Are You Trading in Circles?

Posted by tradeyouredge on August 11th, 2014

If you have been reading my articles, you would have realised that when I first learned to trade the financial market, it took me a few months to realise that Trading was more than just Technical knowledge. My gut feeling was that technical knowledge was going to be the easier step towards trading success.

However, it would be something else that would stop people from becoming successful. Mind you, back then, I was new to trading but I could not stop analysing why only 10% of traders turn pro. Why was it only 10% (as opposed to a larger proportion like 50%)? What happened to the rest of the traders? What is going on to the trader between learning and blowing their trading account?

Those were the questions that I had… And I’m sure some of you reading this now are thinking of the same thing. Or some of you might already build your own assumptions but want to hear a new perspective of the same problem. Would you not?

So, instead of drowning myself with technical questions, I started to analyse the entire development of a trader. I began to study the process and experience of a Learner. I took a few steps back and began to break down the learning process and tried to find where, what and how a trader could go wrong (or right).

In the process, the common theme that I noticed with struggling traders was that they tend to go in circles. And this is how I got the idea of trading circles. Just like the Gorilla Experiment, human beings tend to look at the same thing over, and over, and over again – this is especially true when trapped and facing a problem. I’m sure some of you can relate to it as I continue to share my thoughts.

1. Self Circle

The first and biggest problem is that traders tend to go in a Self Circle. By that, I mean that people are going in circles within their INNER self. This could represent their inner environment, their mental programs or even their thought processes. Whatever you call it, this is about YOU.

You see, more often than now, traders don’t evaluate at themselves at all. Many of you don’t know much about yourselves and you don’t seem to take time to find out too. Some of you might find this slightly silly but this is true – especially when traders are desperate to succeed in an industry full of noises (like news, brokers, marketers and scams). And when things don’t go your way, trading becomes a problem. But then, you are so focused on the problems that you can’t seem to see that most problems are only symptoms of bigger problems.

For example, trader Jeff (a fictitious name) once came to me for help and he was trying to remove an emotional issue relating to frustration. Every time Jeff made a profitable trade, he would feel frustrated as soon as he close in profit. Sadly, this usually follows with a few losing trades where Jeff would release his frustration and would only be satisfied after he has a negative balance in his account – a classic example of self-sabotage.

Cutting the story short, it turns out that Jeff had, not just one but, on a few occasions been cheated by his business partners. It is most significant especially after he closes big profitable business deals for his company. As weird as it may seem, Jeff started associating his business to trading and, to him, they are the same thing. Thus, his past causes him to sabotage his profits.

Can you see how his frustration (an emotional issue) was just a symptom of his past problems? While this is just a simple example, you can see how other problems that can cause other issues, can you not? And that’s because the trader is going in circles within him/her self.

2. Lifestyle Circles

Lifestyle Circles is about your trading priorities on a day-to-day basis. Traders need to realise that they need to have a trading edge and your edge can determine (1) when you need to be at your charts, (2) how long you need to be at your charts and, more importantly, (3) when you should NOT be at your charts.

You see, traders struggle because they cannot differentiate their trading priorities and their personal priorities. In the end, they blame their day job for standing in the way of them trading, they blame the lack of time for their poor trading results and the list goes on.

While some of you might think that this is a time management issue (which you are correct to a certain extend), it’s more than that. Because, it’s not just about balancing your personal and trading time, but it’s also about leveraging on your strengths and weaknesses too, and you want to have personality bias when trading the market.

Have you heard of the quote “Playing to your Strengths”? That’s exactly my point.

3. Wealth Circles

Some of you might find this a little bit of a shocker but that’s ok (because I was shocked too when I learnt about this). This relates to the fact that some traders are not comfortable being wealthy. T. Harv Eker calls this the Wealth Blueprint and I think this is not uncommon amongst traders.

Remember that trading is a vehicle to new wealth. However, if you can’t accept new wealth in your life, that becomes a real issue in trading.

Using the example of Jeff from above, the issues that he had (from business) was already blocking him to from mentally becoming wealthy. When that happens, it’s nearly impossible for him to be physically/financially wealthy too.

Of course, the example of Jeff is just one of many stories relating to negative wealth blueprints. For some traders, they were brought up in a poor environment and they never knew how to think and live like a wealthy person. Their mental programs are such that wealth does not exist. Their money relationship (as mentioned in my self-coaching program) has not been established and, as such, there will be constant confusion within your mental environment.

4. Strategy Circles

Here’s another typical problem that traders encounter. Going in Strategy Circles is to experience confusion when finding suitable Trading Strategies (see note below). Traders go in circles because, without knowing themselves (Self Circle), their trading lifestyle (Lifestyle Circles) and the market, they don’t know which strategies to trade.

What happens if they lack any of the above? My guess is, these traders end up (1) jumping around strategies, (2) they become jack of all trades and master of nothing and (3) they don’t have enough time to fully embrace each strategy (hence, they cannot fully appreciate it).

When traders struggle with this circle, they tend to forget that most strategies (if tested correctly) are profitable. However, without having fully understood the strategy, it’s difficult to pick one that suits you. Right? And without fully understanding each strategy, how can the trader find one that resonates with their personality?

Note: A Trading strategy is not your trading system. When I refer to a strategy, I’m referring to the Market beliefs that you are applying when taking a trade – as opposed to the specific rules that you apply. Examples of strategies are breakout strategies, trend continuation strategies or reversal strategies. 

5. System Circles

Trading becomes more interesting as we continue to drill down into the various trading issues that traders face. It’s even more fascinating because you start to see how everything (from the points above) relates to each other.

Because traders don’t know which strategy suits them, it becomes difficult for them to truly build a trading system. Should the system have a higher Reward: Risk ratio? Or would it be better to have high probability but low reward? Again, this can be confusing.

The knock-on effect of that is that you end up breaking your trading rules constantly. Why? It’s simple, that’s because the rules that you are using does not fit your trading lifestyle, it does not fit your personality or your wealth blueprint contradicts with your trading plan.

Honestly, at this stage, the examples of how they relate to each other are endless. However, I think you got the message.

6. Trading Circles

Because you are reading this now, you already have a rough idea of the various types of circles that I have introduced. While these are only my own description of the problems, you can probably see or understand how one issue can impact the next?

Think about it, if you did not read this article, some of you might not be able to narrow down the problems you are facing now, and you might not know which circle of problems you are facing today. Hence, I called the last problem, Trading in Circles, because you can be circling between any of the 5 circles above.