Ramshaw Trading

Trading Stocks Trilogy-1: The Psychology

If your mind is not in the right place in trading, you will blow out. Stunned? The statistics show that 90% of traders do not succeed over time. Ask the multitude of traders who have been churned out, to be replaced by a fresh wave of traders.

The trading terminal is not a place where one plays out one's personal problems, or emotions. There are too many attractions which trick your mind into doing things you should not be doing. Like Odysseus in the Greek mythology Odyssey, who had to fill his sailors' ears with beeswax, and tie himself to the mast, so that he would not be enticed by the Sirens, who led many a sailor to the devastation of the rocky shores.

So who are these Sirens, that could lead you to plunge into the deep fathomless depths of the rocky sea bed, of trading catastrophe?

Siren 1: You shall not trade, if you are in a foul mood.

Siren 2: You shall not trade on news, before, or after. The stock may move in any direction, which cannot be predicted by anyone.

Siren 3: Do not listen to the experts. There are none in the capital markets. Stock movements are probabilities, and no one can predict with certainty, probabilities.

Siren 4: Do your own analysis, then take a call.

Siren 5: Do not hesitate to pull the trigger, because of fear.

Siren 6: Do not hesitate to get out, because of greed.

Siren 7: Leverage gobbles up your account.

Siren 8: You are completely responsible for your results. Take the small jolt early, clear your head, and then move on.

Siren 9: The 'Golden Siren' or the Golden Grail of trading: Use not more than 25% of your capital on any one trade, less, if you have a large account. If you lose your capital, you will then not lose your soul. Avoid too many open positions.

Siren 10: The Diamond Rule: Do not keep a position open if you cannot track it, or if you go out, or the trading terminal is not accessible to you. Many top traders have blown out in the markets by not following this simple rule.

Siren 11: Put your plan in writing. The terminal clouds your mind.

Siren 12: After you close your trade, clear your mind. Look at a new trade from a fresh perspective.

Siren 13: The need to be right: Ego, the greatest destroyer decimates accounts. If you don't know what's happening, get out first, ask questions later.

If I tell you many more Sirens, those will further cloud your mind, as a result of information overload. In the markets, keep things simple. Research has shown that the conscious mind can hold 3 to 7 thoughts at a time, too many will freeze it.

The simpler, and the less number of steps you follow, the more successful you will get.

Remember the statement by Robert Koch in The 80: 20 principle 'Simple is beautiful, complex is ugly'.

Wish you all the best in this venture, if you so choose to play it. Always trade using charts. Realise this: What the mind does not know, the eyes cannot see, and what the eyes cannot see, the mind does not know.

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