Recency Bias was not a problem mentioned in my previous blog but thought I will mention how I fought this one too. It was quite hard to put on the next trade when you face a losing streak. If your LPT say to expect 6 losses in a row, I feel very nervous after 3 losses. If you won the last 3 trades, you have no problem putting on the fourth but if you had 6 losses in a row, it can get pretty hard . (especially if you are trading real money )
According to ‘Trading in the Zone’, every trade is unique and anything can happen at any time because there are so many variables in the market which can act and affect the market at any time. So your last trade has no effect over the next one.
So how can I keep taking trades and not letting losing streaks affect me? Again, imagination was the weapon of choice.
During my schooling years, I use to work in factories. Every piece that comes out of the machine needs to be scanned, checked and stamped good or bad. It is totally random. As corporate slave drivers would have it, the environment is busy busy busy with no time to think. We are paid to just take every piece and decide if we can sell it or junk it. Very mechanical. Just because the last 100 pieces is good or bad does not mean the next one will be the same. This worked ok as I was able to just take the next trade mechanically but later I replaced it with something else that came to my mind.
The movie ‘ Blood Diamonds’. It is the story of diamond mining in Africa. In the movie, the workers ( actually they were captured and forced to work ), will be in the stream picking up rocks after rocks looking for diamonds. Even though they had probably picked a few hundred rocks which were just rocks, the next one they picked was inspected as though it was the first rock they picked and fully analysed ( visually ) whether it is a diamond or a rock. Now I use this movie as I take the next trade. I don’t think about what happened before or don’t even remember how many winning or losing trades I had before this and when a setup is there I say to myself ‘Is this the diamond?’ and click into the trade with no hesitation. It could end up a diamond ( winning trade ) or may end up as a piece of rock. But I just have to keep picking up rocks to get more diamonds. There is no other way to find Diamonds.
I also picture little people on my charts. One group is pulling price up while the other group is pulling price down. And a whole big group just standing in the middle. Some on IPAD2 checking news and many on their mobile phones deciding which side they want to be on. This helps me remember that every trade is unique and anything can happen at any moment if one group suddenly rush in and choose a side.
You have to use memories of your own to create your own movies so that it makes sense to you and can help you control your emotions instead of it controlling you. Change the perspective of the problem into an opportunity instead. If listening to a piece of music that reminds you of a calm and relaxing meditation with your ZEN master, then just play that music as you trade to stay calm and relaxed while trading.
That’s it for now. Good Trading my fellow LPT citizens. :o)