Traders and as well most people who are seriously attempting to do their best in anything that requires lots of focus, mental alertness, information processing, analysis and commitment also must have a strategy of how it’s going to be done. All of these mental initiatives are integral to the big picture but arguably one of the most important is the strategy that you employ. By strategy I mean the overarching plan, your “big picture” series of steps that are designed to catapult your efforts into the realm of success. Strategy also represents the science and art of adapting complex protocols, structures and behaviors that serve an important function to achieving effectiveness in the effort. So, strategy forms the foundation of how you would move forward in your trading. Strategy also uses information and data as both the big picture and the details are considered when setting the plan in action.

Information and data in trading can be said to have two domains or spheres that the trader uses to structure the process; the Mechanical and the Internal. The Mechanical encompasses all the perfunctory items of the trade, the mechanics if you will: for example; charting, analysis, planning, news, economic reports, entries, targets, stops and exits to name a few. The Mechanical Data of trading represent the components or moving parts that are for the most part external to the trader and are usually manipulated in some way. The Internal Data are intricately related to and an outgrowth of your mindset and comprised of thoughts (attitudes, beliefs, biases, values and internal pictures) that stem from personal conditioning and programming going back as far as infancy. any result that you experience is an extension of the interplay between thoughts, emotions and behaviors and they are always present as in T+E+B=R. Internal data is the foundation and initiates the making of your ability to follow rules and keep commitments …your self-discipline.

These two domains of data the Mechanical and the Internal form the foundation of the trading process and they are always involved. Furthermore, they are of equal importance and must be and remain balanced in order for your trading process to ultimately be consistently successful. In fact, your earliest strategies almost invariably involved mechanical ways of perceiving and manipulating the trade process. For example, traders are taught technical analysis strategies of price patterns, candle formations, moving averages, indicators, time frames and supply and demand zones. They learn about the mechanics of planning, entries, targets, stops.

Here is the buried lead, you must have Mechanical Data strategies, and it is imperative that you also learn, train, incorporate, practice, repeat and master Internal Data strategies. No matter how awesome your Mechanical Data strategies are, if you cannot follow the rules of those strategies and keep the commitments that you have made to your trading process, then the mechanical strategies are useless. It would be as if they did not exist. Your discipline, which is a direct product of your internal data and your ability to manage your internal mental/emotional state, is crucial to your overall success. So, it follows that you must use early and often mental and emotional tools that are part of an overarching internal data strategy for creating a trading mindset that develops the capacity for emotional strength and endurance in the trade. Trading is difficult, not because it is rocket science, it is not; but because when you are in the trade your limiting and irrational beliefs about self and markets are challenged by your concepts of money and the prospect of loss (causing fear) and gain (initiating greed). Your A-Game is required every time you prepare to open your trading platform and you must sustain it while you are in the trading trenches.

For most of you reading this, the notion of rules and their importance to your trading may be a “no brainer” and I certainly hope that’s the case. But, some of you have some serious issues with following the trading rules that you have identified. In other words, even though you may be “talking the talk – you’re not walking the talk.” And, you’re not alone. Everyday literally millions of traders across the planet are violating rule after rule, and in a lot of these cases they are perplexed as to why they keep doing things that a moment ago they were adamant that they would not, like moving a hard stop-loss as the price action is inching toward it. Or, on the other hand, failing to do something that they promised that they would; for instance, finishing that “trade business plan.”   I’ve discussed these very important points in past articles, but in this missive I’ll be discussing another key item with regard to trading rules which has to do with your “approach.” There are traders that are treating their rules as indicators of what they could follow rather than what they must follow. Some traders think that rules are discretionary and sometimes they follow them and sometimes they don’t; this type of thinking destroys trading results. Trading with a weak commitment to your rules is just as serious, if not more, than not knowing why you violate rules over and over again despite the initial desire to follow to them.   To really support your trading, rules must be approached with an iron-clad commitment to keeping them, under any and all circumstances, otherwise they become little more than window dressing on the trade.

Rules are trade-capital protectors and can be considered a life jacket in a stormy sea because they are designed to inform your decision making when you are in the shark infested ocean of trading. For that reason rules are essential to trading. Warren Buffet, an investor superstar has been quoted as having said, “There are two rules for trading. Rule #1) Don’t lose money. Rule #2) Don’t forget rule number one.” Rules represent a governing action because they dictate your behavior given certain parameters…for instance, with regard to money management “risk no more than 2% of your account in any trade.”   In order to support your trading in the best way possible, rules must be inviolable unless and until you have deemed that they are in part or whole no longer effective. This determination is made through using your documentation process and identifying from your feedback what is not working and then modifying or completely changing that rule. Otherwise, while your rule is still in play, it must be untouchable. One of the reasons for maintaining this approach is that if your rules are “flexible” not only will their ability to serve you be compromised, it becomes very easy to waiver in the face of internal conflict when emotions like fear and greed begin to create rationales for deviating from the plan. In fact, every time a trader fails to follow a rule it becomes easier to disregard it the next time…and so on. Discipline and good habits are both built the same way, one trade at a time. Well thought out rules that are followed to the letter make the difference between being successful and blowing up your account.

So, it’s critical to approach your rules by first being accountable for your results. Your rules are there to assist you in maintaining focus on what matters most in your trade plan and follow-through. As you continue to “honor” your rules consistently you will develop powerful habits surrounding your ability to follow-through and keep personal commitments.   Uphold the conceptual fact that you are responsible for your decisions by using your documentation process to learn from “the data” of your trades which will inform your trade development and provide the evidence as to whether the rule in question is a diamond or a dud. Then, if necessary modify, change or eliminate it. Until then it is considered “in play” and cannot and therefore as far as you are concerned “will not” be violated, compromised or “tinkered with.” Remain consistent, do not modify a rule or principle in order to conform to the market. Instead, let the market conform to your rule and follow the rule without deviating. “If you stand for nothing, you’ll fall for anything.” Alex Hamilton

Remember, trading from your highest and best self and in your highest and best interests are all that matters to your trading results. Trading is like venturing out on the high seas, you must be prepared with the proper vessel, apparatus and navigation gear to ensure that the destination is accomplished. So, let your rules be your navigation instruments to take you to consistent trading results.

Babies, both pre- and post-natal are metaphorical sponges of data and information. Also, brains have the ability to adapt to disease and injury by having one part of the brain take over the functions of another part of the brain that has been compromised; for example disabling injuries to the speech centers of the left brain can be “learned” by the right brain as a compensatory measure. But, we now know that through training the brain can adapt, change and even “grow” new brain cells well into the senior years and beyond in response to being challenged through illness or injury. In fact, the brain’s ability to reorganize itself by forming new neural connections throughout life is called “neuroplasticity.” Neuroplasticity refers to the potential that the brain has to reorganize by creating new neural pathways to adapt, as it needs. In other words it is the capacity of neurons and neural networks in the brain to change their connections and behavior in response to new information, sensory stimulation, development, damage, or dysfunction.

Training is an important concept to embrace with the notion of neuroplasticity. You know that your body will respond to the stress of consistent exercise that pushes your limits causing the system to go out of homeostasis (the tendency of a system, especially the physiological, to maintain internal stability, by responding to any stimulus that would disturb it) and adapt thereby developing the capacity for greater strength and endurance. The same principle holds true for your mind/brain; the neuroplasticity of your brain is what responds when you challenge your thinking, feeling and doing in ways that take you out of your comfort zone. There are many ways to train your mind/brain to begin to restructure and reorganize itself in the interests of your A-Game trading. Here are a few:

1. Remain in the moment and in the Now of the trade allowing you to put yourself into a position of alignment of body, mind and emotions going in the same direction and for the same goals. When you are aligned it is more likely that you will be able to effectively deal with internal conflict that comes from thoughts, beliefs, biases and emotions that are contrary to your objectives.
2. Monitor what you are telling yourself. Many of your thoughts are out of awareness or unconscious to you. So, it is important to track your thoughts and when you become aware that you are thinking or saying negative, destructive and devaluing things about the market or more importantly yourself, it is critical that you change them from being unsupportive to positive and proactive.
3. When you become aware that you have done something that is not in the best interests of the results that you want, document the specifics and from time-to-time revisit the journal points in order to uncover the bad patterns of thinking feeling and doing that make up negative habits. In this way you position yourself to reprogram faulty behavior.
4. Embrace your negative emotions for they have very valuable information associated with them. When you do this through appreciative inquiry (gently questioning your motives and thinking that were behind that negative emotion) the information that you uncover will take you step-by-step towards making the changes necessary to get the results that you want.

The preceding points are only a few of the ways that you challenge the status quo of your brain/mind and begin to train it so that it begins to work for you rather than against you. Neuroplasticity is a powerful component of the most awesome machinery in the known Universe. Learn to use it, train yourself in methods that will item-by-item, trade-by-trade take you from where you are in your trading to where you want to be.

“Are you caught up in trading and not caught up in making money?” This is a very legitimate question in light of the fact that there are myriad traders around the planet who trade, and trade, and trade.   They may have daily or trade session targets, but rather than discontinue trading when they hit those daily targets they continue to trade and more times than not end up giving back those gains and as well taking a loss for the day. Now, the logical inference is that if they had a target amount of profit and hit that profit target they should stop trading. So, what compels them to continue…the answer is greed. Actually, greed is another aspect of fear. Greed is simply the fear of not having enough.

Trading is ultimately about money. The trader wants to expand his capital. But, here is the paradox…trading is difficult and arguably the most challenging business venture on the planet because of the psychological turmoil that is activated in the trader when he enters the trade. So, consistently successful trading is “not” about making money in any one trade. It is a process; a process that requires a devotion to preparation, analysis, planning, implementation and execution.   I have often talked about having a sensory rich vision of what you want to achieve. This is a very powerful tool to connect with the passionate white-hot energy of why you want to be successful as a trader. It is your trading purpose, which ties the what-matters-most in your life to the what-matters-most in the trade. During the civil rights era, there was a saying “keep your eyes on the prize.” This may seem contradictory; to say on the one hand you must be dispassionate about the ultimate outcome and have a sensory rich vision of the outcome.

So, if you are committed to doing your best in order to make money in your trading process, you must de-focus your attention from the money as you trade and intentionally master your trading process. This necessarily means that you must develop your mindset. You must become and remain self-aware so that you are able to increase your mindfulness of your thoughts, emotions and behaviors. You must create consistency in your mechanical data (everything that relates to the mechanics of the trade – your preparation, planning and execution); and in your internal data (learning mental and emotional tools to manage your thoughts, emotions and behavior) in order to develop capacity for emotional strength and endurance during the trade. This process is no small order and it takes a willingness to be uncomfortable in order to grow and develop the necessary capacity for emotional and strength and endurance. But, if you believe in yourself and take it one step at a time, you’ll get that prize…the ability to trust in your plan, trade your plan, and move on when the trade is over.

The financial markets are neutral representations of an all the hopes, fears, and decisions of everyone executing a trade. When you trade you slip metaphorically into the skin of the market and see yourself in its reflection. And, of course every blemish, character flaw and weakness that you have is in that reflection, because you “express yourself” while in the markets. The successful trader can “feel the markets” through insight and intuition that has been developed through countless hours of observing market charts; but she does not get lost in those feelings. The successful trader has an intimate understanding of the delicate balance between emotional intelligence, i.e., managing emotional volatility through protocols, routines and habits and tracking the mechanical data of the markets. They focus on doing the “right” things habitually (following trading plans, rules, money management and position sizing) as if their life depended upon it…and their trading life does depend upon it. In this way they set themselves up to get the right results habitually. They know that consistent successful execution is intimately related to mastering this process of focusing on what matters most. It becomes a Zen of trading by losing the ego attachment and using mind management tools that engage the subconscious to work “for” them rather than against them. This is accomplished by redefining the relationship to the trade. Your relationship to the trade becomes accentuated as in a business transaction with another human being; the objective is to be in the flow. Being in the flow means that you develop a detached interaction where you are not attempting to get each and every tick of a move, but on the contrary aiming to come away having executed well with a good return. To be and stay in the flow you must be self-aware and “watch” what you are doing. You want to activate your “internal observer” and this is accomplished by relaxing at every opportunity and creating the habit of “being in the moment; fully present and in the Now of the trade.” In this way you can maintain a fierce focus on what matters most and promote a shift from fear, frustration, irritation, and stressful tension to relaxation, mental clarity, and self-confidence. Doing this you will be better positioned to do the “right” thing in the trade. There are many, many internal resources that you have, some of which, you may not even be aware. Internal resources like for instance, the ability to discern chart details, see the big picture of the trade, initiate a mindfulness regarding supportive beliefs and others. But, it is very difficult to access and activate internal resources without first ensuring that your internal observer is online.

Activating the internal observer can be accomplished by doing the following:

Change physiology

• Change your physiology, stand if sitting or sit if standing
• Straighten your body
• Take a good stretch
• Take a few deep breaths, in this way you are initiating the parasympathetic nervous system.
• By engaging the parasympathetic of the Autonomic Nervous System you dilate blood vessels and increase oxygen to the brain and muscles slowing things down and initiating a “Relaxation Response.”

When ego investment and emotion rise, trading becomes a reflection of the ego, in other words defensive reactions to neutral events and inflated self-seducing illusions that really distort reality. Overly invested egos create a sort of delusion, and consequently, what you thought was a great trade was in reality a “fake out” or something that came from internal bias not the objective reality of the charts. For example, Jack, a novice trader, while in a position on the YM E-mini futures, violated his rules and failed to maintain a hard stop. It was on a day when the YM lost over 300 points. The second rule that he violated was to “think” that the ATR (Average True Range) had been breached and that since its average daily range was violated, it would “come back.” The third rule he broke, after finally closing out of the trade for a significant loss, was to believe that increasing his position size and essentially “doubling down” would bring him back to break-even in another trade attempt. Now this is a prime example of delusional, ego fueled thinking. The analysis was distorted by the emotional upheaval taking place after incurring the original loss.

So, your ego is not your amigo. You’ll want to get the internal observer involved early and often by being self-aware and wary of ego driven tendencies that come from unsupportive thoughts and emotions. Trading with your highest and best interests in mind is critical to your success. This hinges on promoting a mindset that uses mental and emotional tools and techniques that are designed to shake you out of that self-sabotaging delusion. Remember; as you trade it is important to identify what part of you is showing up to trade your account. Is it the strong, healthy, grounded, centered and focused part; or is it the fearful, frazzled, and fragmented part that is torn by ego driven thoughts and emotions? Monitoring your ego can keep you from getting your trading into trouble. Have a great weekend and happy trading.