level of
stress will increase and your trading effectiveness will
decrease. The trader will end up wit overwhelming
feeling of self failure and guilt.
Motives
of the second group - those that are driven by
emotions - are predetermined by the need to protect
their image. That is why; these people are concentrated
on gaining approval from those around them. When they
fail to get that approval, the low self-appraisal
feeling comes in. This feeling is most of the times
caused by the fact that in our childhood we are taught
not to make any mistakes. Most affected by this teaching
people are very afraid of making any mistakes, which
might make them feel bad about themselves. Many because
of that fact even suppress their desire to explore the
world around them.
In
Forex market there is always exists a possibility of
loosing money. Individuals that belong to
emotions-oriented group, will inevitably face something
that they really do not want to face - losses. They
have three most probable reactions - feeling of
aggrieved pride, envy of more successful traders and an
attempt to pretend that everything is actually going
fine. All of these reaction do not lead to successful
trading. Attention and time is taken away from real
losses and concentrated on personal "the I" Damaged
pride most of the times generates animosity towards the
market and can lead to attempts of taking revenge by
prolonging losing trades. Concentration on success of
others and by this finding self-failure can lead to
completely leaving the market and loosing any chances to
correct the problem. Ignoring losses and an attempt to
pretend that everything is going well and the situation
will correct itself - makes a person to ask for help
from others.
Third
group of people is driven by senses. They experience
very sharply fear attacks that is why they are motivated
only by one thing - reducing the possibility of such
attacks. These people are focused on gaining as much
information as possible, paying special attention to
news that are connected to possible threats. Since main
threat in Forex market is a loss of money, people that
are eager to avoid losses are doomed to analyze endless
amount of information.
Forex
market clashes people oriented on senses with a
situation that they are afraid of - the situation of
uncertainty. Three most probable automatic reactions to
such uncertainty consist of either infinite deferment of
making decisions, or total inactivity due to strong
fear, or avoiding the problem in general and
concentrating on making plans for future trades. Once
again, non of the above automatic reactions can not
contribute to successful trading. Delay in making
decisions will lead to loosing certain possibilities to
enter a trade or to growth of already running losses.
Freezing because of fear when there is unfavorable
situation, probably will make that situation even worse
if no steps are taken. An attempt to pretend that there
is nothing wrong is just a deferment of "paying your
bills". If a trader is not solving the problem right a
way he runs a risk of falling into obsessive desire of
making everything in perfect way.
If
you see yourself belonging to one of this groups or
maybe to even more than one then you certainly need to
take some time and study yourself and read more
literature on human
behavior and psychology. Also below we will give
you some tips of how you can train yourself using
certain techniques.
Fear
and Greed
As
individuals we have to realize and accept that we have
no control and influence over the market nor the
direction it is taking. And thus, there are two crucial
emotions that come into play and that we have to be
aware of. Fear and Greed!
Fear:
The
problem is that we all want to succeed and when we do
make a loss, it is easy to let those losses effect us
emotionally out of fear to lose even more.
In
this case, a trader exits a trade as soon as the market
hits the slightest bump even though the broad market is
very bullish and the fundamentals of the currency pair
he's trading are good. So instead of being patient and
waiting for the trade to go up again, he sells and
accepts the initial loss out of fear of losing even
more.
Fear
of losses can also show up in the following way.
Irrespective
of any rationality, a trader holds on to a losing
position for too long hoping for it to go up again. Even
when the news and fundamentals are hopeless he won't
give up forgetting that this attitude can easily lead to
a total loss.
In
another case, fear can also manifest itself in not
wanting to miss the boat and quickly jumping on. This
can very often be observed by novices who listen to tips
from friends and TV, where so called "experts" or
shall we rather say, "opinion makers" speak up
trying to sweet-talk you into a trade.
A
trader sees the market go up rapidly and confirmation is
all over the news. The excitement of a rising market is
in full swing. Afraid of missing out, the trader makes a
hasty decision and dives right into a trade.
Greed:
Becoming
euphoric when you hit a winning trade is almost as
detrimental as becoming depressed when you have a losing
trade.
In
this case a trader is actually afraid of losing a
profit. He holds on to a winning position for too long.
His trade is doing so well that he just can't get
enough. He may have made a 100% profit and now expects
to make another 100%. And when his position goes
down below this magic mark, he still holds on hoping for
his trade to go back to 100% again before he sells
instead of accepting say, 90%, which is darn good too!
But
what was a 100% profit can easily become a total loss if
you let greed take control!
There
are traders that watch their profits erode without doing
anything about it. They hold on to their positions right
up to an almost total loss. Very often they then say:
"Oh well. my trade has gone down so much now, what's
the use of selling? I won't get much out of it now
anyway, so I might as well keep my position".
In
another case, fear of losing out on a profit may even
cause a trader to sell a winning trade too soon. As soon
as his position went up a few percent, he bails out.
So
watch out for fear and greed. These two things are not
good advisers and they are not
the way to trade! As traders we
have to be rather impartial.
We have to accept that
there will be losses just as there will be wins in any
one's trading career!
Reaching
the stage where you can comfortably accept losses, and
knowing that you have a good trading system that will
also produce profits most times in the longer term is
the state we all have to aspire to.
When
you first hear the word fear, what comes into your mind?
Don't think, just feel, what did you feel? Was it
panic, irrational thoughts or responses? Running?
Hiding? Or no feeling at all?
Did you
feel any emotional energy attached to your feeling or
thought? The energy is very important. This energy is
what drives markets! It will make you do things that are
not always rational or in your best interest.
Fear and even greed are nothing without the energy that
makes them something! Markets are made up of energy, the
energy of traders. Since fear and greed cause traders to
trade, then what causes traders to win or lose
consistently? The answer, how traders respond to fear
and greed!
As traders we want to take advantage of other trader's
emotions such as fear and greed which have been present
in the markets from their beginning. Recognizing and
exploiting these emotions will always be a factor in
successful trading. In order to be a successful trader,
you must not fall prey to the very emotions you are
trying to exploit.
So how can we do this? By being able to see fear and
greed for what they are and not falling victim to the
emotional energy attached to these powerful emotions! If
you can spot times in the market where fear or greed are
creating irrational trades, then the key is to spot
which emotion, fear or greed is at work and then make it
work for you! Using "stops" helps traders exit
trades based on a plan of action and thus eliminates
exiting trades on emotions! Correct "Trade-Size" is
also important in helping to keep proper perspective in
the market and eliminating destructive emotional
responses to market behavior. As is trading with risk
capital, money you can afford to trade with and put at
risk. Do whatever you can to keep your trading rational!
Now the next question is, how can we tell what is fear
in the market place? And how can we tell what is greed
in the market place? Isn't one person's fear another
person's greed? In other words, when traders are
panicking out of a position, isn't the trader on the
other side of the trade greedily trying to profit from
this situation? The answer is yes, but the key is to
take the trade on the opposite side of the stronger of
the irrational energy. So if fear is creating more
irrational fear then traders who are looking for
opportunity, then you want to take trades opposite to
the fear based trades.
Finding the energy between greed and fear represents
opportunity! These are pressure points in the market.
Markets respond in the direction of the highest energy
responses of fear and greed.
Psychology
Training Tips
As we
already know there are two main issues that cause 99% of
the problems - Fear and Greed. These two emotions are
probably responsible for 99% of the world's problems
as well but that is beyond the scope of this course.
So, now that we know what the big obstacles are, let's
try and figure out how to overcome them. We can not
eliminate fear and greed for good. They will still be
there in your heart and mind, but we can make some rules
so that they do not interfere with your trading success.
We can come up with systems and procedures to follow,
since we know ahead of time that fear and greed are
major problems. sure You probably have heard already the
statistic that 95% of all speculative leveraged traders
fail. This is absolutely true. Here is another statistic
that we believe is true - 100% of traders that do not
know how to overcome fear and greed will fail. So does
that mean that if we can teach you how to overcome these
problems that your chance of success is 100%? Of course
not. But we can tell you that you cannot be successful
if you do not protect yourself from yourself.
The first thing you must do, whether you follow our
signals, another system, or your own system is to follow
the rules of the system without fail. If your system
calls for a certain entry point, do not enter until
there is a signal to enter.
Systems are designed for a reason. That is why it is
called a system. What do we learn from this? Patience.
Perhaps the worst thing you can do is enter a trade on a
hunch.
This brings us to our first fact:
The odds are in your favor before you enter a trade.
This is true for most trading systems.
Void of fear and greed, if you follow each system exactly, we feel that you may soon become a competitive trader.
This brings us to the biggest secret. Other than
omitting trading
psychology, other systems also do not tell you that
you are playing a game of odds. Let's say for example
that we are playing "coin toss." Theoretically, for
100 flips of the coin, 50 will come up heads, and 50
will come up tails. Of course, the first 100 may be
55/45, but the more you play, the closer to 50/50 the
numbers will get. Our system for "coin toss" is as
follows: We play for 20 hours, and flip the coin exactly
5 times each hour, and for every heads that comes up, we
get paid $2, and for every tails that comes up we pay
$1. This should be a profitable system. After our game
we see that heads came up 50 times and tails came up 50
times. So at the end of 100 tosses, we have paid $50 and
received $100. A profit of $50.
So let's say that during our second game of coin toss,
we decide that we are going to let the flipper (hint:
the market is the flipper) keep flipping the coin for an
hour while we take lunch but we are not going to pay or
be paid for those flips. During our lunch hour, heads
comes up 5 times in a row (which is theoretically
possible, and not that unlikely). And now we are back
from lunch, and we are down $10 for the hour. Now,
theoretically the odds of 5 tails in a row coming up
after 5 heads in a row are pretty good because for every
ten tosses, you should have about 5 heads and five
tails. So now we get 5 tails in a row and now we are
down another $5, for a total of $15. So not counting the
5 tosses during lunch, this leaves 90 tosses that we
still have to account for and let's say that they were
45 heads and 45 tails. Our profit for these tosses is
$45 (45x2 minus 45x1), now if we take away the $15 for
the tosses we did not take, and that string of losers,
we are left with a profit if $30. So lunch and 5 lousy
spins cost us 40% of our profits.
Now this is theory but it absolutely applies to this
market. If you are picky about what trades you want to
take and what trades you don't want to take, you are
messing with the odds. Our point is this: If the
conditions are met, take the trade without hesitation.
The odds are in your favor, but only if you take all of
the trades that meet the conditions. When we say all
trades we know the market is open 24 hours a day and you
can't possibly take every trade. You need to pick a
time frame and stick to that same time frame everyday
and take all trades during that time frame.
This brings us to:
FACT #2. You do not need to know what is going to happen
to make money. If we know that we are going to make $2
fifty times and pay $1 fifty times as long as we flip
the coin, are we going to play? Of course! Well, all
trading systems have similar odds. From testing, we know
that this system on average will produce 9 wins of 20
pips for every 1 loss of 40 pips (that number may vary
but that is the maximum loss). So we know ahead of time
that 9 wins at 20 pips is 180 pips, and minus the loss
of 40 pips, leaves us with 140 pips profit. Now keep in
mind that you may be 8 and 2 this week and 10 and 0 next
week. We never know when a loss is going to come. We may
even lose every trade for a week, but not lose a trade
for the next 9 weeks. You do not need to know exactly
what is going to happen,
you just need to take every trade that meets the conditions and then count your profits or losses at the end of the month/week/year etc.
This section deals with money
management as well as psychology. Back to
coin toss for a minute. We know that each win brings us
$2. And we know that for each win in this trading system
we get 20 pips. We know that each tail that comes up
costs us $1. And in our system we know that each loss is
40 pips. If we know what our loss is going to be ahead
of time, we know what it is going to cost us to find out
"what is going to happen." From this we can decide
how much we want to risk based on our account size.
FACT 3: You know how much it will cost to find out. We
have already suggested not to ever risk more than 5% of
you account on any one trade. So knowing that, we can
figure out how many lots to trade ahead of time based on
our account size. It may cost $250 in margin for a 1 lot
position but this is not what we are risking, we are
actually risking ten dollars times the number of pips in
our stop. If our stop is 40 pips, we are risking $400.
Now we know that we better have at least $8000 in our
account to take a position of this size. If this trade
turns out to be a loser, and our balance falls to $7600,
we know that we can't afford to take that trade again
because a loss of $400 is more than 5% of our balance.
We would need to adjust our number of lots down
accordingly to keep our risk <5%. We also don't
want to increase our lot size to try and make up for
that loss. Always reduce your risk if your account
balance falls. The next thing we do not want to do is
immediately increase our lot size after a winning trade.
It is better to trade at the same lot size for 15 or 30
days at a time before increasing lot size. This allows
the account to build steadily without large swings in
either direction.
FACT 4: There is a random distribution between wins and
losses for any given set of variables that define an
edge. Your trading system is your edge, but you never
know in what order your wins and losses will come. Be
prepared for this and accept the losses, knowing that
the odds are still in your favor.
This brings us to our final two facts.
FACT 5: Every moment in the market is unique. Yes we use
pattern recognition to define our edge but there are so
many variables in this market that it is impossible to
ever have the conditions exactly the same as any other
moment. You could play 100 games of coin toss and no
game will have the exact same order of wins and losses,
even though they may have similar outcomes.
FACT 6: Because of fact #5 we know that anything can
happen. This is why it is important to follow the trade
rules exactly and play the odds.
Every broker
& trading system has a disclaimer that says
basically "do not trade with money you can't afford
to lose." The best thing you can do when you open your
real money account is to mentally consider that money
gone. If you are not afraid to lose it, you will save a
lot of stress and your trading will improve. Only you
can determine what you can afford to lose, so just
don't put more in there than you are willing to lose.
If you start with less, it will just take a little
longer but once again you will save a ton of stress.
Trading Without Fear And Greed:
1. I Objectively identify your edges. You have a system
here that works, enough said.
2. I
Pre-define the risk of every trade. We covered that in
fact #3.
3. I completely accept the risk. Consider the money
gone.
4. I act on my edges without reservation or hesitation.
Follow the rules and take every trade that meets the
conditions.
5. I pay myself as the market makes money available.
Take your 20 pips and be happy, or trail your stop. Even
if you are compounding your account, pay yourself
something out of your profits each month. It will make
you feel better.
6. I continually monitor my susceptibility for making
errors. I read Mark Douglas' book monthly, and make up
sheets with my rules on them that I read daily. This
helps me to see plain as day when I make a mistake.
7. I understand the absolute necessity of these
principles, and therefore I never violate them.
Four Worst Things to Do:
The first worst thing you can do is to close a position
early because you think it is going to go against you.
Just because you have an edge over the market does not
mean that price will immediately shoot up or down to
your target. Price will move up and down and will even
probably move against you before it moves in your favor.
If you let fear of loss get you, you will lose money. If
the market is going to take you out, let the market take
you out by taking out your stop. That is why it is
there. The odds are still in your favor.
The second worst thing you can do is to close a position
early because you do not think (or you are afraid) that
it will not reach your target. If you don't play the
odds properly, you will not realize the full profit
potential. What if in our coin toss game we decided that
we were going to take our profit for a "heads" at $1
instead of the $2 that we were supposed to get paid? If
you remember, our profit was $50 for the first game. If
we had only taken $1 for each win, we broke even. That
is a lot of effort for nothing. Even worse, if we make
some mistakes along the way (we all know that we are
perfect traders right?) as we did in game number 2 where
our profit was $30, we can lose money by not taking
enough profit. Remember that we had a $15 loss for our
mistake and 90 spins remaining. If we had taken only $1
for each of our 45 winning spins we would have broke
even, minus the $15 puts us down $15 overall instead of
being up $30. The system is designed for a 20 pip
target, GO FOR IT.
The third worst thing you can do is to get greedy. Just taking 5 or 10 pips can be considered greed as well as
fear since you are so afraid of loss that you get greedy
for those 5 or 10 pips compared to the potential loss of
20-40 pips. Do not let it get you, follow the rules and
be happy with your 20 pips.
The fourth worst thing you can do is move your stop,
believing that the market will eventually go in your
favor. This is the fastest way to lose money. Yes the
market may go in your favor but it may move 300 pips the
other direction before it does, if it does. This could
take weeks or months and you have a limited account
balance. If 5% of your account is tied up waiting this
position out, guess what. You are missing 20 other
opportunities to make money instead of just sitting
there waiting, down a hundred pips while you miss the
opportunity to make 20 trades for 20 pips each. Maybe
you break even, when you could be up 400 pips.
The Best Thing You Can Do:
Once you place your trade, and place your stop and
limit, TURN YOUR COMPUTER OFF and go do something else.
You are now in automatic mode, and the market will take
you out, either for a profit or for a loss. This is the
best way to eliminate the temptation to succumb to FEAR
or GREED and do something stupid.
The rest is up to you. Only you can decide whether or
not to follow the rules and believe in the facts. This
lesson is the most important to your success and we hope
you will not take it lightly. If you are trading and
following the rules of your system, and not making
money, you need to take a look in the mirror. It is not
the system that is the problem, it is you. Do not give
up, because you can be successful if you just work
through and figure out the problem.
Psycho-Cybernetics:
Psycho-cybernetics
is a science that is dedicated to human development
problems - it is a system of knowledge that allows a
person to make accurate, predictable changes in how
he/she thinks and feels, does in his/her life, and the
amount of success and enjoyment he/she experience
throughout the life. Psycho-cybernetics (PC) advanced
human development out of the realm of hoping and wishing
techniques into the realm of predictable, positive
results.
There
is no wishing or hoping in PC. Psycho-Cybernetics is
based purely on science that give us the knowledge of
how human brain and nervous system work together to
produce thinking, attitude and behavior. The main
principles of PC were tested many times in different
laboratories by different scientists throughout the
world. Psycho-Cybernetics showed extremely positive
results and produced millions success examples.
PC
works at a fundamental level of our human nature and the
changes it produces effect all areas of our life. PC has
many uses for improving life beyond the trading. The
more you learn how to master PC, the more you can expect
to:
- Build a strong, positive self-image
that expresses the real you in the best way.
- Set clear goals and achieve them
predictably.
- Stop seeing your mistakes as
failures and actually learn to use your mistakes as
valuable feedback that takes you to achieving your
goals.
- Be more productive and successful
financially and in your career.
- Forgive others and yourself and wash
away resentment that take the joy out of your life.
- Learn how to relax and stay relaxed.
- Learn how to deal with anger, even
how to use it creatively
- Learn how to think more clearly
- Feel good about your life and
yourself all the time.
- Learn how to improve your
relationships with everyone in your life
- Feel a sense of overall
satisfaction, fulfillment, and peace as you are
bringing out the best of yourself each day.
Of
course, these changes will not happen overnight. It will
take some time to master the new ways of thinking and
acting. When it will become automatic then you will see
some results but for sure you will begin to experience
positive results almost right a way.
The
term "cybernetics" comes from a Greek word, which
means "helmsman, a person who steers a ship to
port". The science of cybernetics studies automatic
guidance system like those that enable a guided missile
to find its target, a computer to solve complex
problems, or robots to do complicated sequences of tasks
automatically.
The
science of cybernetics gives us a very effective way to
look at the human brain and nervous system. Our
subconscious mind is actually a goal-seeking
servo-mechanism, in other words an automatic human
guidance system. PC is the science of this human
guidance system.
Now
let us take a look at some of the main points of PC.
Our
Mistakes are Important
All
automatic guidance systems reach their goals by
constantly correcting mistakes. The same is true for the
human servo-mechanism. It is unfortunate that so many of
us interpret mistakes as a failure and suffer feelings
of frustration and discouragement when actually the
mistakes we make are exactly the information that our
servo-mechanism needs to make the necessary corrections
to take us to our goal. What we call "mistakes" are
actually valuable lessons for success. An important part
of PC is learning to use mistakes creatively and to
remove the negative feeling that mistakes cause.
Self-Image
Our
servo-mechanism is programmed by our self-image. Our
self-image is our mental blueprint or mental picture of
ourselves. This self-image is our concept of the kind of
person we are. It is constructed of our beliefs about
us; those beliefs were unconsciously formed by our past
experiences. Once an idea or a belief about ourselves
becomes part of this self-image, we accept it as being
true. Our self-image determines our thinking, our
feelings, our actions, even what we think we are capable
of doing. It controls the amount of success, excitement
and satisfaction we have.
Self-image
explains why positive thinking is so undependable. It
explains why willpower is so ineffective and difficult
to maintain. Because all the willpower and positive
thinking in the world cannot produce changes and success
if they do not match our self-image.
Imagination
- our most important tool for changes
When
we were building our self-image from the vivid and
detailed mental pictures and feelings we experienced
connections with the events of our life, especially
childhood. We will be using the same powerful tool, our
creative imagination, to construct the kind of
self-image that expresses the best of us. We will use imagination for creating images and feelings of
success, satisfaction, accomplishments and strength and
with these new positive images we will re-program our
servo-mechanism so that it begins to produce results in
accordance with our new self-image.
This
process, of course, will take time, but soon the new
programming will begin to take over. You will feel
yourself beginning to think, to feel and to act in
accordance with your new successful image of yourself.
At the end, this new self-image will become your second
nature, completely natural and spontaneous and it will
bring you success, satisfaction and joy you were looking
for.
Basic
Techniques of PC:
Mental Pictures
Most
of the successful people have, since the beginning of
the time, used "mental pictures" and "rehearsal
practice" to achieve success. Napoleon, for example,
"practiced" soldering in his imagination, for many
years, before he actually went on the battlefields.
Conrad Hilton, the famous owner of the Hilton Hotel
chain, saw himself owning and operating hotels in his
imagination many years before he bought his first hotel.
A
famous basketball coach once said, "there is no way to
put the ball in the basket when the pressure is on, if
you cannot see the ball going in the hoop clearly in
your imagination first".
We
think that the same applies to the trading in Forex. If
you cannot clearly see yourself in your imagination as a
successful trader, there is no way you can be one. Most
successful traders have been picturing themselves as
successful for many years.
If
we constantly give our servo-mechanism (remember, our
goal-seeking machine) clear, vivid pictures of the goals
we are trying to achieve, our subconscious will quite
automatically do the necessary things to help us achieve
those goals.
You
can imagine yourself any way you want in the future,
success or failure. It is all up to you. But all too
often, people are not willing to exercise this control.
They allow their imagination to destroy their potential
by picturing situations in the pas in which they have
failed. We all carry mental scrapbooks, but instead of
preserving the joyous occasions of life, the moments of
accomplishments, some people save only their times of
failure and frustration. But it is so easy to take
control over their imagination. All you have to remember
is that your brain has a hard time distinguishing
between real and imagined experiences, if they are
vividly enough imagined.
If
we picture ourselves functioning in specific situations
clearly and vividly, it is the same as the actual
performance. Mental practice can help you perform better
in real life. The picture you have of yourself will also
determine whether or
not you can be successful in trading. In other words, if
you have a clear picture of yourself as a successful
trader, that will go much farther than you can imagine
in getting you to become and remain successful,
profitable trader. You will need to learn how to see
that clear picture in your mind. It is the only way to
success.
Understanding the
success mechanisms and the failure mechanism
We
now know that our servo-mechanism works like an
electronic computer to help us reach our goals. But the
servo-mechanism can either be a success mechanism or a
failure mechanism. When it is working as a success
mechanism, it is helping us to reach the goals we want.
As you already know, we use our creative imagination to
vividly picture these goals and our success mechanism
helps us to accomplish these goals.
On
the other hand, if we vividly picture the things we are
trying to escape, the troubles we are having and in
general, our worries, then it only makes sense that we
will receive more of the same negative things in our
life. Our servo-mechanism is completely impartial. It
takes what we vividly picture and works extremely hard
to make those pictures come true.
Here
are basic principles by which your success mechanism
operates:
- Your built-in success mechanism must
have a goal. This goal must be conceived of as
"already in existence now" either in actual or
potential form. It operates by either steering you
to a goal already in existence or by discovering
something already in existence.
- The automatic mechanism is
teleological, that is, operates or must be oriented
to "end results" goals. Do not be discouraged
because the "means whereby" may not be apparent.
It is the function of the automatic mechanism to
supply the "means whereby" when you supply the
goal. Think in terms of the end results and the
means whereby will often take care of themselves.
- Do no be afraid of making mistakes
or temporary failures. All servo-mechanisms achieve
a goal by negative feedback or by going forward,
making mistakes and immediately correcting course.
- Skill learning of any kind is
accomplished by trial and error, mentally correcting
aim after and error, until a "successful"
motion, movement or performance has been achieved.
After that, further learning and continues success
is accomplished by forgetting the past errors and
remembering the successful response so that is can
be "imitates".
You
must learn to trust your creative mechanism to do its
work and not "jam it" by becoming too concerned or
too anxious as to where it will work or not, or by
attempting to force it by too much conscious effort. You
must let it work, rather than make it work.
Forgiveness
One
of the biggest problems with the traders is that they
refuse to forgive themselves for trading mistakes. This
causes a much bigger problem than most people think.
When you make a trading mistake you need to learn to
forgive yourself for making that mistake.
Forgiveness
is a key concept in Psycho-Cybernetics. We already know
that if we continually picture in vivid detail
something, it causes that picture to come true for us.
Or it at least makes it much more likely for it to come
true. So it only makes sense that if we make a mistake,
we must forget that mistake and forgive ourselves
completely. If, on the other hand, we do not forgive
ourselves and relive the mistake in our minds again and
again, what do you think will happen?
It
is obvious that we will repeat that mistake again. This
happens because our subconscious does not care whether
we give it good or bad information, it simply sees the
clear pictures we give it and tries to act it our in our
lives. Obviously, it can only act this picture out if it
is within our capabilities. And we all know that making
trading mistakes is within our capabilities.
This
is the reason it is so important to forgive ourselves
when we make a mistake. If we do not, we are likely to
relive the mistake in our minds and then most likely
project it onto our trading. This will cause huge
problems. Not forgiving yourself, no matter what the
mistake is, will bring out the worst emotions. Remorse,
regret, self-doubt, and guilt all come with not
forgiving ourselves for a past mistake.
One
of the biggest reasons people get into losing streaks
while trading is because they confuse their losing
trades with themselves. In other words, we conclude that
because we has a losing trade or a series of losing
trade, we are a losing traders.
But we have to understand and remember that we
are not our losing trades. Losing trades are part of
trading. There is not a single trader in the world that
has not lost any trades. The only way to avoid them is
not to trade at all. You cannot be a successful trader
until you take mistakes and losing trades for what they
really are. They are simply by-products in the trading
game and need to be used to gain learning and
understanding but in no way do they define us as a
person.
Forgiving
yourself completely is the only way to avoid this
trouble. You are not your mistakes and losing trades.
You must put the past behind you and go forward. Holding
a grudge against yourself only hurts yourself. Forgive
yourself; it is the only way to be successful.
Using
Visualization Technique to Improve Yourself
Some
of you might think that PC and visualization techniques
are some kind of voodoo magic or witchcraft. When doing
these exercises for the first time, you may feel a
little awkward. Do not let that deter you. Anything new
usually feels a little awkward at first, but with time
and practice, obviously it will get much easier.
The
mind's eye - is a key term in using visualization
techniques. This is where you do your visualizing. It is
very much like when you read a book or someone tells you
a story. You do not just listen to the words; you see
the pictures in your mind's eye using your
imagination.
As
adults, most of us let our imagination skills
deteriorate. Thus it takes time to re-learn these skills
and get benefits from them. Most peoples, when they see
things in their mind's eye, they do not see them as
clearly as they probably could. Remember, we said before
that the mind cannot tell the difference between an
imagined experience and an actual one as long as the
images are vividly imagined? Well, the problem is most
people do not see the pictures clearly enough. Through
time, their imagination have not been used enough to
stay sharp and focused. So you will have to strengthen
your imagination so what you can see mental pictures
extremely clearly in your mind's eye.
The
key to using your mind's eye is to change your
self-image. As we talked about earlier, the self-image
is the picture you have of yourself. The self-image is
also the product of your past experience, failure,
success, humiliations and other programming. From these
experiences, you create a picture of yourself.
So,
for example, if you had bad experience in trading and
after a while you lost confidence to pull the trigger
when you see a trading opportunity. Most likely your
self-image is that of a person who cannot pull the
trigger.
Important
thing to remember here is using visualization techniques
on a daily basis can change your self-image to the kind
of person you want to be. It does not matter how others
see you, what is most important is how you see yourself.
If you image is that of a failure, you will act as if
you are a failure.
Children
as young as 8 years old, as well as senior citizens,
have all benefited from the use of PC and the
visualization techniques. Professional athletes,
salesmen, traders and people from many other backgrounds
have successfully used it to improve their concentration
and performance. There is no reason for your to think
you cannot do the same thing. We have a choice of either
using our success mechanism (by seeing positive, helpful
pictures) or using our failure mechanism (by seeing
negative images of the past). The choice is yours. If we
start to trade with negative feelings, we will fail
before we even start. On the other hand, if we start to
trade with positive feeling, that will go a long way to
us succeeding.
Here
are some rules to remember when using visualization
techniques to improve your self-image:
- You must be in a relaxed state when
going into the theater of your mind (mind's eye).
- You must pay close attention to the
detail of you mental pictures.
- You must act as if you are already
the kind of person you want to be.
- You should go into the theater of
your mind at least once a day, and preferably it
should be the same time each day.
Relaxation
technique Calm Body - Calm Mind
It
is very beneficial to be physically and mentally relaxed
before doing the visualization exercise. Here is a
simple technique to use in the theater of your mind
(mind's eye) to bring relaxation.
- Sit down in a comfortable chair or
lie on a bed. There should be no other distractions.
Go into the theater of your mind. See yourself in a
comfortable theater getting ready to watch a movie
about you.
- Again remember to pay attention to
details. What is you theater like? How does the seat
feel? Is the screen big or small? Are you sitting in
the middle row on at the aisle? Are there arm rests
on the chair? How do you will on your arms? The
details are very important.
- Lie down and imagine your body's a
series or rubber balloons. There are two valves in
your feet. They open and air escapes from your legs.
Your legs collapse until they are empty and lie flat
against the bed. Do the same for the rest of your
body parts. You do not have to do this in bed. If
you are in the office, try to fix a picture of
yourself in your mind' eye of yourself lying in
bed doing the exercise. You will actually feel the
relief from being relaxed. Physical relaxation leads
to mental relaxation. When practiced daily, it gives
us that relaxed attitude which allows us to better
control our actions.
Each
time you practice this technique, when your body and
mind feeling completely relaxed, be sure to say yourself
mentally - calm body, calm mind. This deepens the
programming of your servo-mechanism. As
you practice this technique and master it with a time,
then all you would need to relax is say to yourself -
calm body, calm mind.
Goal
Setting Exercise
Goal
setting is very important to being successful in your
trading. If you do not have daily, weekly, monthly goals
for your trading, it will be very difficult for you to
visualize your success. This exercise will teach your
how to visualize you reaching set goal of making certain
amount of money each day.
Get
in relaxed state with the relaxation technique "Calm
Body, Calm Mind"
- Go into the theater in your mind.
Remember to make the theater as comfortable as
possible and picture as many details as possible.
- With this exercise, we are going to
visualize ourselves at the end of the trading day
having reached our goal. Remember, it is very
important for our goal to be realistic and
measurable.
- The first thing we want to visualize
are day what we have been successful in our trading.
We want to remember those days where we have been
able to make our goal. Recall everything in details.
- If you never had a successful trade
that is fine. You can simply make up an experience
in your mind's eye when you were successful. See
yourself getting out of your winning trades
successfully.
- Now we want to move to the next
scene in our theater of the mind. We want to see
ourselves reaching our goal, for example of $150
each day. One of the keys of successful
visualization is to see the end results and let the
success mechanism do the work for your.
- After you have seen in your mind's
eye, reaching your goal each day for a week, then go
back and see your successful trades again, or at
least successful experiences from the past. This
will build confidence and help you get used to the
visualization process.
- This goal setting exercise is very
important. First, without having clear-cut goal, it
is impossible to succeed in trading. There is not a
successful trader who does not have set clear goals
for himself. Second, having these goals will help
you program your success mechanism for the other
visualization exercises.
- Remember to do these exercises for
at least 30 minutes a day. It is also helpful to try
and do them at the same time each day. And finally,
you must be relaxed for those exercises to be
effective.
Statement
Equity Increase
This
is a visualization exercise that is extremely effective.
The idea here is to visualize the equity in your account
continually rising. This is very simple exercise and
should be done on daily basis.
- Get in relaxed state with relaxation
technique "Calm Body, Calm Mind"
- You will want to visualize how your
trading statement looks in your mind's eye. The
best way to do this is to actually look at your
trading statement and then be able to see it in your
mind's eye.
- If you receive an actual hard copy
statement, notice how the paper feels in your hand.
See your name and account number. See the brokerage
company's name, etc. Do the same details
visualization for your electronic copy.
- Now take your daily goal, let's
say of $250. We want to visualize our daily goal
being added to the previous day's statement. Make
sure your calculations are real and correct.
- But it is not enough just to see the
increase in equity. We must see more details for it
to feel real to us. We need to see the trades that
made $250 in profits. So, while your looking at your
statement in your mind's eye, you must also see
the trades that made you the $250.
- These trades can be made up or can
be trades that you have had in the past. In fact,
what will work best is if you have had actual days
where you have made your goals and use those days as
your mental practice.
- If you have not had any winning days
that is fine. Just use a time in your life when you
were successful at something and clearly remember
that right before your change the scene to your
trading statement. Then just make up the
trades.
This
psychology exercise is best in morning when
market opens. You need to see yourself reaching your
goals as clearly as possible. After doing this for a
while, it will help your powerful subconscious to reach
your goals. Believe it or now, doing this exercise will
help you avoid making trading mistakes because your mind
will be clearly focused on your goals. Thus, if you are
about to make a trading mistake, you subconscious will
override your thought process and help you avoid the
mistake in the first place. It will only work if you
practice it enough and can clearly see the pictures in
your minds' eye. It will not happen overnight but it
will happen with daily practice.
Pulling
the Trigger
There
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