THE STOCK TRADER’S PROBLEM SOLVING MINDSET

I’m not sure if Einstein could have been a great trader but what I do know is he sure did have a way with words, especially when it came to simplifying matters.  He believed that the best theories were the simplest ones, “Everything should be as simple as possible, but not simpler.”

No less true when it comes to trading strategies.  Few traders make a good go of trading. Less than 10% succeed.  A large majority of traders fail, not because they lack knowledge but because they lack mental fortitude.  They lack the specialized mindset required to manage the problems associated with the uncertainty at the right hand side of the chart.  They focus on problems instead of solutions. Most of the problems are of the traders own doing so they must own up to the undoing.

And what are those problems and how are they handled?

PROBLEM:  The trade is not working. I am losing money.

SOLUTION:  The market is wrong.

PROBLEM:  The analyst said this stock is a great buy but it’s going lower.

SOLUTION:  Blame the analyst.

PROBLEM:  The economy stinks. I’m short. But the market keeps going up.

SOLUTION:  A crash is imminent so I will remain short until I’m right.

 

In all of the above the trader created the problem in the first place by refusing to take personal responsibility for his trade, by not accepting the unpredictable future, and for refusing to recognize that the market, regardless of the headlines, will do what it wants, when it wants, for as long as it wants, to whomever it wants.

Success in the markets requires a special mindset. It requires that the trader develop a process based on price alone and accept that there will be losers, along with winners.  Mark Douglas, in his book Trading in the Zone, reveals the key to the trader’s problem solving.  He does so with The 5 Fundamental Truths of Trading.

1. Anything can happen.

2. You don’t need to know what is going to happen next to make money.

3. There is a random distribution between wins and losses for any given set of
variables that define an edge.

4. An edge is nothing more than an indication of a higher probability of one thing
happening over another.

5. Every moment in the market is unique.

Got a problem? Solve it by looking within…and keep it simple.

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