Peak Performance Trading Tips

These trading tips will help you get yourself in the best possible condition mentally to perform at a peak level. They are not necessarily new, but they are critically important. So whether you've heard them before or not, now is the time to employ them into your trading and your life. Both will improve as a result.

Tip #24: Know When It Doesn't Work

When you have a system or an idea, you must also know when it doesn't work. This concept is just the logical extension of the last tip of giving up on a good idea because you think it doesn't work. When you've researched something well enough to know 1) you are not getting the performance you want and 2) the reason you are not getting that performance, then you've made an important step in knowing that something doesn't work. Usually, the knowledge of why something doesn't work will also give you important knowledge of what to pursue next.

For example, let's look at the idea of Maximum Adverse Excursion (i.e., the idea that losing trades don't go too far against us). This gives you an idea for limiting your stops, but when you try to apply it to your trading you may find some problems. Some profit increase does occur, but this may not be that significant for you compared to the complexity of the MAE addition. The reason that MAE doesn't work is because 1) some losing trades exit at the MAE when they would have exited at much less of a loss had more room been given by a larger stop and 2) some big R-multiple winners are cut off. Since re-entry isn't allowed, those big winners are never realized. These two reasons totally cancel the effect of increasing the potential R-multiple of those winning trades that are realized.

You might take this concept and decide that's all you want to do with it. It didn't work and you know why. That's fine.

On the other hand, you can also use the reasons for “failure” as logical stepping points for your next research idea. For example, I noticed that in the few cases where big R-multiples are cut off, a re-entry signal will almost always catch them. When you do trading research, and you determine why something didn't work, it will always give you a reason. This reason could point you to areas that could give you much more profitable results.

The "It Didn't Work" Mentality

One of the least productive things you can say in furthering your market research is "It didn't work." I frequently give my clients research assignments, telling them a great area in which they can do research. I might see them again four months later and find out that they are working on something entirely different. When I ask them about the research area in which I had directed them, the response is usually "It didn't work."

I dislike that response because it totally shuts off very productive research as if there is no potential in the area at all. A much better response would be "It didn't work because…"

This sort of response indicates why it didn't work and perhaps even suggests an alternative course of action.

Let me give you a few examples of how this mentality has been used to totally shut down very productive areas of study.

• One of my Super Trader clients came up with what I thought was a very productive profit-taking exit. The exit started out with a wide stop and kept the stop wide as long as the market was moving strongly. However, when the market started to level off or when the advance started to slow, the stop would get much tighter. The net result was that one seldom gave back much profit. Doesn't that sound excellent? I thought so, especially since his system always gave a reentry signal if the market started to move again. However, about nine months later this trader was into a drawdown. I asked how his stop was doing and he said he had abandoned it. When I asked why, his response was "It didn't work when I added position sizing." There was no explanation why, which might have resulted in an alternative solution. Instead, the choice was simply to say, "It didn't work." and move on.
• I had been working with another client in developing a good system. We had discussed high R-multiple trading and he had informed me that he had a setup that could be used in the context I was talking about. He reasoned that this setup would give him signals with profits about five times as big as he was risking. Furthermore, the signals made profits, he thought, about 40-50% of the time. I thought that the signal sounded great and suggested that he only take those signals for a while. In addition, he was to research the exact parameters on the signal and to send me a daily e-mail. What happened? He never took a single signal. Instead, he stopped sending me e-mails and told me that the signal didn't work. I asked him to send me data showing me why it didn't work. His response was that he'd get to it one day, but to leave him alone until he'd gotten around to it. After all, he said, I've already told you it didn't work. Once again, a potential great idea was killed by three little words—"It didn't work."

These are just two examples of dozens that I can think of and every one of them illustrates an important point: the way you think about something can totally change your relationship with an idea. Edison was said to have had 10,000 failures before he invented a working light bulb. He may have said, "It didn't work." after any one of them, but those words didn't stop him. Instead, he determined why the method didn't work and used that information to find another good idea. At no time did he abandon the idea permanently by saying, "It didn't work!"

Start Trading: Throw Those Excuses Out the Window

People make all kinds of excuses as to why they cannot get involved in investing or trading the financial markets. In this article, some of the most prominent are debunked.

"I don't have time"

Despite being one of the most frequently heard, this is probably the most pathetic excuse for not trading there is. Why? Because the availability of technology and information in the modern day means that we can operate in literally any time frame we want. Many people, when they hear "trading", think it means sitting in front of the computer all day. While that certainly is one form of trading, most of us do not have the schedule to allow us to dedicate hours each day to monitoring the markets. The good news is that we don't have to in order to trade effectively.

I will use myself as an example. My college coaching position has me frequently in the gym, in meetings, and on the road. What's more, I run a club program and a couple of businesses on the side. In 2004, even though there were long periods when I did not trade at all, and I probably only put on a dozen total positions all year, I was still able to make 200%+ in the stock market. If I can trade given my schedule, and have performance like that, anyone can.

"I don't have the money"

In the past, this was a pretty viable excuse for not trading. These days, though, one can trade with relatively little money. Transaction costs have dropped dramatically over the last decade and there are more trading options than ever before. There is one particular trading platform which allows an individual to put on trades of at little as $1 in value, and they have no minimum account size requirement.

Is it better to have more money? Absolutely. The more capital you have at your disposal, the better are your available options and the more actual money you can make in raw dollar terms.

Having more money is not always a good thing, though. For the inexperienced trader, it is better to have only a little money at risk. Why? It is the same as anything else. Just like anyone new to a skill make mistakes as they are learning, so do new traders. And just as a coach would not willingly throw a new player in to a championship game against experienced opponents, neither should those new to the markets to take on large trades and put significant portions of their assets at risk. It's common sense. Better to make the inevitable mistakes when there is relatively little at risk.

"It's too risky"

Trading is only as risky as you make it. If you take risky trades, then trading is risky. If you don't, then it isn't. There will always be the risk of losing money on a trade. That is completely unavoidable. But that could be said about all of life.

Driving is one of the most risky things in the modern world, but we still do it. We reduce the risk by obeying traffic rules, planning our route, wearing seatbelts, paying attention, and all that. Does that completely eliminate the risk that of ending up in an accident? No, it doesn't. Nor does it necessarily keep us out of traffic jams or from getting lost. We understand the risks, though, and weigh them against our need to get places in a timely fashion.

Trading is the same. We do it because it helps get us where we want to go, in this case financially. There are going to be hiccups along the way, but if we are focused and conscientious, we can minimize the risks, and potentially the damage an unfortunately turn inflicts, and remain on course.

"It's too complicated"

Technology and competition have combined to make trading so much easier than it has ever been before. All it takes is a couple of clicks and you can execute a trade, check your positions, get news, and anything else you need to do. The fact that you are reading this article says you have all the basic skills necessary to trade or invest.

Can trading be complex? Sure it can. There are those in the markets who use complicated software, mathematical algorithms, even artificial intelligence. None of that is necessary, though. Some of the best traders use little more than price quotes or a simple bar chart. How intricate you get is strictly a matter of personal preference, not necessity.

Avoid Making Predictions in the Market

Most people make a big deal out of market prediction. They think they need to be right 70% or better in order to "pass" the exam that the market gives them. They also believe that they might get an "A" if they could be right 95% of the time. The need to predict the market steps from this desire to be right. People believe that they cannot be right unless they can predict what the market is doing.

Among our best clients, I have traders who continually make 50% or more each year with very few losing months. Surely, they must be able to predict the market very well to have that kind of track record. Well, I recently sent out a request for predictions and here is what I got back from some of the better traders.

Trader A; "I don't predict the market, and I think this is a dangerous exercise."

Trader B: "…these are just scenarios, the market is going to do what the market is going to do."

Ironically, I got these comments from them despite the fact that I was not interested in any of their specific opinions, just the consensus opinion.

So how do they make money if they have no opinions about what they market is going to do? Well, there are five critical ingredients involved:

• They follow the signals generated by the system.
• They get out when the market proves them wrong.
• They allow their profits to run as much as possible—meaning they have a high positive expectancy system.
• They have enough opportunity so that there is a great chance of realizing the positive expectancy any given month and little chance of having a losing month.
• They understand position sizing well enough so that they will continue to be in the game if they are wrong and make big money when they are right.

Most traders, including most professionals, do not understand these four points. As a result, they are very much into prediction. The average Wall Street Analyst usually makes a large six-figure income analyzing companies. Yet very few of these individuals, in my opinion, could make money trading the companies they analyze. Nevertheless, people believe that if analysts tell you the fundamentals of the marketplace, someone can use that information to make money.

Others have decided that fundamental analysis doesn't work. Instead, they have chosen to draw lines on the computer or in their chart book to analyze the market technically. These people believe that if you draw enough lines, and interpret enough patterns, you can predict the market. Again, it doesn't work. Instead, cutting losses short, really riding profits hard and managing your risk so that you continue to survive is what really makes you money. When you finally understand this at a gut level, you will know one of the key secrets to trading success. In the meantime, we will continue to make predictions in our column, so that you will begin to understand that they are entertaining, but nothing more!

Develop a System that Fits You

My book, Trade Your Way to Financial Freedom, is all about the subject of system development. It's about constructing a system that fits you, and then testing that system so that you have confidence in it. Confidence in your system is a part of having faith. Following is a quote from the conclusion of the book in which I was having a conversation.

"Nothing is exact. You can never know how it will really turn out. Instead, trading is very much a game of discipline, of being in touch with the flow of the markets, and of being able to capitalize upon that flow. People who can do that can make a lot of money in the markets.

Why test at all?

"So you can get an understanding of what works and what doesn't work. You shouldn't believe everything I've told you. Instead, you need to prove to yourself that something is true. When something seems reasonably true, then you can develop some confidence in using it. You must have that confidence or you'll be lost when are dealing with the markets.

"You probably cannot be exact. But no science is exact. People used to think that physics was exact, but now we know that the very act of measuring something changes the nature of the observation. Whatever it is, you are a part of it. You cannot help that because it probably is the nature of reality. And it again illustrates my point about the search for the Holy Grail System being an inner search."- page 317

Faith is empowerment. The primary source of faith is from God. This involves opening up your heart and mind to your spiritual nature. It is tuning into the God Presence within you. When you realize that an Infinite Presence is the source of your faith, it gives your faith real power. Your system is not the source of your abundance or of your trading success-the God Presence within you is the source of that success. Understanding and truly believing that principle is the basis of real faith.

Now when I talk about God, I’m dealing with spiritual beliefs. These beliefs are at the core of most human beings (even when you think you don’t believe in God) and who they are. People fight wars over spiritual beliefs. They fly airplanes into buildings over spiritual beliefs. Thus, I know I’m treating on sensitive ground here. However, if you don’t like the way I’ve phrased the beliefs, then rephrase them to fit your own beliefs. The beliefs I’m giving you are very useful if you use them and apply them. With that said, let’s go on.

When you have confidence in that God Presence assisting you, then you'll begin to develop a lot more confidence in yourself. Lastly, when you develop confidence in yourself, then you'll develop extensive confidence in your system and your ability to make money from your system. However, none of this works as real faith without thoroughly understanding the Source of everything.

Assignment for the Week:

Spend 20 minutes meditating each day. At the beginning of that meditation, affirm your source. You might say something like,

"God's magnificence is empowering me now. It is closer to me than my breath. It fills me with Love, Abundance, and all that I desire. I know that it is the Source of All my Good and I give thanks for Its Presence."

Repeat the thought several times until it becomes a part of you and then spend 20 minutes in silence. If you become distracted, simply repeat the thought.

When you trade, remember the Source of your abundance and have faith in that source. Remember that the God Presence within You is your Source, not the next trade. Notice what impact this thought has upon your trading.

Much success to you and let me know about your experiences in practicing this all-important principle.

Empower Yourself

It's possible for traders to tap into one of three general attitudes when they approach the market. The first attitude is one of pessimism; the second is one of randomness and/or neutrality; and the third is one of empowerment. The first attitude never works. The second attitude seldom brings us much success, while the third attitude, when properly done, guarantees success.

Let's imagine that you have immense power to create the results you want from your trading activity. And a good reason to make this assumption is because you do have such power. Now, if you had such power, what do you think would happen if you approached your trading from a viewpoint of pessimism? You'd probably lose money-no, you would lose money. No matter how good your system, you'd figure out a way to lose money.

If you approach the market with neutrality (and you have this power to create your life), then the best you could possibly do is perform at an average level. You certainly wouldn't add any personal energy to the market, and I suspect that your performance would probably be substandard.

But let's look at the third option-approaching trading with an attitude of empowerment. I pointed out in Volume Five of my Peak Performance home study course that all good traders know they will win at the end of the year. I might take that one step further and say that great traders know they will probably win at the end of the month. What does that imply? It implies a great deal of FAITH. You must believe in yourself and in your trading. You must know deep in your heart that you have won and feel grateful for your success.

Faith is like a magic power that propels you to greatness. For example, let's take a look at a few Bible quotes:

Let it be to you according to your faith. Matthew 9:29

If there is faith in you even as a grain of mustard seed, you will say to this mountain move away from here, and it will move away; and nothing would prevail over you. Matthew 17:20.

If you can believe, everything is possible to him who believes. Mark 9:23

Whoever should say to this mountain, be moved and fall into the sea, and does not doubt in his heart, but believes that what he says will be done, it will be done to him. Mark 11:23

Therefore, I say to you, anything you pray for and ask, believe that you will receive it, and it will be done for you. Mark 11:24.

Incidentally, I used to avoid a lot of spiritual references. I did so because I found that many people's beliefs about spirituality were both very strong (the essence of who they were) and very narrow (i.e., if you went beyond their boundaries, you went into dangerous territory). However, my objective is to help people change and I've found the most powerful change comes at the spiritual level. Thus, it is now time to begin to open up the spiritual basis of trading. And perhaps, this being the weekend after Easter, now is the right time to do that.

Overcoming a Stuck State of Mind

When you are marching toward some goal, like trading excellence, you might do so by overcoming obstacles. When your focus is on problems you have, such as the lack of funds or limited resources or limited knowledge, you are probably going to generate feelings of guilt, anger or frustration in yourself. Little is usually accomplished from such mental states. You feel stuck and your orientation toward “stuckness” tends to persist.

Whatever you cannot accomplish in life is a model of a stuck state. Early in life, when you tried to accomplish something, you probably were attacked by some sort of unforgiving failure. The problem was not so much the failure as the intensity of the attack. That event planted a psychological stop sign in front of you whenever you started in certain directions. And, that psychological stop sign has an impact that is as strong on you as the original bashing. It creates internal conflict when you attempt to accomplish certain things, with part of you wanting to go on and part of you wanting to retreat. You go back and forth, oscillating, producing a stuck state of mind.

When people are stuck, you can see the oscillation in their bodies. Typically, they see two pictures. With the first blink, they see what they want and with the second picture, they see their psychological stop sign. You can observe this in sales professionals, for example. The sales person wants to make the sale. Yet, on the other hand, he hates rejection. He either decides, “I can do this, but I don’t have a worthwhile product” or “My product is good, but people just don’t respond to me.” The result is usually the stuck state of procrastination.

The same goes for the trader. One part of the trader says “Get out of the trade, it’s hit your exit point and you need to cut your losses short.” Another part says, “Stay in the trade, it’ll turn around and you don’t want to take a loss now.” And usually the result is a stuck state.

I’ve seen hundreds of people in stuck states. One that was particularly striking was a man in his forties who still lived with his parents. He wanted to go out on his own, but something held him in place, dependent upon his parents. When I saw him, he had decided that trading was a way he could earn money to escape. However, he’d become stuck because earning enough money to escape would result in an extreme negative state. As a result, he found he could not pull the trigger.

Every time we put something off, some dream or goal, we start to oscillate. We want to achieve our dream or goal, but we also want to avoid the pain that it takes to accomplish the task. The result is e-motion—a lack of motion outside and an intense motion inside of ourselves.

Some Simple Solutions:

When you are stuck, the more effort you put into trying to un-stick yourself, the worse off you become. It’s a little like being stuck in quicksand—the more you struggle the quicker you sink. The first solution is always to relax and often move slightly in the direction that is opposite to what your instincts tell you. For example, a pilot going into a nosedive must first push gently into the dive to get air flowing under the wings properly. At that point he can begin to control the airplane. Similarly, when you start to skid in your car, you must first steer into the skid until you gain control over the car—which our natural reaction is to do the opposite.

If you are stuck in your goal of becoming an excellent trader, try doing the opposite of your instincts. If you must take a trade, make it okay not to take the trade. Instead, move toward working on your emotions.

The second solution is to focus on what you want. When you focus on limitations, you feel the emotions of the stop sign or the limitation. When you focus on what you want to achieve, then you begin to see possibilities and new resources that open you up. What is your focus?

Finally, the third solution is to focus on being what you want to be. If you want to be a great trader, don’t focus on what they have or do, focus on their state of being. What is it like to be a great trader? What is it like to step into their shoes?

I do an exercise in our Peak Performance Workshop in which I ask students to step out of a stuck state to notice what they look like. This dissociates the person and takes them out of the stuck state. I then ask them to imagine a great trader in that same situation. What would that trader look like? What would they be like? I then ask them to step into the beingness of the great trader. The result is almost instant transformation. Try it.