day trading psychology, the dangerous attraction to trading the futures markets

Hi guys, hope the weekend is going well.

Its very nice sunny weather and warm here in Los Angeles, I hope you are having a wonderful summer saturday as well.

I wanted to spend some time today talking about day trading psychology.

We have had a very profitable few months in our live trade room, and I was reviewing my notes today and wanted to talk about an important issue that I remember dealing with as a young day trader myself, and im sure you have seen this affect your trading as well.

Why do we work so hard to become profitable traders?

The money right? the freedom? the knowledge? the power?

we all have similar reasons to day trade the futures markets, money, freedom, big houses, fast cars, and sport yachts in the marina.

In my experience, the reason I am attracted to day trading is the same reason I blew two trading accounts in my first 24 months trading.

The reason we are infatuated with trading crude oil futures is the exact same reason crude oil takes all of our money and laughs in our face as it moves in our direction only after stopping us out.

so what is this secret attraction that leads to our own trading demise?

‘unlimited freedom of creative expression’

wait…what’s so bad about unlimited freedom?

Think about it with me…unlimited freedom of expression…

lets review some basic principals:

1. A day trader can earn unlimited amounts of money with virtually 1 contract. You ‘could’ put 1 contract at the low of the day, and hold a long position for 1000 ticks over 3 days and earn an amazing profit from a very small commitment of risk capital. It ‘could’ happen…albeit very unlikely…it could.

2. a day trader can earn those profits with NO EXPERIENCE at all. You could certainly use no real skill to buy a gold futures contract and without any real market knowledge you could hold that contract for a lovely proft. this opportunity for a ‘lucky’ profit is one of the most attractive parts for new traders.

3. a day trader can use virtually millions of ways to earn profits. You could use RSI, and volume, or CCI and Tick Charts, or Stochastics and market profile. a day traders quickly learns there are lots of indicators and lots of ways to make it RICH as a trader.

4. a day trader can use an unlimited amount of techniques to earn a living as a day trader. You can be a scalper, a swing trader, you can trade daily charts or fast tick charts and range charts. the list is limitless to HOW you could make it rich as a trader.

5. nobody tells a day trader what to do, or when to do it. unlike most people, day traders are their own boss, they call the shots, and there is nobody to report to each day but themselves…well..maybe our wives/husbands 🙂

So lets get this straight…

I want to be a trader because I can earn a lot of money, and to earn that money I have virtually limitless options to achieve my goals?

and there is no boss, and no defined start or finish to my work day?

PERFECT! This is awesome, lets get to work, this will be fun! 🙂

wait a second though…this reminds me of an old adage… “like a kid in a candy store”

simply put…if you put a kid in a candy store the kid will never be able to decide which candy he wants because there are too many options to consider.

how does this apply to traders?

day traders are human beings, and human beings quickly learn that there are boundaries in life…nothing is limitless.

Do this…do that…go here…you cant go there…drive this speed…you cant park here…store closes at 9pm…must be this height to go on the rollercoaster.

the list goes on….

As human beings we know a lot about limitations from a very young age. We never find ourselves in a situation where we can do ANYTHING WE WANT, so this is something that requires getting accustomed to.

So when we are introduced to day trading the markets, we quickly go through 2 stages of emotions:

1. the initial euphoria of finding such an amazing opportunity to earn profits

and then…

2. the realization that this ‘perfect’ business is hard to master because of the same ‘limitless’ opportunities that attracted us in the first place.

We call this the ‘gift and the curse’ of being a day trader.

so what can we do to solve this problem?

In the coming weeks we will be talking about the emotions that try to rule our trading, and we’ll take a look at the many REAL ways that traders overcome these obstacles.

day traders can take control over their emotions by…

– creating rules for their trading
– taking responsibility for their trading
– dealing with the addiction to random rewards
– Internal vs. External control

we’ve made a lot of money day trading in our live trade room, but day trading isnt all about trade calls and profit targets.

we need to understand WHY we’re working so hard to become day traders if we ever want to succeed in the long term, and make this a lasting career.

keep following this blog…there’s more valuable information on the way!

See you monday morning in the trade room @ 745am EST