WSCS Trading Combine: Lesson 3

Chapter 1: Change
Lesson 3: Make Friends With Your Weakness

As competitive players in the market, most of us hide our weaknesses. We prefer to perceive ourselves as full-blooded Spartans who can rely on our strengths to succeed. However, according to Dr. Brett, those of us with a complete view of ourselves (i.e., strengths and weaknesses) tend to outperform as traders.

When I first started trading, this was a big issue for me. I listed all my strengths and weaknesses on a sheet of paper. Then, I focused solely on trading based on my strengths. Inevitably, my weaknesses crept in and caused me to trade poorly. For example, I used my strong analytical abilities to track the market well, but my anxieties and fear of loss caused me to either hesitate and enter trades late (or miss them) or exit winners early. Both behaviors hurt my P&L statement.

At a certain point I had a revelation that my weaknesses were a concrete part of me, and I either had to work with them or quit trading. I decided to focus on my “hesitation” problem because it caused the most significant damage to my P&L. My solution was and continues to be using buy/sell stop limit orders to enter trades.

When I set buy/sell stop limit orders at planned prices, I eliminate the ability to hesitate. By making friends with this weakness, at the time I also simultaneously made friends with another weakness: trading on the fly. If I used buy/sell stop limit orders, I was forced to premeditate entries as opposed to chasing individual ticks. As a result, I automatically started improving the quality of my entries and took greater advantage of my analytical strength (e.g., finding good technical setups).

To illustrate, consider this morning’s American Express (AXP) trade. Rather than chase the stock before 9:45 and probably get stopped out at the break below VWAP at 9:54, I waited for a deeper pullback so I could establish a line of entry. (Note: I did not enter after a shallow pullback because TICK and the Advance-Decline line was weak.) I set my buy stop limit order at 23.72 and watched both TICK and the Advance-Decline line improve as price triggered my entry at 10AM and continued moving higher.

In the old days, I would not have manually entered this trade at the same point because I would have hesitated. I may have convinced myself AXP already moved nicely and would probably fail at my resistance line. I may have also been distracted watching the broader indexes and missed the proper entry. However, with planned entries I am forced to pick setups based on strong analytics and sit with my friendly, powerless weaknesses. If the trade wins, great. If it loses, no worries. Predefining risk-reward takes care of that issue. But that’s a lesson for another day.

What are your weaknesses? How can you make friends with them rather than suppress them and let them manifest at the worst possible times? If you make friends with your weaknesses now, your strengths will finally seize the day.

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