Only trade when in top form, trading rule number 4

27 9 2014 - No comment

Trading is the most difficult and exhausting activity I have ever carried out.  I have however “tried my hand” at several things; being a computer engineer, adult education tutor, college and university teacher, passing through less intellectual jobs like agricultural labourer, dealer on markets and so on … None of my previous experiences prepared me for the degree of commitment the profession of trader requires.

Trading is an exhausting mental activity

After a day of trading from 10 am to 12 pm, I’m usually exhausted mentally. I do scalping, which is a kind of trading which requires intense concentration and rapid response capability. I can concentrate for many minutes with the finger on the trigger (the trackball), almost not breathing, to find the best possible entry. I monitor 4 indices in real time (Dow Jones, S & P 500, Cac 40 and Dax 30) on different units of time. So I have to scrutinize about twenty graphics permanently and analyse common support and resistance zones. This requires very special mental gymnastics and after a day of intensive trading I’m just “empty”, my brain is fully prepared for a reality TV show.

Trading is a stressful activity

Beyond this mental fatigue, trading is an extremely stressful activity because we are constantly evaluating our decisions in real time. Trading does not lie; either you are good or you are not. This is the charm of this activity – we are fully responsible for our actions; our every decision has an immediate impact on our capital. In case of failure in trading, the situation is difficult to bear. Some may collapse psychologically or find a scapegoat (the broker, Ben Bernanke, Mario Draghi, Goldman Sachs … man’s power of imagination in such cases has always impressed me) to protect a wounded ego. Much of the stress comes from this psychological state of things, traders often tend to be their capital, to identify with themselves, to “foster themselves” humanly according to their market performance. Trading especially entails accepting frustration and your own mistakes…

The Trader is a high-level athlete

In an attempt to reduce stress and burnout, and endure over time, do not hesitate to see yourself as a high-level athlete. Everything must be analysed andrationalised in order to be at the peak of your physical and mental shape in the financial markets each day. A quiet working environment, embellished by its physical and visual comfort limits fatigue and promotes concentration to a certain extent. This is a picture of my “trading room”, embellished according to my needs.


My Trading Station

But you must go even further to endure over time. Now at the age of 40, I no longer have the same energy to trade as when I was 25. Formerly, I could trade European and American markets from 9 am to 10 pm, sleep for 4 hours and continue on Asian markets, go back to sleep for 2 hours and start a new cycle all over. This is wishful thinking now. I have learned to pace myself and especially listen to myself throughout the day. I make a little sweet snack at a fixed time to recharge my brain at 4 pm which is starting to “think” less, whereas this is precisely the time of the day with the richest information and I am generally more nervous with the first trades on American markets. As an athlete, I avoid hypoglycaemia and I regularly fuel my working tool, my brain (remember that when resting, the brain already mobilises 60% of the body’s glucose … so for a trader, the rate must be very high).

 The trader’s psychology and form are essential for him

His form and psychological state are two key elements in trading. They are just as important as his capital, his trading “method” … In fact, when I’m tired I trade poorly; that cannot be disputed. I tend to go back too early in the markets, I am more impatient, I might get worked up (my protective shield will be more easily overwhelmed) I do not analyse the situation very well … and end up losing money. There is a direct connection between my emotional state, my level of fatigue and my trading results. So I do not trade much on Friday, nervous exhaustion that accumulates during the week makes me less able to trade effectively. When I was not taking this into consideration, Fridays statistically represented 40% of my losing days. By no longer virtually trading on Fridays, my annual gains are higher than before, and I am less tired.

So every morning, I do my own check-up, as a cyclist would check his bike. Tired? OK. Morale? OK. I can trade. If this is not the case, I do not trade, I rest, I take a break and try to relax. This is a difficult discipline to have because usually we love to trade. There is a certain addiction, you want to “be there” … But the most sensible thing to do is to reinvest in your human capital. Listen to it, let it rest, in order to preserve your monetary capital. This should be the basis of money management for each trader.

When you seriously decide to become a trader, this can radically transform your life. Personally, trading has allowed me to discover myself psychologically and has forced me, even compelled me to eat better, live a better lifestyle, do some sport … even if it is still far from being perfect. Trading has taught me to manage my human capital. My body and mind are my working tools. They must be preserved because they are as important as my capital which is my revolving fund. The two are closely linked.

List of my 10 personal trading rules:

1) Do not lose money, trading rule number 1

2) Trading rule number 2, reread rule number 1

3) Always have a backup solution, trading rule number 3

4) Only trade when in top form, trading rule number 4

5) Think for yourself, trading rule number 5

6) Control your losses, trading rule number 6

7) Do not force yourself to trade, trading rule number 7


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