Step by step psych cap trading*

Once you decide to manage your trading via your psychological capital, you need to know what to do (that is different). 

Here we go – the cliff’s notes version.

1. Know what you are looking for.

2. Know where the points of judgment and decision are. (They are definitely there because unless you are an algorithm, you are evaluating the quality of signals at a minimum. Most likely you are evaluating many other things). Now… one and two can and should be done beforehand – outside of market time and preferably even away from the screen at first.

3. Make a list of the factors you will consider when making judgments – in my case it is $TICK, trend of the breadth and the Russell futures. Realize that you are going to feel unsure and there will be uncertainty when you have to decide…

4. Decide to get used to that uncertainty.

5. Get as familiar with that uncertainty as possible – try to feel it outside market time. Write about it. Get the visceral, kinesthetic experience front and center. Basically, you want to be able to tolerate this as it is happening. Think of the dentist chair. You live through it and don’t pretend it isn’t happening!

6. Come up with your own ways – in the context of verbalizing all feelings – to research anxiety. 6b)You can treat it like an object – what color, shape etc is it?

7. When the feelings come over you while trading, judge their intensity. If over a certain level that you feel comfortable with (think golf shot, ski slope, sailing conditions and your sense of confidence) then don’t trade, leave the screen. (Just like you would chip into the middle, find another way down or give the wheel to someone else).

This last one will make you money – it will save you money in the trades you didn’t take and it will the in turn increase your confidence in the trades you know you can handle. Repeating step 7 over and over and over is managing to Psych Cap. It is the single most profitable behavior you can engage in.

…and yes you will miss trades that would have or could have worked. You will also execute much better in the more elite situations you have chosen. With those two realities in place, what will be the P&L impact come end of the month?

 

*by Traderpsyches (www.traderpsyches.com)