Innerworth - Mind over markets newsletters



Long time ago, there was a website called inneworth which used to publish newsletters dedicated to trading psychology. They stopped the newsletters in 2007. I just logged into my old email ID and saw that I have a a couple of hundred of those newsletters. I will share them here. It is like a gold mine, hopefully all of you will enjoy and benefit out of it.


Bracket order executed but OPEN position not visible
What are you reading this weekend - June 9th?
How to motivate yourself after a downfall, please tell a way that's very much applicable to real life too. Thanx

May 4th 2005

Increasing Mental Capacity

Trading can be a complex activity. A broad range of information must be studied and integrated. Not only do you need to keep up on possible news and factors that may impact the market action, you have to look at indicators, such as price and volume, in order to anticipate where the market will move next. And it isn’t easy to identify chart patterns. It can be a lot like putting structure onto an amorphous pattern of lines. If only we had more computing power…we could process all the information we needed to trade more efficiently. Unfortunately, the mind has limits. And you have to work around them.

The mind is like a computer. We store memories in the hard drive, while our ongoing experience is processed by the CPU and stored in RAM. The amount of attention you can devote to a particular task is restricted. You can only attend to and process a limited amount information and when you move beyond the limit, the information is not processed. Have you ever noticed that it is possible to read a telephone number and remember it for only a short time? When you are distracted, the information is lost. Unless you memorize the information, it is lost.
How can mere humans increase the mental capacity of our minds? It isn’t easy. You cannot just add extra RAM or a faster CPU. What we can do instead is “over learn” some of the tasks we do while trading. It is similar to how people learn to drive a car. At first, one must focus attention on each driving task separately in a deliberate focused manner. But, over time, one can monitor speed, look for road hazards, and engage in several tasks automatically, and still be able to do other things, such as talk with a friend or insert a CD into the car stereo. You may have noticed that trading tasks can be “over-learned” in much the same way. For example, you probably have noticed that over time, you can identify signals that precede a breakout almost automatically. With practice, a lot of steps that you once had to perform in a deliberate and tedious manner can now be completed will little effort. Many times, “intuitive” decisions merely seem as if they are a “gut instinct,” but may in fact be based on a several valid and reliable inputs and signals that were processed automatically. The more you spend time practicing new skills, the easier it will be to do multiple tasks.
Active trading requires increased mental capacity. But your IQ doesn’t need to break the bank. You can increase your mental capacity through practice. The more you study market conditions and develop an intuitive feel for the markets, the more you can do multiple tasks simultaneously. You’ll find you will increase your mental capacity and trade more profitably.

Regarding losses

May 5th 2005

Don’t Let a Setback Get You Down

If you want to become a winning trader, you must be willing to face loss after loss without letting it get you down. Upon facing a loss, our first inclination is to feel disappointed, but how you react emotionally is merely a matter of how you look at matters. If you go in with unrealistically high hopes, you’ll feel devastated when you encounter a setback. If you expect a setback here and there, however, you’ll feel at ease and ready to bounce back quickly when you’re knocked down. Babe Ruth struck out over 1000 times on his way to setting the homerun record. A top-notch salesperson may make a sale on only one out of ten cold calls. And a winning trader can come out ahead even if the majority of trades executed are losers. It’s daunting to think about it, but you may see many more failures than successes on your way to becoming a seasoned, master trader.

Seasoned traders know how to take losses and setbacks in stride. They don’t mull over past defeats, or trading losses. They see a setback as an opportunity to hone their skills, grow, and improve. They examine what they did wrong, learn from their mistakes, and view a temporary setback as a launch pad from which to achieve higher future performance. With proper risk management, you can win as few as four trades out of a dozen and still come out ahead. Rather than getting bogged down with self-doubt, regret, and defeat, winning traders use a “loss” as a motivator for change and improvement.
How can you afford to take loss after loss and be happy about it? It isn’t easy. Obviously, if you are losing big over and over again, you’ll blow out quickly, and every loss will make you feel even more discouraged and beaten. To feel safe and at ease, you must believe that you can survive the learning curve. Risk management is vital for your survival. Limit your risk on any single trade. In addition, trade selectively. Only take setups where you can potentially make a large profit with relatively little risk. That’s still not enough, however. If you don’t improve, you’ll still end up in the red. You must feel that your skills are in constant flux in order to take losses in stride.
Market conditions and your mood can impact your trading performance. If you trade in market conditions where you have trouble making a profit, you’ll feel stressed out and you will likely choke under the pressure. It’s better to trade under conditions where you are comfortable most of the time. Your first priority should be on making enough winning trades to profit overall. Even then, you’ll still see more losing trades than winners. But once you feel secure that you can make profits, you’ll be able to explore new territory with little fear. Once you know that you have a basic set of skills, you’ll be able to take losses in stride. So when you feel beaten, focus on the big picture. As long as you manage risk and continue to improve your skills, you’ll eventually master the markets. In the context of the big picture, the losses here and there are just part of the learning experience. As long as you achieve profitability in the end, occasional losses are nothing to worry about.


June 1st 2005

Appreciating the Moment

Have you ever lost yourself in a trade? You focus intensely on your screen and wait for the ideal time to enter. You’re fully attentive as you continue to watch your screen as the price creeps up to your profit objective. All your attention is channeled on your ongoing experience. Without even thinking, you exit according to your trading plan. It’s as if you are in a meditative trance. There are times when everything just seems to click. Many trading experts, such as Mark Douglas and Dr. Ari Kiev, call it “trading in the zone.”

Trading in the zone is a peak performance mental state. It happens when you engage in a task that requires your full attention and skill. The task isn’t so hard that you feel anxious about it, but it also isn’t so easy that you’re bored. There are times when every trader enters this peak performance mindset. How do you get there? For one thing, you need to feel calm and relaxed.

Existential philosophers noted long ago that people experience fear and anxiety when they think about, and regret, past mistakes, or when they worry about an uncertain future. James Dines makes a similar observation about trading. In his book “Mass Psychology,” Dines observes, “anxiety results from spending too much time in the future.” “Spending too much time in the future is punished by anxiety, while getting stuck in the past is punished with regrets,” according to Dines.

How do you stay in the moment? It’s important to focus your attention on your current experience, rather than self-consciously mulling over the past or worrying about the future. Focus on the process of living in the here-and-now. Dines suggests, “taking it one day at a time.” Scott Shellady, a seasoned trader on the CME, similarly suggests compartmentalizing each trade.

By taking each trade one trade at a time, you’ll feel more relaxed, and are more likely to enter the zone. In other words, don’t worry about past losing trades or future profits. All your attention and energy should be focused on the current trade. When you’re in this optimal state, you will trust your instincts. You will see the markets more clearly and objectively. You will be intensely aware of your feelings, sensibilities, and judgments. You’ll be in tune with the market action. You’ll be able to effortlessly review a multitude of details. Key factors that are driving the market action at the moment will come to mind with ease. When you enter the zone, you’ll significantly increase your chances of success.

It isn’t possible to always trade in the zone, but when you do, it is a peak experience. At that point, you’ll reach a state of bliss. So increase your odds of trading in the zone. Appreciate the process of trading. Don’t focus on the prize. Don’t worry about past mistakes, and avoid worrying about the future until it happens. By appreciating an ongoing trade moment by moment, you’ll not only have more fun, you’ll end up more profitable in the long run.


Why not just give access to your mail? Just kidding keep them coming.


June 6th 2005

Cutting Emotional Strings That Bind Losses to Ego

If you’re like most traders, you’ve worked long and hard to build up trading capital. Putting it on the line, even small amounts at a time, can be difficult. But losses are commonplace in trading, and to maintain your sanity, it’s necessary to take losses in stride.

Many traders blow losses out of proportion. In “The Mind of the Markets,” F. J. Chu (1999) notes, "The very common phenomenon of personalizing profits and losses often proves disastrous. The linking of ego or self-worth with profitable and unprofitable decisions transforms what should be a dispassionate financial decision into an emotional decision."
It may be difficult, but the professional trader learns how to take losses nonchalantly. In his Innerworth Master Interview, Dan described how he reacted to a big loss professionally and objectively: “One time I lost virtually everything in one or two days, and a good friend of mine came over. I think I lost four or five hundred thousand dollars or something like that. I told him, ‘It’s only cash. It’s not my life that I lost. I can get it back. It’s not the end of the world.’ When I lose, I’m not losing my house, my car, my credit cards, or my friends. I made a mistake. I’m angry that I made a mistake, but the cash has nothing to do with it.” It’s important for traders to put losses in perspective.
It’s also important to avoid elevating the importance of money. In “Reminiscences of a Stock Operator,” Larry Livingstone observed that when he set his lifestyle standards too high, he often mounted big losses shortly thereafter. Seasoned traders at the CME have observed that when a trader buys a flashy new sports car, he or she usually ends up cracking under the strain of having to maintain a lifestyle of luxury. In his Master Interview, Dan suggests taking a frugal approach to financial possessions: "I divorced myself from material items a good 20 years ago. By the time I was 25, I had no desires for material items. I’ve learned over the years that money is only a substitute for love. Material things, like cars and homes, are just substitutes as well. It just became clearer with self-exploration. In getting clearer, I divorced myself from the emotions of the stocks, the emotions associated with money and greed. Money just doesn’t buy you happiness."
When you make a trade, put your money on the line, not your ego. It’s hard to fight against the natural human reaction to feel personally hurt when you lose money, but professional traders do it, and so can you. One way to take losses in stride is to trade only with money you can afford to lose, not money you need for basic living expenses. If the loss truly means little to you, you will know you can survive the loss, and this knowledge will allow you to stay calm. But if you just can’t afford to lose, you’ll have trouble convincing yourself that it doesn’t matter. It does, and you know it. Losses shouldn’t hurt. If you control your risk, you can handle losses more easily. If you minimize the amount you risk on any single trade, it won’t hurt your account balance very much. Finally, don’t take losses personally. View a trade as a business transaction. It’s not about you or your self worth. You have self-worth no matter how much you win or lose in the markets. If you remember this fact, you’ll be able to take losses in stride.


June 7th 2005

Decisive and Responsible Trading

To those who want to take home big profits, trading isn’t a hobby. It’s serious business. If you want to make profits consistently, you must have respect for your trade. You must treat each trade like a business transaction. It should be well planned and deliberate. You should follow a business plan, which outlines a strong rationale for making the trade. You should have a realistic profit objective, and execute the trade with a strong resolution to make a profit.

Many novice traders don’t approach trading seriously enough, however. They don’t carefully delineate a trading plan, and when they do, they don’t follow it. In the “The Disciplined Trader,” Mark Douglas observes, “The typical trader will do most anything to avoid creating definition and rules because he does not want to take responsibility for the results of his trading.” According to Mark Douglas, traders have a strong motive to avoid responsibility. And one of the most effective ways to avoid responsibility is to pretend that trading is nothing more than a leisure activity.

By taking trading lightly, you can always say, “It wasn’t important anyway; there’s no reason to worry about it,” whenever things don’t go your way. On the one hand, approaching trading as if it were just a hobby will allow you to minimize the psychological importance of a setback or a loss, but on the other hand, unless you take trading seriously, you’ll never give trading your best shot, and you’ll never make the huge profits you’ve been dreaming of. You’ll always have a way out, and it will be too easy to make excuses for things going wrong.

Making excuses may make you feel good in the short term, but eventually, you’ll start to realize that you are taking the easy way out. And the more excuses you make, the less decisive you will feel.
If you want to make profits, you must feel you are in control of your actions. Taking a decisive approach to trading requires that you take responsibility for all your actions. That doesn’t mean beating yourself up for making a mistake, but it does mean trying to gain as much control of your trading as possible.

You can’t control the markets, and you can’t control what other market participants will do, but there’s a great deal that you can control. You can manage your risk. You can carefully measure your trading performance, and discover what works and what does not. You can decide which setups to take and which setups to avoid, and you can decide to trade only under market conditions that are conducive to your methods and style. The astute trader distinguishes what he or she can control and what he or she cannot control.

Winning traders take responsibility for their actions. When you identify what you can control, and take responsibility for it, you feel empowered. You feel in control, and you are ready to act decisively. And when you feel in control, you’ll enter a winning state of mind. You’ll feel relaxed and alert, and ready to see opportunities and profit from them.


June 8th 2005

Visualizing the Worst Case Scenario

Visualization is a powerful tool used by professional athletes and traders alike. A runner, for example, will not only run around the track for hours at a time, but also visualize an upcoming race over and over, anticipating what might go wrong and how to recover from an unanticipated setback quickly. Visualization can prepare you mentally to handle the stresses and strains of the trading day.

Trading is physical as well as mental. When you’re in the midst of a trade, for example, your adrenaline is pumping as you wait for a stock to reach your exit point. It’s useful to prepare mentally and physically for the trade.

Trading can be stressful. After you execute a trade, you don’t know what is going to happen until it happens. You’ve probably been in many stressful situations in your life, such as asking someone out on a first date or a stressful job interview. Running through possible scenarios over and over in your mind is helpful.

You can anticipate what might go wrong and how you will deal with it. When you were younger, for instance, you may have found it useful to think of what you might say if you asked someone out on a date and were told to call back another time. Avoiding the possibility, and not having a plan for dealing with the setback, before making the call will put you on edge. On the other hand, if you have a plan for dealing with the setback graciously, you’ll feel better, and when you do face the setback, you’ll handle it with ease.

That said, some people like the excitement of not being fully prepared. They wouldn’t think of anticipating what to say, but if you were prudent, you would agree that it is better to plan ahead instead of being caught off guard without a plan.

Trading plans are essential for disciplined trading, but many novice traders have trouble following their trading plan. The pressure can get to them and they abandon their plan prematurely. But visualization can help. By running through different scenarios over and over in your head, you can anticipate what may go wrong and pretend that you will handle the setback with grace and decisiveness, instead of panic and indecision.

How might you use visualization? Close your eyes and imagine executing your trade. Observe the thoughts that go through your mind. Imagine trying to stay objective and unemotional. (This is the ideal thinking strategy. You might also imagine thinking optimistically, but this can produce feelings of disappointment should the markets move against you.) Next, imagine the worst-case scenario: the price goes down and reaches the point where you planned to exit and take a loss. Imagine how it feels to lose. What thoughts are going through your mind? Depending on your experience, you may tend to feel anxious and afraid, but ideally, you should remain calm, and ready to exit the trade effortlessly.

The key to using visualization is to mentally experience a variety of scenarios. Run through the ideal scenario and the dreaded scenario. For example, you might want to mentally practice the worst-case scenario where you go through the entire situation calmly and according to plan, but also mentally practice variations, such as feeling a sense of panic when the price moves against you. After the initial feeling of anxiety, you can imagine telling yourself to calm down, feeling soothed, and exiting the trade decisively.

You don’t know what’s going to happen with a trade until it happens, but by using visualization exercises, you can anticipate various scenarios and be prepared. Visualization can help you handle any trading situation like a seasoned professional.


June 9th 2005

Slowly Building Up True Self-Confidence

Overconfidence is a curse for the novice trader. When people first start trading, they want to do nothing more than win. And in their quest for profits, they may take unnecessary chances and pay the price for it. But you can’t become a winning trader over night. It takes time and practice. In his book, “The Way of the Dollar,” John Percival observes that inner confidence is “partly an inherent state of mind and partly the result of long experience of seeing the rules working.” Percival warns, however, "no one but a fool is convinced they can win just by playing.

You win by doing your homework better, following the rules more closely, and acting more consistently than other players." True confidence is the result of practice and experience. You must make trade after trade in a variety of market conditions until you genuinely know that you can handle anything the market throws at you.

Rather than take a fast paced, rushed approach to learning to trade, there is virtue in taking it slow when you first start out. Be patient. It may be necessary at first to build up a sense of confidence with a few key strategies. Psychologists refer to this process as building up self-efficacy beliefs. Self-efficacy is different from self-esteem. Self-esteem is a personality trait that develops over time, and may be the result of early childhood experiences. But low self-esteem can be conquered in the short term. For example, a person can have low self-esteem yet believe that he or she can perform a specific task under a specific set of circumstances with a feeling of self-efficacy.

A novice trader, for example, may believe that he or she is an average trader but when trading a particular trading strategy under specific market conditions, he or she may trade like a market wizard. For example, suppose you know you can trade in a bull market using just a few key signals, and you know this strategy works best during the middle of the trading day. If you stick with this strategy and use it only under ideal conditions, there’s a good chance that you’ll achieve success and feel good about the progress you are making. The more winning trades you make, the more your self-efficacy beliefs will increase. Once you build up some basic skills and a sense of self-efficacy, you’ll have the courage and confidence to try new trading strategies under novel market conditions, and your trading skills will continue to improve.

Research on self-efficacy has shown that when people believe they have self-efficacy regarding a specific set of skills, they set challenging goals, show unfailing persistence, experience pleasant moods, and can easily handle stress. These characteristics are conducive to profitable trading.

Anything you can do to increase self-efficacy will help you master the markets and achieve long term profitability. The two most obvious ways to increase self-efficacy are to start off trading with methods you have mastered so that you meet with initial success and increase your feelings of efficacy, and to practice and gain experience as a trader. The more success you achieve, the greater your self-efficacy, and the more likely you’ll be able to trade in a greater variety of market conditions and persist until you achieve enduring profitability. So build up your sense of self-efficacy and you’ll trade more profitably.


June 10th 2005

The Independent Minded Trader

Market action is driven by fear and greed. Masses of market participants follow each other to their doom. It’s a fact. If it weren’t true, winning traders couldn’t take advantage of herd instincts and take home huge profits. As a trader, you must make a key decision: Do you follow the crowd or do you go your own way?

Following the crowd isn’t always bad. In the strong bull market of the late 1990s, the market went virtually straight up, as if resistance were a hypothetical construct of a bygone era. But these days, we aren’t so lucky. One month the market is bullish; the next month it is bearish. If you followed the crowd, you would end up selling when there were no buyers and mounting big losses.

It’s vital to anticipate what the crowd will do, and sell relatively early, on strength, when there are plenty of buyers. It’s counterintuitive, but necessary.
Going against the crowd isn’t easy. We have a human, adaptive tendency to follow the crowd. Following the crowd usually keeps us safe, like fish that swim in schools for protection. The old adage, there’s safety in numbers, is true most of the time. But traders would do better to act like rugged individualists.

Rugged individualists aren’t always popular, though, and may get into trouble. Consider the plight of Hayden Roark, the protagonist in Ayn Rand’s novel, “The Fountainhead.” Howard Roark is a creative, innovative architect who shuns the classical style that is popular among his colleagues so he could design modern structures that fully reflect his creativity. Ignored by the mainstream, he can find no clients, and must support his craft by working as a laborer in a quarry or designing modest projects, such as family homes, gas stations, and small office buildings. But he doesn’t mind. He isn’t driven by money, fame, or recognition.

He is motivated solely by a powerful need to express his artistic vision. He works his craft to satisfy himself and no one else. For him, designing buildings has nothing to do with raising his status in the eyes of his peers. He does it solely for artistic expression. It’s either his own way, on his own terms, or nothing. He would rather turn down a job than let a client change his design. Indeed, Hayden Roark takes individualism a bit too far. When a change is made to his design of a public works housing project by the city government, he bombs it, and suffers the consequences. But, generally, following your own instincts gets you far.

Rugged individualists are resilient and persistent. At their core, their self-esteem is true and unwavering. As Dr. Nathaniel Branden observes, “When we appreciate the true nature of self-esteem, we see that it is not competitive or comparative. It is not about making myself higher by making you lower. It has nothing to do with you. It is the joy of my own being.”

Winning traders are extreme individualists. They see trading as an art form. They aren’t concerned with the status and prestige that riches may bring. They love what they do and enjoy the benefits of working for themselves and being accountable to no one. They go their own way and know deep down that they are meant to be traders. It’s not just a job; it’s a calling. The more you can think like an individualist, the more you’ll be able to anticipate the behaviours of the masses, and capitalize on their tendency to follow the crowd.


June 13th 2005

It’s For the Money

Have you ever picked up a magazine, like “GQ” or “Vanity Fair,” and glanced at the ads? Glossy, well-photographed pages show fast cars, fashionable clothes, and the latest electronic gadgets, all next to the most beautiful people on the planet. These are motivating images. They draw out passion and desire. It makes you want to go out and earn a fortune to buy it all. After all, that’s why we trade. It’s for the money, right?

Trading sounds exciting, but many people who pursue trading as a profession find it “boring.” That’s their word for it, not mine. How can it be boring? It’s exciting. You put your ego and money on the line, and the outcome is not a certainty. It’s risky, and taking a risk can give you a thrill. Why do people trade? There probably isn’t one reason. For some, it’s the excitement of taking a risk; for others it’s about providing a particular lifestyle for their family, and for others, it’s just the family business.

People’s motives are complex. There are many possible reasons for why people pursue trading. But the more important issue is the primary reason you trade. Why do you study the markets every day to find a new market opportunity? Why do you need to trade? There are other ways of making a good living. These aren’t shallow questions.

You can trade for money, status, wealth, excitement, or out of obligation, but these must merely be secondary motives. The primary motive for trading must be a true love of the profession. Successful traders say that they would trade even if they made only a living wage. Trading is an art form. The markets are fascinating to study. Trading is a skill that few can master. We’ve interviewed hundreds of traders at Innerworth in an effort to find what gives them a winning edge. And we’ve found that the most successful traders see trading as an intellectual challenge.

They aren’t in it for the money, but for the inherent pleasure it gives them. In their study of traders, Robert Koppel and Howard Abell (1994) draw the same conclusion. In their book, “The Innergame of Trading,” Koppel and Abell observe, “The top traders all love to trade…for them it is their true mission.” Winning traders don’t feel they “should” trade, but see trading as a mission, something they were chosen to do.

When you have a strong passion for what you do, it’s never really boring. Sure, there are those times when you’re trying to do so much that you feel a little stressed, but to the winning trader, that’s all part of the fun. They enjoy living up to the endless challenges, and relish the fact that they are good at a profession where over 90% fail. They aren’t motivated by money, fame, or glory, but by a true love of the game. Their passion fuels their drive to hone their trading skills and reach the top of the field. It’s quite a paradox. They don’t seek out the money, but in the end, they develop such a high level of skill that they end up extremely profitable.

So if you want to be a winning trader, don’t focus on the profits. The profits will come. All you need to do right now is develop a passion for the profession and allow that passion to compel you to do your best.


Don’t Post all of them in one go.
Share 5-6 Per day is sufficient and Easy to Read and understand.


grt content…
pls post more as early as possible…


If you’re in a bad situation, don’t worry it’ll change. If you’re in a good situation, don’t worry it’ll change.

  • John A. Simone Sr. -

April 12th 2006

Stressed Out and Vulnerable

Many traders underestimate the influence of stress. Stress is not only a psychological reaction, but a biological response as well. When you are stressed, your body reacts instinctively. You are agitated, on edge, and ready to lash out. Your attention is restricted. Your mind is closed and inflexible. The stress response has a specific biological, adaptive function: Your energy is channeled into making the simple response of fighting an opponent or running away. Not only is your energy channeled, but your perceptions are limited. Trading requires a more complicated skill set, though, and when you feel stressed out, you are bound to make a trading error.

It’s surprising how stress can impact your ability to trade effectively. What’s there to impact? Trading isn’t that complicated, is it? Actually, there’s a great deal that can happen. You can have a very complete trading plan, where every aspect is spelled out clearly, and you may have a wealth of experience executing such plans, but when you are stressed out, even the most simple task can be difficult to complete. You may not see an obvious signal to take action. And even when you see the signal, you can make a small mistake when you’re stressed. Again, you are agitated and your psychological perceptions and intuition are restricted and closed off. You miss little things and have a tendency to respond quickly without thinking. While trading, we often do things automatically, without thinking, but stress can cause us to act so quickly that we miss something. We may forget to place an order according to plan or we may misread a signal and close out a position too early. These little errors can be frustrating.

How can you beat stress? The most effective stress control strategies prevent stress before it happens. It is useful to minimize potential stressors. Getting into an argument with your spouse, for example, can put you in a bad mood that can escalate into an intense, distracting mood later in the day. Minor hassles can build up. For example, you may get cut off on the way to work, or the police may wrongly give you a traffic ticket. It can all add up, and set the stage for an incapacitating stress response. It’s vital to acknowledge the power of these stressors, and when you feel agitated by them, you may want to stand aside until you feel better. Your trading environment can also impact your ability to handle stress. In many ways, trading is an art. You wouldn’t try to create art in a noisy, chaotic environment, and you may not want to trade in such an environment either. Sure, the pit at the CME is full of action, but depending on your temperament, you may not want to bring this kind of confusion into your trading environment. A quieter environment is more conducive to staying calm and trading with a focused mindset. You can’t remove all possible stressors, but when you start feeling agitated, you can try to take active steps to alleviate the uneasiness. You feel stress when you feel personally threatened. When stressed, you feel that your security is compromised. When you feel a little shaken, it’s vital to return to a calm, focused mindset. One of the most effective thinking strategies is to remove yourself from the situation; create a sense of psychological distance. Don’t make a stressful event personal. Pretend you are an observer looking at your life as dispassionately as possible. Think unemotionally and strategically. Pretend nothing really matters and that you are merely trying to actively problem solve to get ahead.

Trading requires an optimal mindset. When you are upset, tired, and emotionally distracted, you will have trouble following your trading plan. It’s vital to return to a calm, focused mindset, a mindset where you are attentive and alert, and can trade like a winner.


@nithin, I wonder how you get time for all this?
BTW, it’s good. Keep up man.


April 13, 2006

If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed

  • Edmund Burke -

A Windfall Is Not the House’s Money

Trading profits usually don’t come in a steady stream. Sometimes you run hot and sometimes you run cold. If you ask seasoned professionals about their profits, they will often tell you that a few big wins made their year. The way you view your wins dictates how you approach them. If you expect your wins to come in a steady stream, you may tend to view a big, unexpected win as a windfall. And when people view money as a windfall, they tend to view it as fun money, money that can be spent on a whim. It’s like winning big at a casino. When you don’t expect to win, you figure that you can take risky gambles. After all, it’s the house’s money, isn’t it? On the contrary, however you make wins, hard-won or unexpected, you should view profits as significant investment capital that should be managed prudently.

A series of studies by Dr. Hal Arkes and colleagues at Ohio University illustrates how people tend to spend windfalls more freely. In one study, participants considered money that was won unexpectedly in a radio contest versus money that was earned by working overtime on weekends. When money was won unexpectedly, it was spent more freely. In a second study, participants were randomly assigned to expect a payment or were unexpectedly given a windfall. They were given a $5 payment right before attending a basketball game and their spending was monitored at the game. People who expected the $5 spent 38 cents on average while people who received an unexpected windfall spent 90 cents on average. In a similar experiment, participants were given $3 in quarters and asked to place a bet on a roll of dice. Participants who anticipated the payment bet $1 on average while participants who received an unexpected windfall bet $2 on average.

These studies show that when people receive windfalls they are willing to spend them more freely. It’s as if they take the attitude, “easy come, easy go.” This approach to money can also be applied to trading profits. Some profits tend to come easier than others. Sometimes one must patiently wait for the right market opportunity to present itself, and patiently wait to sell at the right time. Such profits take time and effort to accumulate.

In other cases, profits may be easier to come by. For example, a media analyst may unexpectedly talk up a stock and the price may rise unexpectedly, or a product announcement may lead to increased buying by the masses, resulting in an unexpected profit. These unexpected windfalls may be treated as easy money and risked more freely. But profits are profits. It is vital to treat profits equally, regardless of how easy they were accumulated.

When trading the markets, how well you do across a series of trades is tantamount. You may not profit consistently, but sporadically. It’s essential that you carefully manage your capital. Don’t feel that you can take bigger risks with capital that was easy to come by. Capital is capital, and if you manage it prudently, you will survive minor changes in market conditions and increase your overall profits.


Thank u @nithin for excellent compilation


The psychology of a trader, when he wins big is that he believes, he can now win regularly and he can win big. He bets more and he takes bigger risks. The very fact that most lottery winners lose their lottery winnings over a period of time is proven and linked to same psychology described above. To maintain steady discipline over position sizing and rules is a priceless character of a successful trader…Thanks @nithin…For this wonderful nugget…:v:


If you want to know what a man is really like, notice how he acts when he loses money.

  • Spanish Proverb -

April 17th, 2006

Money Management and the Big Picture

Sometimes traders run hot, but sometimes they run cold. The factors that influence this fluctuation in performance are varied. As a trader, you may have a bad day or week. Or market conditions may not be optimal for your style of trading. It’s also possible that your method needs to be re-thought, and it may take time to make minor modifications until you discover the fix. Because your performance is never assured, you must prepare for a worst-case scenario. Many people don’t like thinking about the potential downturns, but it is vital to force yourself to look at what you don’t want to see, and take precautions in order to survive the unthinkable. Many seasoned traders argue that money management is vital for success. Here is what some of them told us when we asked them what they thought about money management.

Mark said, “You can have a crummy trading strategy, but if you have good money management, you can make money. If you have poor money management, it doesn’t matter how good the trading strategy is, you’re going to lose in the end.” Chris warns, “You must have a survivability element so that if you literally wished to select stocks by throwing darts at a board, you would continue to survive market to market.”

When asked how he determined the size of his trades, Alex said, “I base it upon the equity in my account, first of all. Also, I look at the volatility of the stock and how much money I want to put at risk on any one position. I won’t risk more than a couple percent on any position.”

Mike also agrees that money management is important. “You’ve got to consider the commitment size of your capital. What percentage do I commit? In the beginning of the year, I’ll risk maybe two and a half, three percent. I may have a slew of positions on, but I’ll only risk two and a half to three percent. I also have a reserve amount. I have war stories, so I keep a reserve as protection.”

Although the specifics of money management can differ across traders, many suggest limiting the amount of capital you risk on a given trade. Many traders simply suggest limiting one’s risk to 1-3%, but there are no hard and fast rules regarding this percentage. But however you do it, limiting risk helps you survive changing market conditions or trading strategies that don’t pan out. So follow the advice of seasoned traders: Manage risk. In the big picture, you’ll end up more profitable if you do.


Thank You @nithin for post.