Daytrading Psychology Blog

The Psychology of the Zero Sum Game

Zero sum markets are significantly different than asset (equity) markets. In this short video I will summarize the psychological and technical adaptations that aspiring traders need to make in order to succeed in this particular ecosystem. Specifically, we will explore how zero sum markets tend to fool the small, private trader who has been schooled in standard technical analysis in the equity market.

 

 

If you would like to chat about your trading with a coach who actually trades. I offer a free 15 min consultation. Use the Contact Form to schedule.

Trading Psychology: Exploiting The Mistakes of Other Traders

Greetings traders, this is Dr. Kenneth Reid.

This video illustrates how traders can get trapped on the wrong side of the market and how you can exploit that circumstance if you are aware of the roadsigns and flexible about your own point of view.

 

The chart is a 1 minute chart of the Nasdaq futures. On this day the Nasdaq futures rallied about 25 points in the morning and made a new multi year high around 4410 at 8:40 am Mountain Time.

The rally had some parabolic features, which usually sets it up for some aggressive profit taking. So I got short .I put on a Fib grid, which gave me some extension targets and I expected a rather severe decline. It turned out my expectations were wrong.

The market stalled around the 62% downward extension of the final blow off move, and then printed a wide range bar that broke up through the 20 period ema, which is the dotted line.

The strength of the wide range bar indicated to me that many other reversion traders were expecting the same thing as I was… a further decline… and were caught wrong footed. The 20 ema is a common line in the sand, and they covered or reversed right here.

So I went long on here as well and determined a target at new high. The entrapment situation supported a move to a new high because the bigger picture pattern was a megaphone.

To learn more about trading and the practical applications of trading psychology contact me for a free 15 min consultation.

Mastering Volatility

Market volatility has tripled over the last few months, which poses technical and psychological challenges.

In this video I point out 8 ways in which you can master volatility and make it work for you rather than against you.

Increased volatility increases risk, so during such periods our primary job is to reduce risk to manageable proportions. Mastering volatility with trader psychology means one is able to stay relaxed in the eye of the storm so we can profit from the volatility.

 
Here’s the 8 Ways in text form:
1. As a trader myself, I want an objective measure of volatility. For that I don’t use the VIX, I use the Average True Range.

2. Decrease position size proportionally to the increase in volatility. If volatility has doubled, then consider reducing your size by 50%. If you do this, you will find it’s much easier to maintain evenmindedness.

3. Use wider initial and trailing stops. Volatile markets have higher levels of noise. This way your stops don’t work against you. With smaller trade size the wider stop should be emotionally tolerable. Make sure that’s the case.

4. Increase your targets, expect overshoot but don’t swing for the fences. Volatile markets move faster and further than usual. When a trade is working make sure you don’t choke it off prematurely.

5. Volatile markets will experience stunningly fast movements, which may tempt you to chase. To help avoid that temptation, pay less attention to the details of price action. Practice acceptance when you miss out.

6. Monitor your emotional state. Avoid a power struggle with Mr. Market. Humility is more profitable than ego.

7. We can expend a great deal of mental energy trading in volatile markets. To avoid burn out, trade less than normal in terms of screen-time and number of trades. And, if you have the opportunity, quit while you’re ahead.

8. Focus more on safety and less on returns. Take losses while they are small. Set and respect a daily loss limit of less than 2% of your account.

I love helping aspiring traders get profitable and helping professionals sharpen their edge. Jeffrey is a private fund manager and here’s what he had to say.

“Dr. Reid’s work is the difference between me going through the motions and making money. Under his direction I have been able to be more consistent and less emotional in my trading. I recommend his work without hesitation or reservation. He is without doubt one of the most impactful people I have ever met.”
– Jeffrey Moormeier, Quantum-Advisor

If you would like to chat about your trading with a coach who actually trades. I offer a free 15 min consultation. Use the Contact Form to schedule.

How to Avoid Whipsaws in Trading

Trading without a technical trading plan puts active traders into visual and emotional reactivity. The more you react, the more often you will experience whipsaws. Reactivity is what makes us bullish or bearish at precisely the wrong time.

In fact, it’s not unusual for reactive traders to experience the “Reverse Midas Touch,” which means almost everything they do is wrong. In other words, reactivity tends to manifest in trading results that are much worse than chance.

Watch this short video to learn how to avoid whipsaws in trading.

Dr. Reid’s 2-Minute Clinic – Timing is Everything

According to Jesse Livermore, good timing starts with a reason to put on a trade. If your trading plan is too discretionary, you risk opening the door to intuitive, gut-based trading, which may take you into Trader Hell. If you are getting whipsawed, check your Trading Plan for excess.

Dr. Reid’s 2-Minute Clinic – The Daytrader’s Fear of Heights

Trend following is harder than it looks. In a strong uptrend, you are likely to experience a fear of heights. Don’t rationalize your emotions with irrelevant reasoning. Have the courage of Forrest Gump and follow your Trading Plan.

Dr. Reid’s 2-Minute Clinic – The Zen of Trading Part 2

When we make a mistake in trading it can be difficult to admit we are wrong. One game traders play with ourselves is to fade the move we missed. This usually means entering a countertrend trade and in a strong trend the results can be disasterous. The Zen of Trading says to be as detached as possible about being wrong, missing out or leaving money on the table so we don’t make matters worse.

Dr. Reid’s 2-Minute Clinic-Chasing Your Trades?

When markets get volatile they streak up or down. These abnormal moves can be difficult to trade with one’s normal method and the temptation is to chase so one does not miss out. Chasing however will undermine your discipline. Here is a simple trick to avoid chasing and trade rationally.

Dr. Reid’s 2-Minute Clinic-Trading Parabolics

During a trending phase, markets exhibit parabolic counter-trend corrections. Parabolic moves can feel disturbing, even scary, and may shake you out of established trends. Realize, however, that they are like Halloween goblins… opportunities in disguise.

Dr. Reid’s 2-Minute Clinic-Tolerating Uncertainty in Trading

As traders we need to be right, but in order to fully capitalize on our ‘edge’ we must to be able to tolerate risk and uncertainty. Our profitability is directly proportional to this ability. Like building muscles in the gym, it can gradually be increased by training.

Dr. Reid’s 2-Minute Clinic-Find Your -Trend Following Moron-

It’s easy to outsmart ourselves when trading. If you get confused, go back to your trend following basics. “Box the chop” and wait patiently for the pullbacks once the trend starts. Keep your method as simple as possible.

Dr. Reid’s 2-Minute Clinic-Picking Tops and Bottoms

As an trader, do find yourself fading trends? Picking tops and bottoms is a difficult way to trade. Try Todd’s method, which let’s you pick tops and bottoms within a trend.

Dr. Reid’s 2-Minute Clinic-The Opinion Trap

9/20/2013

The Opinion Trap is easy to fall into, especially if you follow the news. Unfortunately, opinions make us inflexible and undermine our ability to follow a basic trading plan.

Dr. Reid’s 2-Minute Clinic-The Psychology of Trading Tesla (TSLA)

9/13/2013

Trading momentum stocks like Tesla (TSLA) triggers not one, but three primal fears. To effectively manage your trade or investment in Tesla, you need to make sure you are not overly reactive to these fears. One way to tame them is to reduce position size.

Dr. Reid’s 2-Minute Clinic-When Markets Misbehave

9/8/2013

If your trading method stops working, DON’T ASSUME IT IS BROKEN. It is more likely that market conditions have changed. Wait for the market to settle down and resume trading your normal method.

Winning Traders Mindset Part 4

7/26/2013

In the professional markets such as futures, the name of the game is “Turn the tables on the amateurs and run their stops.” This is not that difficult to do intraday…if they want to buy, they simply sell first.

To defend against being manuipulated by your emotions (greed and fear) think more like a predator and be the ‘second mouse’.

Winning Trader’s Mindset: Timing is Everything

7/12/2013

How many times have you been in the right stock, option, future or currency pair only to have your position washed out before the market takes off in your direction? This video will help you understand why this happens and give you leverage to change this.

Winning Trader’s Mindset Part 2

6/28/2013

Traders tend to criticize themselves during periods of under-performance. Negative self-talk, however, tends to make things worse. This video suggests an alternative attitude.

Winning Traders Mindset

5/10/2013

Most traders have had the perplexing experience of looking back on a trading day and saying to themselves ” I can’t believe I did that!”

In this series of videos on The Winning Trader’s Mindset we will examine a number of mental traps (errors in judgment) that cause smart people to make ‘stupid’ errors. This video addresses the mental trap called anchoring, which causes traders to get shaken out of good trades and I point the way out with a simple exercise you can do today.

The Science of Winning Part 6

5/03/2013
Traders take three different approaches to risk based on their genetics. One configuration will make you a pure Rule Follower. Another will make you the exact opposite, a pure Improviser. This video describes the third configuration, the genetic Hybrid. Traders with these genes have the greatest potential , but they must focus less on the market in order to maintain self-control.

The Science of Winning Part 5

04/26/2013
Traders have three different approaches to risk and stress in trading based on their genetics. The previous video described genotype A, the Rule Follower. Genotype B is the exact opposite, the Improviser. Improvisers make up 25% of the general population but account for 90% of blown up accounts.

The Science of Winning Part 4

4/19/2013
In this video I discuss how your genetics controls your default reactions to risk environments. We examine one of the three genotypes, the Rule Follower and review the strengths and weaknesses of that type of trader.

The Science of Winning Part 3

4/03/2013
Traders are often advised to approach trading as a business. To some extent that’s good advice, because many of the reasons small businesses fail apply to traders, as well. However, if you compare trading to operating a normal small business I think you will also find some significant differences…. mainly because it has all the issues one faces in a small business, but they are time compressed.
When we compress time, we can change the nature of things from benign…to more stressful.
If you want to win at trading you need to realize that, as far as your brain is concerned, trading is a competition… an intense competition. Therefore, you need to focus on your stress reactions and manage them proactively.

The Science of Winning Part 2

3/27/2013
Researchers have learned a lot about competition by applying advanced computer modeling and statistical analysis to athletes. These studies show that there are really only two states of mind that really matter: playing to win and playing not to lose. This video describes the 5 key features of each mindset.

The Science of Winning

3/25/2013
This 11 minute video describes the 5 reasons traders lose and the 7 ways male traders in particular sabotage their trading success. Winning traders do the exact opposite, which I illustrate with a trade in the S&P futures. Bottomline: You do have a choice about which path you take.

Hard day at the office?

2/25/13

If you had difficulty trading today (Dow down 216 points), I encourage you to take a moment and figure out why.

Most likely, your own ideas about what should happen, shouldn’t happen and what is about to happen got in the way. It is amazing how easily we can overlay our own mental picture on the events that are unfolding before us. If we do that, however, we miss the obvious.

One of the hardest things to do in trading is to stay present enough to turn down the volume of our own thoughts.  Generally, the more we think, the worse we do.

Your trading system, therefore, has to be able to be executed without much thinking. If it is otherwise, then it is probably too discretionary. In the heat of battle, one cannot afford to fall victim to a paralysis of analysis. Make it sophisticated, but at the same time, Keep It almost Stupidly Simple.

 

Mastermind Prescription

The Cycle of Self-Sabotage can run for years. To finally break this cycle, you need to permanently root out bad behaviors and replace them with good behaviors. There's a new technology that can help you do that... for just $9.97/month. Read more.

Free AWARE Trader Personality Profile

Finally, an easy to understand Personality Profile that shows you exactly which personality traits help (and hurt) your trading! Read More


 

Free Report: Secrets of the Top 4%

The largest academic study ever conducted on day traders revealed that most lost money .... even during a raging bull market! About 15% did very well each year, but fewer than 4% of daytraders were able to make significant profits two years in a row. Read More


 

Increasing Discipline: The Easy Way! (On sale for just $149)

Many aspiring traders lack sufficient self-discipline to stay the course as a trader and protect capital during the learning curve. Willpower is not enough because trading challenges us in profound ways.

Increasing Discipline: The Easy Way is designed to help you increase self-discipline naturally, effortlessly, painlessly using (+) Neuroprogramming technology. Read More


 

Create a Winning Mindset: The Easy Way! (On sale for just $149)

According to Mark Douglas, the #1 characteristic of top traders is a lack of fear. These folks maintain a positive attitude regardless of the outcome of any particular trade. This technology will help you trade like they do. Read More


 

Risk Profile

DayTrading attracts individuals with different natural trading abilities. Some people are natural-born daytraders. These Market Wizards (4% of daytraders) are natually fearless, competitive and report little emotion in trading. Read More


 

Free 15-min Consultation

Trading can be a lonely profession. Chat about your trading for 15-min with a coach who trades. I may be able to offer a few quick tips that will get you back on track. Read More


 

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Trading Psychology Blog

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Do you have a tendency to chase price? That means, buy high in the hope of selling even higher. Or selling short during a rapid decline without waiting for a…
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Trading Psychology Video Blog

The Psychology of the Zero Sum Game

Zero sum markets are significantly different than asset (equity) markets. In this short video I will summarize the psychological and technical adaptations that aspiring traders need to make in order…
Read more

Trading Psychology: Exploiting The Mistakes of Other Traders

Greetings traders, this is Dr. Kenneth Reid. This video illustrates how traders can get trapped on the wrong side of the market and how you can exploit that circumstance if…
Read more

Mastering Volatility

Market volatility has tripled over the last few months, which poses technical and psychological challenges. In this video I point out 8 ways in which you can master volatility and…
Read more

How to Avoid Whipsaws in Trading

Trading without a technical trading plan puts active traders into visual and emotional reactivity. The more you react, the more often you will experience whipsaws. Reactivity is what makes us…
Read more
View All Video Posts

Coaching Testimonials

"When I met Kenneth Reid I was at the end of my rope. It turns out, signing up for his 6-week program was the best thing I’ve ever done. I learned more with Ken in the first 3 days than I had in years of trading. Part of the reason is that he doesn’t just teach “how to trade,” he teaches you how to be a trader.

This is the most in-depth and highly personalized training I’ve ever experienced. I’ve learned how enter trades with minimal risk and maximum reward. My first day trading I had a 10 1/2 point trade on the ES. I had never done that before. He has shown me how to keep my losses very small and put myself in a position to make consistent profits..." Read More