My TRADING DEMONS

Editors Note: This is a post that is written by one of our Master Traders, Nikolai. He recently performed one of our one on one Military Training sessions with one of up and coming traders. Or as I would prefer to call her and all of the women in our trading army, one of our up and upcoming day trading angels 🙂. He shares a bit of insight on his path to becoming a consistently profitable trader. This was actually an email that he sent to one of our traders that needed to get over the hump now that she is trading live.

We are really excited about some of the things that we have planned including a potential Military Training University (MTU) program. This will be a one on one style seminar where we will have 2-4 traders per every Master Trader. We are looking at the possibility of hosting the MTU in October. We also plan on taking our Master Traders to Ethiopia to signify the rebirth of our day trading centers around the world. Really excited about what we have planned for the future! Here is Nikolai in his own words.

Nikolai and Marcello at the annual pro traders seminar in Tampa, Fl

My trading demons.

I housed many of them and at different moments in my journey to consistency as a day-trader…

It would not be wrong to say I’ve had them all as guests, many of them at the same time…

Here’s a reminiscence on the topic that started as a reply to a very promising trader and one of my Military-style Training students:

I remember a vicious circle of being scared early in the day and missing or passing on good opportunities only to take a bad trade out of frustration and start losing… then it snowballed the wrong way into blaming, anxiety, revenge trading, reactive decisions, etc. …usually ended up either with a horrible BIG losing day and crushing despair in my hearth or I managed to climb back to BE with a ton of luck (and a glimmer of a developing skill) and then call it a day with my tail between my legs and no confidence to speak of… I was doing this day in and day out, as if I was hypnotized into a sadistic cycle of failure, despair, hope, and groundless optimism…

After awhile my closest person urged me to think of where I am going with this occupation, as my losses were piling and nothing was changing.

Objectively, my results were representing my emotional state and the ensuing from it behavior.

Then a mantra was offered from a source I don’t even remember: if you want to get a different result, you have to do something different.

A simple idea I could work with… so I got to work.

Nikolai sharing his insights at the annual pro trader’s seminar

The first step was assuming full responsibility for everything I feel, do, or get as a result from the market. It was only after I found this courage and humility, that I actually met my trading self.

He reminded me of the nervous, angry, and impatient kid that my mother signed up for piano lessons at the age of four… My inner voice when trading was sounding just like him too – insecure, disgruntled, and aggravated with his own lack of patience and skill…

This could not be how the pro experiences trading in his mind… I needed to re-invent myself.

I started to imagine how I’d have to be feeling and behaving in front of a LIVE market so that I get good results and I started to monitor for the signs of doing it wrong.

I committed to the so called “good practice of trading” (as it was ringing in my ears with the voice of Marcello from countless hours of listening to his classes) and then blame the results (good or bad) on whoever said this is what I should be doing :_)

This strategy is a scared person’s way of relinquishing responsibilities… funny enough though, when I did it, the stress was less and the results were better (not ideal), so I decided that faking it actually helps :_).

It was a start and it made me a believer of talking to myself for a better analytic process. Even to this day this is the first advice I give ALL my students – talk to yourself out loud, or you don’t have a fighting chance, unless you are a natural.

Only years later I learned about the mechanisms of why this actually works…

Once I squeezed this technique to its maximum, I managed to “DO” the right thing even when I felt awfully scared… I stopped passing on trades and started taking more trades… my management was getting better and I had less hoping and less guessing the markets next direction. However, I was getting awfully exhausted since it felt like I am fighting with myself and forcing behaviors on my “trading self”. I got a glimpse of how schizophrenics might experience the world through their divided minds. It felt uncomfortable to go against my intuitive sense of market direction, but i realized it is the only way to change the habitual way of thinking, which produced my horrible results.

Nikolai doing a one on one sessions with a trader at the seminar

This process felt like a weird mixture of offensive and embarrassing, as if my own inadequacy was being masochistically exposed by another part of myself. This was an internal conflict between discipline and bad habits. It felt like REAL work, much more than the intellectual exercise many of us believe that trading is. My mental stamina allowed me to bring a quality verbal analysis out loud for no more than 40 minutes at a time. It was quite discouraging. But I knew from past success with both heavy lifting and mastering the piano that if it feels hard, I am actually progressing.

I started to take everything I could recognize and my style started to emerge. I still had sabotage days when I slip into any one (or a few) of the bad habits, but then I noticed it was mostly when I was not 110% focused on what the market does and what I am choosing to feel. I learned that as a trader, I am actually a manager – choosing what to feel and what to do. I had to make sure I make good choices. One prerequisite for that is having adequate physical energy. Not eating well, not sleeping enough, being out of shape, or not taking care of myself was self-sabotage, so it had to stop. Plentiful energy meant solid focus, which meant better decisions.

A solid mental foundation is also necessary. The cornerstone of one is confidence – the emotion of performance. That’s when I started to practice away from the charts. I picked a controversial approach I encountered somewhere within the trading psychology literature: I decided the reach confidence by exposing the alternative emotions as temporary illusions or merely as bad choices. The practice was to sit quietly and re-create an emotion in me like fear, hesitation, or the self-blame after a mistake… I was trying to hold that emotion with pictures and speech for as long as I could (mind you this was just an exercise of imagination, there was no cause but my effort to cause these feeling late at night in my quiet time)…

The goal of this exercise is to see how long it takes for an emotion to last if you are helping it instead of fighting it… you’ll be surprised how little stamina you’ll have to hold an emotion. At best you’ll last close to an hour, but more likely you’ll last about 10-15 minutes without being well practiced… This exercise leads to the inevitable conclusion that if emotions wither even with effort to support them, than they are by nature ephemeral and do not possess such a fundamental control over us, as we tend to believe in the midst of experiencing one of them.

That is when you TRULY realize that emotions are just choices – usually ones we make habitually down the path of least resistance. That’s how I developed another mantra for myself: lazy thinking leads to lazy trading (or emotional irrational trading), so stay focused and keep integrating the market information into a coherent framework that gives you a rational expectation. So I started to choose better when trading, because I was very well practiced at experiencing these emotions and I could recognize their onset while trading LIVE when the stimulus was real… That’s how I developed a process to monitor my emotional state while trading and it becomes very easy with crutches like putting alarms on to check for your emotional state every 30 min, and also talking out loud to catch yourself on the go as you slip out of the optimal mental state for trading…

Speaking of the OPTIMAL mental state, it is detached curiosity. It feels like watching intently an interesting game when you truly have no preference for either team! Keeping biases at bay is harder than you think and it is a subtle process. I recommend the book Thinking, Fast and Slow by Daniel Kahneman for a sophisticated review of how we develop our biases.

Detached curiosity is an artistic mixture of confidence, objectivity, flexibility, and patience… it is what many athletes describe as “flow” and it is the state from which ruthless execution seems effortless. To achieve this state, always start with the feeling of confidence and build on it over time, adding the other elements. We have all experienced “flow”, and the strongest memories of it are from our childhood, when you were doing something that you enjoy and are good at (for me it was playing challenging interactive real-time computer games and you probably saw me playing one of these once or twice when I was unwinding between sessions of working on charts with you).

Flow is characterized by losing track of time and feeling relaxation, gratification, even joy and peace, while being absorbed and performing. This phenomena unlocks your potential and reinforces a positive cycle where the immediate feedback you get from your skillful performance creates momentum that results in boundless energy and deep focus. Flow can be practiced and it is the hallmark of mastery. To do so, simply engage in the activities that get you to that state – it is crucial that the level of difficulty is at that sweet spot – neither boring, nor overwhelming, but just right. Once in the flow or after completing an activity, go in your head and re-create the trading environment with vivid details and connect the feeling of mastery and control with the detailed setting of your imagination. This is what I call practice attaching confidence to the process…

At some point months after I committed to a transformation, I realized I had gradually committed every waking second to building critical mass towards the evolution of my trading self and often this fever followed me into my dreams. I vividly imagined the future – confident entries, charts with no bad trades, pivot-to-pivot trades, solid 3-digit green numbers in my platform every day… I used to take walks and day-dream of trading success until I felt so excited I went back home and started to draw median lines or did bar-by-bar for hours… When I was not trading, I was reviewing, or reading about trading psychology, or practicing in my head, or filling the ears of willing and un-willing listeners with my thoughts about trading… Sounds scary, maybe even strange… but it worked. What began as a process of imitating form, faking emotions, and shifting perceived responsibility gradually became a solid practice that yielded results over the months. Consistency is not only probable when you commit to evolving the necessary mindset – it is the inevitable result of an intelligent approach, dedication, and time.

In short, Lana, I bought into the process… I sold my soul to trading, if you will :_)

I know it sounds certifiable… but it worked and that is all I cared for. Even now while I write this and I re-experience it in my head, I get a surge of energy and confidence and I want to go and chart pitchforks and frolic in the potential for nailing a solid trade.

I guess I’ve wired my brain well. Science has proved that the POTENTIAL for reward creates a feeling of pleasure much stronger than the reward itself, and that we would even pursue this feeling to the detriment of our physical comfort and safety… that’s why you try to call the market’s next move – because it’s tempting and it feels good. It is a natural instinct and it gives birth to one of the two fears of trading – the one of missing out.

That’s why we should learn to monitor our emotions and substitute impulses with a solid approach. We both know this is much easier said than done.

But it is necessary and you are showing up for the challenge every day.

I believe that you will succeed, so prove me right !!

:_)

I wish you godspeed!

Keep me posted!

Nikolai a.k.a. The Hitman