Thursday, March 23, 2017

When The Coach Goes Home..

.So Does The Motivation
Affirmation without discipline
is the beginning of delusion.

Jim Rohn

All external motivation is temporary. External motivation is the kind that may wake you up, but it will not keep you awake for long. External motivation is motivation that comes to you from the outside. It may, and it often does, influence you to make a change, it cannot however make the change for you. And it cannot keep you from drifting off course, when the motivator is gone. 
Many of you in your school years played sports. If you played and were fortunate enough to have an exceptional coach, you knew that he expected a lot from you but he also gave you lots of encouragement. He picked you up when you were down, he made you believe that you could win, and he let you know when you did a good job. He was a great motivator and he took your team all the way to the top. He was your friend, your ally, and your strongest supporter. You relied on him for your motivation and you got it.

The school year is over and you graduate moving on to college or the work force and the coach goes home. What does he take home with him? Your motivation, that's what! He was your motivation. Now you must receive your motivation from somewhere else, because the motivation was external and now it is gone. All external motivation works the same way. Keep giving us motivation and we will do better, take it away and we will gradually move back to where we were before the motivation began.

That is why so many of the hopeful at so many motivational talks get so excited, full of energy, and then slow down or stop dead in their tracks within a few days or a few weeks. The inspiration is no longer there, because the speaker has left town. It takes more than a great speech to erase and replace those internal programs, which tell us we should know better than to believe that we are powerful champions of success.

An hour or two of someone else telling us the "we can do it!" simply does not have a chance. The intentions were great, the talk inspiring the ideas incredible. But when the coach goes home - so does the motivation.

I am not saying, or even implying that one should not to attend those seminars, or buy the books, or listen to cassettes. They all help, they all generate ideas, and this one may begin to move you in the right direction. Just do not overestimate the outcome unless you have truly unclogged your mind of most all of your previous negative thinking.

Reprint; 2007 Prudent Trader Newsletter

Wednesday, March 15, 2017

Taking on Greater Levels of Risk

Risk comes from not 
knowing what you're 
Warren Buffett

Education never stops. No matter how long you've been an investor you know and understand that your education is a never ending process. You purchase and read books, newspapers and magazines, to continue your learning and to continue to prosper. While continuing our education you come across books and articles about some of the elite and brilliant traders who have a rare talent for making huge profits in a field where few can excel. "Market Wizards" is how we refer to them and being human we can't help but dream of being just like them.

Unfortunately, the facts tell us very few traders reach the top. The best most can do is evaluate and accept their abilities, and do their best. Pushing yourself too far and too fast doesn't work. It leads to frustration, and possibly failure. You must work at your own pace. This is especially true when one is attempting to take on greater levels of risk. Depending on your risk tolerance, taking on greater levels of risk can make you feel uneasy. If you want to make huge profits as a trader, you eventually need to learn to effortlessly take on greater levels or risk.

Extending ones comfort zone is never easy. For most people, it is a gradual process. For example, first one must learn to put their hard-earned money on the line, and accept what it feels like to lose it. Taking a loss is disconcerting and a little frightening. Losing a few dollars is one thing, but as the amount increases substantially, so does the pressure. It takes a little practice to learn to risk ever-increasing amounts of money and take it in stride. Some people are natural born risk takers. Most traders however have come to their present state; by learning to manage money wisely. The idea of taking larger and larger risks to move beyond your comfort zone can be difficult. You may have a natural inclination to protect what you've worked so hard to accumulate. It's tough to not be a little wary.

How do you learn to take on more risk? Again, it depends on your personality and the amount of trading capital in your account. You may need to train yourself to take on greater levels of risk. Move up gradually; don't make the mistake of moving too fast.

Taking on greater and greater amounts of risk is fear-provoking. If you do it all at once, you move from relatively little fear and anxiety to terrifying amounts of fear and anxiety. To shocking for many. It's better to work up to it. You wouldn't try to run a 10-mile marathon tomorrow if you could barely run a mile today. You would build up your stamina and gradually work up to your objective. It's the same thing with trading. Increase the amount you risk gradually. The rate at which you increase it depends on your personality. Use your own judgment; if you can increase your risk a little each trade, good then try to keep up that pace. If you find that after a month, you've surpassed your comfort zone, well then reduce your risk. The key is to gradually increase your comfort zone, don't force yourself to go beyond your limits. Work at your own pace. If you try to do too much, too soon, you'll just feel overwhelmed and you may never reach your objective. If however you move up gradually, you will increase the likelihood that you will be able to increase the amount of risk you can handle.

Trading is emotional. Taking on greater and greater amounts of risk is stressful. Instead of becoming overwhelmed, and possibly under mining your long-term financial goals, take it easy, and work at your own pace. You'll eventually be able to take on greater levels of risk, and trade more calmly, logically, and profitably.

Friday, March 3, 2017

Beat Stress Before It Beats You

Adopting the right attitude 
can convert a negative
into a positive one. 
Hans Selye
Did news items ruin your plans this week? Adverse events, such as foul weather (think Oil, Agriculture, Shopping patterns), is just one of the many sources of stress an active trader must contend with. If you're not careful, you can become easily overwhelmed. When you are "stressed out", you may not be able to think clearly, you won't read the markets objectively. You must do whatever you can to stay calm while trading.

Scientists have shown that stressful emotions can build up, and if not released, a person can become overloaded by stress. Laboratory animals placed in

stressful situations, for example, die if the stressful events are continuous and
enduring. You can't completely remove stress from your environment, but you can prevent the stressful aspects of trading from making you feel anxious and fearful. Here is a short plan to help you develop an effective stress reduction plan:
  • Avoid caffeine.
    Many people believe caffeine keeps them alert. The downside of caffeine however, is that caffeine will elevate your nervous system to the point that you feel on edge and ready to panic? Trading and life is stressful enough; you don't need to pre-elevate your nervous system.
  • Exercise regularly.
  • Many successful traders view exercise as a key component to creating a calm and relaxed mindset. You don’t need to go to a gym, take a brisk walk around the block; it will clear your mind and give you new and fresh perspectives. We must all regularly release tension that builds up each day.
  • Minimize background stress.
  • Daily hassles, such as minor arguments with your spouse or others, or traffic congestion can, when added together, be as stressful as a major life event (such as the death of a loved one). Don’t ignore these events; don’t pretend they aren’t important enough to deal with now. Deal with the hassles and then minimize them as well as you can. Seemingly minor hassles can accrue and cause you great strain in the long run.
  • Don’t attempt to exceed your trading skills.
  • Do not put extra pressure on yourself by trying to achieve trading goals that are beyond your current skill level. As an example, keep your position sizes relatively small, consider scaling into a position as opposed to an all or nothing approach and have clearly defined risk limits. If you push yourself beyond your skill set in an attempt to achieve an unrealistic goal, you will feel an extreme sense of anxiety and fear. Take your time, you will get there!