There are far too many traders that are losing large percentages of their trading portfolio in the markets. They know that they are in trouble; they know that they need to change, and they find themselves doing the same thing over and over and experiencing the same exasperation and pain. Furthermore, many don’t have a clue as to what is driving the behavior that is producing the unwanted results. Also, a significant number of those that are losing in this way are in denial; in other words they know that they are in trouble but aren’t willing to dig deep to find out the problem. They hope and wish for a magic bullet or Holy Grail in the form of an indicator that will change “everything.” Well, there is no tooth fairy, and there is no “outside” force that is going to make it all better. It is all “inside” you.   You see, you must first be aware of your issues, improvable and weaknesses before you can effectively address them. Hence, you can’t change what you can’t face, and you can’t face what you don’t know.

In order to seize the results and outcomes you want, you must have clarity of thought, clarity of vision and consistent effective behavior. And, of course, your prior programming has enormous importance to the rubric of daily activity you wade through to achieve those results. But, before you can think, see and do with effectiveness, you must be aware of your underlying self-sabotaging rules. One of the ways to become better acquainted with yourself, especially some of those deeply held myths and unconscious beliefs that drive your thinking, perception and behavior, is to write about your experiences using a thought journal. A thought journal is designed to identify your internal trade date (thoughts, emotions and beliefs), this is different from a trade journal, which is designed to identify the mechanical data of your trade (charts, technical analysis, news, etc.). Through the thought journal, you gain insight into “why” you have not developed a coherent trading business plan or haven’t followed the plan that you’ve created. The thought journal reveals why you violated your rules or why you haven’t established any. You’ll have a better understanding of “why” you haven’t established a money management strategy or aren’t following it when oversized positions are entered leading to the mother-of-all-draw downs. Once you learn the why, you will be in a better position to change your behavior. That doesn’t mean that you can’t change faulty behavior unless it is completely analyzed and laid out; yes, there are those who only need an example of effective behavior, and they are off and running. However, many if not most, traders are plagued with errant emotions; that is, the abject fear and rampant greed that hogties so many traders that know what to do but can’t do it because of those same emotions and faulty thinking.

Once you have identified and recognized a faulty mental model or MAP (the underlying beliefs and values driving the emotions), it’s time to evaluate the extent to which it disrupts your perception of reality. Next, you must restructure or modify the mental model or mythology in order to “see” clearly. Results on any one trade must be evaluated from a new point of view. Otherwise, you can’t know with certainty that you properly executed the trade based upon the chart. If you don’t know what went wrong, you can’t change it, and therefore you can’t duplicate positive action or prevent negative action. Of course, you want to accumulate profit, and that is best done over time by skill building and learning to do more right things than wrong things, as well as possessing the knowledge to know the difference. It’s important to redefine how you measure results. It’s not about making money in any one trade; it’s about remaining consistent with what matters most and that is your rules and your trade plan and consistently following them … religiously. If money is made by accident, it’s nearly like taking a loss, because you didn’t learn from the trade and therefore you can’t duplicate the behavior.

If evaluation of the trade is based solely P & L then the value has been placed on a transient result and not a principle. In and of itself, money is only a medium. It is not grounded in a consistent truth or foundation. It is dependent upon consensus for its value. Conversely, processes based on principles, that is, a guiding fundamental truth, promote a deep common denominator forging a pathway for creating consistent results. And what are principles? They are market knowledge, a trading business plan, a plan for each entry, money and risk management, appropriate position sizing, and of course discipline. Processes based on principles produce the kind of results that stem from accurately identifying the reality of the chart or price action in order to be on the right side of the order flow. For instance, the principle of self-disciplined learning and awareness of how closely you accurately perceive the reality of the trade (a market principle) as opposed to the inconsistent distortion based upon seeing what you want to see (an ineffective behavior based upon internal mythology).