By Darrell Martin
Some say in trading the battle is between the bulls and the bears. That particular battle is just for the media. The true battle is You! Even with a perfect system and strategy, you still have to have discipline and follow all the rules. You must have an honest estimation of yourself.
You cannot control the outcome of a trade. As soon as you accept this as true, then going forward, you will be a better trader. There are things in trading you can control such as when you sit and trade, entering a trade, following system rules, responding to rules being met, how you react to a loss on a bad trade, whether or not you push a trade and if you employ risk management.
All of these things help you identify your trading animal personality. Some personalities are well defined. Some of us have several of these mixed together. Which animal do you want to be? Self-analysis is important. Every day after every trade ask yourself, what did I do right or wrong? Which personality did I express during this trade? What can I do differently next time?
SHEEP Sheep are lost. They do lots of demo trading but do not have a lot of focus. When asked if they are trading yet, their answer is, “No. I’ve been testing for the last three months.” They have tons of charts and indicators and are always searching every system, but never doing any real trading. They live in demo world!
Sheep are too afraid to say, “You cannot control the outcome of a trade.” When they enter a trade and it’s losing, they do focus so strongly on that trade that they miss the perfect long trade that just set up.
They are always looking for the one perfect system that works 100 percent of the time. They are too afraid of losing; therefore, they will hop from system to system, thinking the next one will be the Holy Grail. They are so focused on winning they disregard trading with good risk management. They mix systems trying to avoid losses, which causes them to test forever.
What do SHEEP need to do? Instead of looking at trading as winning or losing, sheep need to look at it as inventory moving in and out. At the end of the week, the goal is to have more in than out. Because they are fear-controlled, they think they have to know everything before they can do anything. Instead, get set up, learn the system and start demo trading. Is this you? Are you a SHEEP?
PIG Pigs will try anything and will use live money to try it. They are lazy-- too lazy to test or try trading in demo first. They will jump from one thing to another with live money. They will go “all in” on trades and blow through their account.
They are not good at risk management. They trade too big, are greedy and are willing to risk $70 to make $5 more! They will go into the dark zone for a chance to get the last $5, only to lose it all. They don’t believe in exiting at a stop loss in order to keep good ratios. They stay in losing trades hoping the trade will come back. They jump in too early, too late or simply do not follow the rules and still hope the trade will work out.
Pigs have no desire to learn and grow. They are proud of what they’ve already done and think that qualifies them to be an instant success in trading. They prefer to follow a guru or signals. They never ask the question, “What did I do wrong?” They only remember their winning trades and have excuses for any losing trades, but they don’t know why they lost.
RECAP: Sheep are very scared and never do anything. Pigs are not scared, but lazy. They will not test and want it all handed to them. Do you see yourself as either of these animals?
CHEETAH
Fundamentally, cheetahs are pretty good traders, but ask them to teach someone else how to trade and they would have a hard time. Cheetahs go incredibly fast and burn out quickly. They don’t have long-term goals.
They will jump to multiple strategies because they are bored. They want to trade quickly. They have no patience, are not consistent and force trades. They have a need for action, so they don’t know when to stop for the day. They are trading “junkies.”
Cheetahs are a jack-of-all-trades and a master of none. Instead of taking the time to master one, they add on. They can turn into sheep, constantly testing and trying, but not doing.
You’ve seen the shortcomings of the first three personalities. Which one do you want to strive to be?
LION Lions are patient, waiting for the kill. They wait for the right setup. They analyze markets, look at the news, volume, ranges and market conditions in order to get a full view of what is going on.
They know the ABCs and the 123s–the whys of the systems. They know that the rules may line up, but because of news or other factors, they ask themselves if they should take the trade.
Lions have multiple plays in their playbook. Though not as fast as the cheetah, lions wait for the trade to line up, waiting for it to come to them, never chasing it. They have good risk management and only trade with risk capital. They master a few systems, not dozens, but enough to handle multiple market conditions.
Never hesitating, lions wait to strike until the time is right. If the trade setup is there, they take it. Unlike a sheep, they don’t wait and think about it. They don’t jump in too early like a pig and hope the trade will work out. They learn and become a guru instead of merely depending on signals or somebody else for their trading success.
Lions choose the right contract instead of a random one. They know why they took it and can explain it, along with their chart, system and the reasons behind their trades. They perform self-analyses on every trade. They ask questions like, “What can I do better?”
REALITY The reality is you are all one of these animals at some point. You may be a different one on different days and at different times. As a trader, you have to be good at self-estimation. Determine who you are being at that time and strive to do better. Track your trades using a trading journal. What do you need to do to be the lion?
See more at Darrell’s Open House Webinar: Mastering Yourself