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Secrets to Trading Success
By Bev Day, MBA, CFE

Many traders look to others for those key secrets on how to make money in the stock market. After years of searching for those secrets I’m here to tell you there are no secrets. There are no top six, or top ten secrets to success. Not really!

The only secret that exists is the secret that lies within you - your secret passion to win. I equate trading in the market to playing a sport. It works for me, but select the image that works for you.

Vince Lombardi, famed football coach of the Green Bay Packers, said, “Winning is not everything - but making the effort to win is.” To me that means you won’t win every game, but it is important to give your every effort to win at every game.

Successful trading in the stock market is all about making the effort to win. Actually, I like to pick a stronger word than effort. To me, effort means to try. To try means to take a stab at it, attempt, aim, or struggle. How about the verb to do? I will do it. Now we’re talking. To do something is to accomplish it, carry it out, achieve it and finish it. I don’t mean to take anything away from Vince Lombardi; I merely seek to fine-tune his excellent wisdom.

When someone tells you they will try to make it to your party, what do you think? Most likely you figure they really don’t mean to come. But if they say I will be there, then you know that for a fact they will be there to celebrate with you.

This discussion may seem ridiculous to you, but believe it, how you think is who you are which affects what you do. With all this rambling on, what I’m saying is, listen to yourself. Listen to the words you are using in all that you do. Listen to the words you use when talking or thinking about trading.

The secret to your success is the secret within you. The secret is your ability to frame your thoughts in such a way that you are positive, direct and constructive about your trading.

My intent in redirecting focus from the technical aspect of trading to the internal side, so to say, is to take a moment to ponder this very important aspect of our trading. While my thoughts herein are not profoundly in depth, I hope they will spark an interest in you to consider these questions for yourself.

How do you tap into that secret within you? There are many scientists and educators who research and talk about this, even so a brief visit via this article may provide an alternative dimension for you to contemplate.

Ask yourself the following questions:

Is the type of trading I do really aligned with who I am and how I think?

Who we are and how we think, in my view, are the hardest characteristics of oneself to comprehend. Many feel they know exactly what works for them and that is marvelous. But for the rest of us, really tuning into who we are and how we think takes some work. Many of us are distracted from finding out about ourselves because we are too busy trying to do all the new things we hear we ought to do. We may ignore the possibilities that focusing on one or two types of trades will do the job and actually fit who we are.

For example, if you really don’t like short-term trading, stop forcing yourself. And the same goes for long-term trading. If you align your trading with who you are and how you think, the secrets will come up from the depths and guide you. All you have to do is listen to your inner wisdom. OK, it’s not quite that simple, but I think you get the idea.

Do I make trading decisions based on my own analysis or do I listen to others?

Listening to others is right and proper when it comes from those with knowledge, expertise and good intentions. On the other hand, you truly learn how to trade when you make your own decisions based upon your own analysis. Unless you test and use your own plans you are merely reacting to the suggestions of others. The results can prevent you from tapping into your own secret wisdom that is learned from education, application and evaluation of results.

Do I use discipline in my trading?

In “Sun Tzu’s Art of War for Traders and Investors,” Dean Lundell says, “Once you have analyzed the big picture and formed and developed your plan, it is imperative that you have the discipline to stick to it. It is a common mistake for traders to disobey their own rules. Doing so inevitably will lead to more lack of discipline and a series of losing trades.”

Looking at discipline in another way, how do you react when your trades do well and when they tank? Do you have the fortitude to study what went well and what went bad in order to learn how you react? If the answer is yes, then you are leaps and bounds ahead of many traders.

The secrets from within come through the lessons in trading. `Remember, all the criticisms you hand out to yourself must be constructive.

Let’s now take an elemental step into discovering the secret.

The Secret Is Imbedded In Your Brain

Millions of years ago, reacting quickly to danger was a matter of life and death. If you went scrambling up a tree to escape a wild boar, you were safe; if what seemed like a wild boar turned out to be two chipmunks scuffling, having climbed the tree did you no harm. Your “fight or flight” response had been automatically triggered to improve your chance of escaping danger. However, in the world of investing a panicky response - dumping all your stocks because the Dow is dropping - to a false alarm can be as costly as ignoring real danger.

When a stock you buy goes up, you feel good because your brain just gave you a shot of dopamine. This chemical gives you a natural high and the more unexpected the reward the more active your dopamine neurons become and the longer they fire. Wolfram Schultz, a neurophysiologist at the University of Cambridge in England, said, “That positive reinforcement creates a special kind of attention dedicated to rewards. Rewards are what keep you coming back for more.”

Based on the elements of “fight or flight” and dopamine alone, it is clear that our emotions are triggered by a very natural process that is built right into our brains. We naturally run from danger, real or imagined, and we get a thrill when unexpected rewards come our way. The trick is to harness these natural responses and make them work for us rather than against us and thus reveal the secrets within us.

Set Out A Plan To Tap Into Your Own Secrets

• Regularly evaluate whether the outcome of a trade made you feel good or bad. This will help you learn about your natural behavior. Keep this with your trading records. Ideally, record this with each and every trade.

• We get addicted to successful predictions. If you simply must chase the “next Ebay,” then at least chase it With only part of your money. This way you contain the addiction, as it’s hard to control it.

• Set a limit on your predictions. Automatically sell a stock with a limit order that grows to 20% of your original investment (or use another percent of your choice) .

• If you discover that you fall into the “can’t resist a hot tip” trap, put a Post-It note on your PC that reads, “Never listen to hot tips.”

• Reduce your exposure to images that can trigger panic. If the stock tickers on your PC screen excite you, turn them off.

• The better a trade does for you, the more your brain will believe nothing can ever go wrong. If a trade goes straight up, don’t just enjoy the ride, do extra research and be prepared to exit before the downturn catches you by surprise.

• Your brain perceives anything that repeats a couple of times as a trend. Take a look at a stock from the perspective of its long-term and short-term performance and compare it to similar choices. Never assess performance in isolation.

• Diversify your investments by always holding some cash, some stocks and other types of investments. Limit each trade to no more than 5% of your trading money. This way you lower the odds that a loss in one trade will send you into a “fight or flight” response.

Evaluating your responses to danger, real or perceived, and what makes you euphoric will be powerful for you. Once you become familiar with your own emotions and learn your trigger points then your internal secrets will emerge. You will be in charge of your trading style and will triumph in the world of investing.

Remember to have fun and tune into yourself for a change of pace.

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