General discussion : Betfair trading made simple - Part 2 Mindset

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JollyGreen
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Thu Aug 29, 2013 11:33 am

Trading for newbies - Part 2 – The power of positive thinking.

In my humble opinion the biggest difference between a good trader and a struggling one is mindset. The old saying “is your glass half full or half empty?” rings true in trading. When I look at a market I am either looking for or seeing opportunities whereas a trader with the wrong mindset is looking for or worrying about problems.

If you are someone who worries too much or is likely to say “what if” then you need to work on that aspect before you do anything else. If you are the type of person who is quick to anger or gets over excited easily then you need to work on that too. To be consistent at trading you need to keep a level head and treat winners and losers alike. This is of course related to your mindset and it requires a little bit of work to adjust your thinking.

As humans we are programmed to work in specific ways due to years of evolution. It may surprise some of you that at birth we only have two built in responses. We have a fear of falling and of loud noises and everything else is a learned behavior. Now that’s a lot of learned behavior and our surroundings can play a significant part in that learning, we will naturally try and get what we want. Think back to your childhood and asking for an ice-cream. You would keep asking if the first answer was no and you’d keep going until you either got the ice-cream or screamed and cried because you didn’t. Occasionally you might get a slap but these days the parent would be locked up….I’m sure you get my meaning!

As humans we find it difficult to admit failure. Again, think back to your childhood and a time when someone did something wrong, if you’re like me then on occasions that someone was you. An adult would say “who did that?” and everyone would say “it wasn’t me!” Well that is normal behaviour and you are programmed to behave that way by your circumstances. Let’s be honest unless you’re a saint then you’ve managed to talk yourself out of blame or trouble, I know I have!!

How does this relate to trading? Well think about entering a trade that turns sour. If your initial reaction is to apportion blame then you need to work on that mindset. If you say “I knew that would happen” or “that always happens to me” or “typical, this is fixed, someone knows what I am doing” then you need to work on your mindset. You are not failing and you are not predestined to fail; predestination went out with the Reformation so just accept it as something you need to change.

Can you recall a time when you did something wrong which upset someone? You decide it is time to apologise and end the issue. How good did you feel when you said sorry? The feeling of tension and angst was gone and you felt relief at being able to put it behind you and move on. If you can apply this to trading then your progress will be a lot smoother and your ability to relax and enjoy will also improve.

One final part. If you find yourself saying "I don't need this mumbo jumbo" or words to that effect then you definitely have the wrong mindset for trading.

If you have any burning questions then please feel free to ask, I will do my best to answer.

Tradertrician
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Thu Aug 29, 2013 1:50 pm

In my humble opinion the biggest difference between a good trader and a struggling one is mindset. The old saying “is your glass half full or half empty?” rings true in trading. When I look at a market I am either looking for or seeing opportunities whereas a trader with the wrong mindset is looking for or worrying about problems.
Yes this is defiantly something I have to work on, I spend at least half my time looking at what threatens the trade and how I can minimize the risk to a position which to be fair is way past whats possible but I still keep searching for it.

I know once I am comfortable a strategy works, then I know I will be totally comfortable with the risk that goes with it but its getting past that initial feeling of being out of control of the trade to find out whether its profitable or not. Like I said in a previous post, I hate the feeling of having a straight punt gives me, having to rely on a team or individual to come good or you lose. I like to be in control of my own destiny which is why trading is so appealing to me as I love and have a huge knowledge of sport and to be able to use that to maybe become a profitable trader and make a little bit of cash whilst watching a footy match is just an awesome thought, dream to be honest and one I will quite simply never give up on.

I'm going to make a conscious effort to try to stop myself repeating this problem, after all, if there was no risk there would be no market.

Great stuff JG :D

Paul

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JollyGreen
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Thu Aug 29, 2013 2:21 pm

Paul

Forget the risk involved with a trade, that is a negative mindset. Try and think about the potential rewards. There is always an exit for you - cancel the trade! It may mean a scratch or a small loss but not a huge loss so the risk should not be your focus. If you are thinking about potential risk then by the time you convince yourself it is okay to proceed the opportunity will have passed you by!

If you continue to trade with this positive mindset you will discover very quickly what works and what doesn't. Then you simply strike the proven dodgy trades and concentrate on examining what works on the good ones. No negative emotion to tie you down, just positive attitude with ongoing improvement.

JG

PS I am not saying jump in anywhere I am saying plan correctly then execute rather than sitting there wondering "what if"

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kelpie
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Thu Aug 29, 2013 3:44 pm

Agree. Well said on importance of positive thinking.

I don't get fazed by losses anymore and stay positive all the time. A - it's educational and makes you stronger. B - i'll cover the loss soon enough. In a strange way... I look for the odd loss now and again, provided it's from pushing my performance

Tradertrician
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Thu Aug 29, 2013 6:48 pm

Ok thanks JG

I will try to focus my thought process on the positive side of the trade from now on and if it does go against the plan then get out, ask myself did I stick to the plan, if not, learn from it and try not to make the same mistake next time and if I did stick to the plan then great, losing is all part of trading as well as winning.

The daft thing is, when I do make a mistake and it ends up costing me more money than it should by hoping the market will turn back in my favour etc, I never dwell on it and just put it out of my mind coz whats done is done. I have never chased losses, so why I spend so much time concentrating on what could go wrong I will never know coz when it does go wrong, it really doesn't effect me mentally as I know the nuts and bolts of the whole trading process all boils down to 2 columns, profit and loss, and the objective is simple, try to make the profit column add up to more than the loss column over a period of time and many many trades. If you want to look at it another way, by comparing it to say a footy match, its all about trying to score more goals than you concede and even the very best teams in world football concede goals week in week out.

Cheers
Paul

Iron
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Thu Aug 29, 2013 9:20 pm

JollyGreen wrote:Paul

Forget the risk involved with a trade, that is a negative mindset. Try and think about the potential rewards.
If you're advocating avoiding paralysis by analysis, I agree.

However (and I'm not saying you necessarily disagree), I think it is important to be aware of the potential downside of a trade as well as the potential upside. For example, if you're going to lose 10% of your bank if the market spikes against you with your planned trade, it's probably wise to use a lower stake, for example. I know you know this, but I'm pointing it out for any newbies that might be reading. :)

Jeff

steven1976
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Fri Aug 30, 2013 12:09 am

Hi JG nice post. I think for those that are interested there is a book called the chimp paradox that is about two parts of the brain that control these emotions. I think some top athletes have had counselling for it and improved their performances.
http://bookoutlines.pbworks.com/w/page/ ... 0Happiness

Sorry for jumping in, I thought I'd just share it as it was relevant to the post. Look forward to part 3.

Tradertrician
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Fri Aug 30, 2013 7:34 am

Thanks for that Steven, that is very interesting and I think I understand it and it all makes sense.

As I understand it, a natural thought process of a newbie trader will be powered by the emotional side of the brain which is much more powerful than the logical side of the brain as it has no experience in making trading decisions.

Therefore, a newbie trader will be making his/her most important trading decisions based on emotional thoughts while an experienced trader who has retrained his/her mindset will be making all his/her trading decisions from logical thoughts, which will obviously result in a newbie trader making a loss over a period of time and the experienced trader making a profit over a period of time.

Here's a question or two for JG, Steven or any other profitable trader, considering the above, would it be fair to assume, once the mindset has been retrained, would it then be much much easier to spot opportunities in a market when it has been moved by the power of emotion? hence the line I have read multiple times 'it sometimes pays to go against the crowd'. Would it also be fair to assume that a newbie trader who knows the mechanics of trading but hasn't mastered the mindset needed may also notice the opportunity in the market but his/her emotional side of his/her brain will overpower the logical side and prevent them exploiting the opportunity?

Great stuff guys!

Paul

steven1976
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Fri Aug 30, 2013 8:23 am

It depends if you have an edge. Jolly knows horse racing so he would be more in control of his emotions if he entered a trade I imagine as he knows the value in the horse and to leave it open for a while. I on the other hand don't know 2 horses names so for me I prefer to play about at the front of the book and trade the money as though it's me against the market.

I've not read the book to be honest but a friend of mine who is a golf pro put me onto it. His chimp (Clive) use to like women and would take control of him before an event. He found it hard to control Clive even though he knew it was wrong and then that affected his playing.

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JollyGreen
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Fri Aug 30, 2013 10:07 am

Ferru123 wrote:
However (and I'm not saying you necessarily disagree), I think it is important to be aware of the potential downside of a trade as well as the potential upside. For example, if you're going to lose 10% of your bank if the market spikes against you with your planned trade, it's probably wise to use a lower stake, for example. I know you know this, but I'm pointing it out for any newbies that might be reading. :)

Jeff
Noooooooooooooooooo!!!

That is the typical negative mindset I am trying to discourage. I notice you said if the market spikes against you rather than the market spikes in your favour; negative thinking!!

First, you have no control over a potential market spike so why waste any thought on it? If there has been heavy backing causing a spike then naturally join the back side and wait for the Muppet dropping the hefty bets to hopefully come again and help you out but please do not sit there thinking "what if" in relation to a spike. If you sit there worrying about that then you are doomed to fail. If you join what has been a fairly normal market and a spike moves it against you then you deal with it then, not before. If I am hit by a spike I assess the position by looking at the total market volume, the size of the spike and the amount of ticks it moved the market. I can gauge pretty quickly if the market will retrace or if I am in mortal danger and must take the loss. As for it being 10% of my bank, I can honestly say I have never experienced a spike so large that it threatened that much of my bank.

If you assess a market and determine a position is favourable then you must act, as soon as you start thinking "what if" you are banjaxed! So you must assess then commit without hesitation. Once your position is open you assess constantly and if it goes your way you take as much profit as possible. If it goes wrong then you close out and regroup. Simples!!

Here are some quotes for you.

"He who hesitates is lost. Swift and resolute action leads to success; self-doubt is a prelude to disaster." Joseph Addison (1672 - 1719)

“The person who risks nothing, does nothing, has nothing, is nothing, and becomes nothing. He may avoid suffering and sorrow, but he simply cannot learn and feel and change and grow and love and live.” Leo Buscaglia

If you are having doubt or struggling with the "what if" syndrome then perhaps print the first quote in large type and pin it close to your monitor. You can then use it as a positive trigger to help your development. I will be touching on brain function in a later post.

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