Bulkowski's Trader Qualities

I listened to a radio interview of Bill Whisenant that was originally broadcast

on December 27, 2008. Bill received a doctorate in clinical psychology and pract
iced for 20 years before getting tired of listening to people complain. Now he i
s a trader, trading coach, and instructor.
Not everyone can be a successful trader, one that makes a living by trading the
markets. Based on research, Bill identified three factors that are key to tradin
g success. Before I describe what they are, let's take a quiz by answering yes o
r no to the following questions.
Do you worry a lot?
Do you remain calm and relaxed in tense situations?
Are you a trusting individual?
Do you drive at or below the speed limit most of the time?
Are you a perfectionist?
Do you work on a project from start to end before beginning another one?
Do you like to complete projects?
Did you score well on your SATs, that is, do you possess above average intel
ligence?
Do you like math or are a good problem solver?
When driving and the stop light turns green, do you accelerate faster than t
he car next to you?
Score one point for each "Yes" answer except on the first (#1) and last (#10) qu
estions. Those should be "No." Add up your score. The higher the score the more
likely it will be that you can become a successful trader.
The following describes the qualities that successful traders possess.
Emotional stability. You don't have to be nuts to trade, but it helps! That
is a joke, of course. Emotional stability is grace under pressure. A successful
trader must be able to remain calm in difficult situations. Traders that rank ve
ry high on the emotional stability scale have very low anxiety levels, remain ca
lm, relaxed, and have a low suspicion level. They tend to be trusting individual
s and are not paranoid. You won't hear them blame the market makers for forcing
the stock to hit their stop and they take responsibility for their actions. Succ
essful traders tend to be well grounded.
Discipline. Successful traders are ones that can follow the rules. They are
the guys that drive the speed limit. They tend to be perfectionist and take prid
e in their work. They like to take a project from start to finish and get joy fr
om completing it successfully. Pilots, trained to follow checklists, tend to mak
e good traders. An impulse oriented individual will have difficulty achieving th
e discipline to become a successful trader.
Intelligence. Bill says that successful traders tend to be intelligent. They
need not have the IQ of Einstein but they are above average in intelligence. Th
ey tend to be good problem solvers and good with numbers, such as statistics. Th
ey understand that trading is based on probability, that not every trade will wo
rk as planned.
Can you learn to become a successful trader? Yes. But sometimes if you don't hav
e what it takes, try another profession.
-- Thomas Bulkowski

Are You a Centered Trader?

Are you a centered trader, one that lets emotions flow by without reacting, focu
sed only on the trade? Let s find out by taking this quiz.
Do you feel your trading lacks discipline (do you consistently follow your r
ules)?
Have you developed a reluctance to trade the market, perhaps because of rece
nt losses?
Do you set specific goals for each trade which you fail to meet?
Does the fear of loss sway your trading decisions in any way?
Have you increased your position size to recoup money from a failed trade?
Are you overly eager to make a trade, perhaps because of a big win, because
you need the money, or for the adrenaline boost?
Do distractions interfere with your trading?
Do you look for excuses or try to rationalize a failed trade?
Count the number of "No" answers and "Yes" answers.
Answering "No" to all of these questions means you should check yourself for a p
ulse. You may be dead. Look for a defibrillator.
Answering "Yes" to all of these questions means you are really screwed up, and t
his article is for you.
If you answered "Yes" to some, but not all, of the questions, then that means yo
u are a member of the human race. Congratulation! However, you still have issues
. Let's deal with those now.
What is a Centered Trader?"
A centered trader is someone who has learned to recognize and deal with the sequ
ence of emotional events caused by stressful trades, losing trades, or even winn
ing ones. Typical emotional responses by an uncentered trader are:
Knowing that this trade is a "no brainer," "a sure thing" that ends in a los
s when the trade moves in an unexpected direction.
Feeling panic when the trade goes against you.
Denial: blaming the loss on others or other things (your computer is too slo
w, the software is too clumsy to use or error prone, the broker gave you a bad f
ill, the sun was in your eyes, and so on).
Feeling euphoric when a losing trade turns into a winner.
Muttering or thinking something like, "As soon as I get my money back, I m out o
f this trade!"
Reluctance to place new trades because of a loss.
Overtrading because of the thrill of a big win.
A centered trader focuses on the trade and lets thoughts about self-doubt or sel
f-criticism pass without interaction. They have learned to turn down the volume
on such thoughts and just watch the chart to see how the trade unfolds. They don
sk, "Do you think I can make it as a trader? Can people really make a steady inc
ome doing this?" They understand that trading is a business and losses are the c
ost of doing business. A centered trader has learned to take emotions out of tra
ding. How? Experience has taught them how to react calmly to every situation. An
other word for experience is practice.
When Captain Sully lost thrust from both engines after a bird strike, his airpla
ne turned into a rock with wings, but as a certified glider pilot (according one
source that consulted FAA records), his training allowed him to pilot the craft
to a safe landing on the Hudson river. Your trading should be as professional a

t a

nd as calm as Sully was when flying the Airbus.

How do you become a centered trader?
Plan the trade. Outline how you expect the trade to proceed, what the object
ives are, and map all contingency plans. There should be no surprises during the
trade because you have already thought of everything and made plans to deal wit
h surprises.
Practice. Captain Sully s voice remained calm during the flight and that came wi
th practice and training. Trading should be rote, an automatic response so that
you are not making things up as you go along.
Trade the plan. Once you have a plan in place, follow it. Ignore any thought
s that will cause you to deviate from the plan. If you take an unexpected detour
, then your trading plan needs work. You should have expected and planned for th
e unexpected.
Do deep breathing exercises, meditation, visualizing a successful trade, and
relaxation exercises will help before and between trades. During a trade, try b
reathing from the abdomen and not the chest. Take a deep breath of air and let i
t out slowly. Let the calming effect soothe and relax you.

Focus on the trade and ignore physical and emotional distractions. Your trad
ing environment should not have pets and children demanding attention. If a nega
tive thought comes into focus, replace it with another image of this trade turni
ng into a big winner. Think of this trade starting a series of winning trades.
De-stress.After the trade is over, closes your eyes and take a deep breath.
Feel the air as it moves down your throat into your chest. Feel your lungs and a
bdomen expand. Exhale and blow any tension out along with the air. Tighten one f
ist and tense the muscles in your arm and then relax them. Do this with the othe
r arm, then the neck by tensing or stretching muscles and relaxing them. Work yo
ur way down your body, tightening and relaxing muscles along the way. Continue t
o breath from the abdomen, letting the tension melt from your body. Open your ey
es when you re done, and you will be ready for the next trade.
This article was based on an idea from Technical Analysis of Stocks & Commoditie
s magazine, February 1995 issue by Ari Kiev, titled, "Centered Trading."
-- Thomas Bulkowski
"Accept all possible losses before entering the battle." McCall says that th
e samurai accepted death as a possible outcome of battle. That gave them the con
fidence to act boldly, without self-doubt. If you know you are going to die, you
might as well go down fighting.
Recognize and accept that each trade could be a losing one, and plan accordi
ngly. That will give you the confidence to make the proper choices.
"Center yourself in mind, body and spirit." McCall explains that deep breath
ing exercises tend to calm the nerves and may help overcome excessive excitement
or fear. I do that before a radio interview to help calm me down. If I don't pa
ss out from hyperventilating, then I'm good-to-go.
"Trust your inner skills and intuition." Often I find a voice telling me to
exit a trade because price will turn down. When I act on those instructions, I d
o well. Ignoring them or second guessing them and my trading suffers.
McCall says that you not only have to trust the tools you use but also your
intuition. If you mistrust your system, then tear it apart and explore how it wo
rks until you understand and trust it. If the system is suffering bad results, t

hen perhaps it is time for a tune up. Do what it takes to make sure that the too
ls you use are working properly. Include yourself in the mix. If you cannot hear
that voice talking (intuition) then paper trade until you do.
"Imagine victory clearly." This is a recurring theme in many psychological a
rticles that I have read. Another way to express it is to think positively. Imag
ine a positive outcome and that is what you will get. Sure, it may take three ye
ars of losses before you win, but keep hoping and keep trying.
Knowing that the trade is going to be a loss not only makes you unhappy, but
you may find yourself sabotaging your potentially profitable trades as well. If
you believe that this trade will end in a loss, then get out or don't get into
it in the first place.
"Only exist in the present to conquer fear." McCall says that fear leads to
over-analyzing, something I didn't know but is probably true. This second guessi
ng plays havoc on your finely tuned system. Have confidence in your skills and t
ools and that will diminish the self-doubt, hesitation, and impulsive behavior t
hat makes trading so difficult.
Focus on the trade as it unfolds, not on what might or might not happen. You
cannot control what will happen, but you can have the confidence to handle what
is happening. I guess it is a lot like the fear of flying. If you concentrate o
n yourself being spam in a can, then your goose is cooked (to mix a metaphor). F
ocus on the good ending, that after the plane crashes, your ex-spouse won't get
a dime from your estate!
"Never stop a course of action once you have begun." Again, this is a recurr
ing theme. Successful traders love to complete projects. If you have the courage
to enter a trade, then play the tape to the end. Plan your trade (and you do ha
ve a plan, don't you?) and trade your plan. If you have doubts about a trade at
the start, then don't trade. Just don't use that as an excuse to avoid trading.
Know that this trade will be the big winner you have been waiting for, and then
let it happen.
Those are the six maxims of a samurai and how they can improve your trading. Be
prepared for losses. Remain calm when trading. Trust yourself and your tools. Im
agine a winning trade. Focus on the trade and not what may happen. See the trade
to completion. Focus not on the money but on how well you traded, and you will
become a successful trader.
-- Thomas Bulkowski
One Secret to Trading Success: Commitment
Consider the following three trading situations for Basket Case Bob.
He places a trade which results in a small profit, but he did not follow the
rules of his trading system.
He follows his trading system, but expects a reversal which could lead to a
loss.
He follows the advice of a trading advisor with an excellent record, but doe
sn't trust him.
Now consider the following similar three situations.
Basket Case Bob makes a small profit by following the rules of his trading s
ystem.
He sticks to his trading system because, over time, he knows it will make mo
ney.
He follows the advice of a trading advisor with an excellent record because

he trusts him.
What is the difference between situations 1-3 and 4-6? In situations 1-3, Basket
Case Bob ignores his system, does not trust it, and doesn't trust his mentor. H
e lacks a commitment to his trading and the system he uses. In situations 4-6, t
here is no conflict. He is confident, in control, and committed to trading well.
Which type of trader would you rather be?
One way you can tell if you are committed to trading is consistency of profit, m
aking money year after year. But how long will that commitment last? Will you ti
re of the stress after a string of losses and just give up?
Trading Obstacles
Good traders know that there are many trades out there that will inflict serious
losses or even bankrupt them. Their job is to avoid those trades. What are some
of the obstacles to trading commitment, problems that if not fixed, chip away a
nd distract from greater success?
Avoiding Losses. If a trader is trying to avoid losses, he will not cut his
losses short. He lets a small loss grow, knowing that if he were to sell, the st
ock would recover immediately. So, he holds on, hoping the stock turns around. I
n some cases it does, and that reinforces his bad habit that if he only waits lo
ng enough, he can ride out a loss.
The problem bites him when a small loss grows and grows, turning into a mass
ive loss. That massive loss eventually forces him to sell near the bottom, just
before the stock recovers. And that recovery reinforces his belief that he shoul
d not have sold, that if he only held on for a few more days or a few more weeks
, the trade would have turned the corner, eventually making a profit. Clearly, i
f he kept the loss small to begin with, he would not face this dilemma.
Remember that regardless of when you take a loss, you will still be faced wi
th the same problem, that of seeing the stock recover after you exit. Would you
rather have a small loss or a huge one given that the stock will move up after y
ou sell? It is still possible that the stock will continue down, so selling when
the loss is small is the best choice. Cut your losses short.
Just be careful that in your zest to cut losses short, you do not go overboa
rd. I know of a trader who limits losses to 1% or 2%. He is always being stopped
out. Why? Because his stops are too close to the trading action. Learning how t
o correctly place a stop is critical for trading success.
A trader that focuses on huge gains tends to see profits turn into losses wh
en they hold on too long, waiting for that last penny of climb in a rise-retrace
pattern. When the retrace sees price continue to drop, they freeze.
One example comes from another writer and trader I met. He turned a 5 bagger
(price of the stock climbed by five times his purchase price) into a three bagg
er. Why didn't he sell? Because he was hoping for a 10 bagger. Oops.
Top
Laziness and disorganization. Another obstacle to trading commitment is lazi
ness and disorganization. Lazy traders do not scan their charts daily, so they b
uy subscriptions to newsletters to solve that problem. "Let the hotline alert me
to a new trade" they think. Then what happens? After a period of time, they sto
p reading the newsletter or they ignore the advice of the hotline. But they are
still losing money!
Next, they try buying the ultimate trading system. They may spend a few days
or even a few weeks getting to know the system, but after a few losing trades,

they start to ignore the signals. For each obstacle that comes along, instead of
doing the work necessary to conquering the problem, the lazy trader takes medic
ine that only masks the symptoms, but the underlying problem remains.
One lazy trader I know paid thousands and took classes at a trading school.
But those lessons did not generate prosperity. So, she paid for private lessons
and then claimed that the school was just ok, but the private lessons were the s
olution she was looking for! When that didn't work, she joined a chat room, spen
ding more money and yet she still hasn't turned a profit. She now claims that th
e school was lousy, that the private lessons were no good, but the chat room is
wonderful! What she will try next? She is demonstrating a lack of commitment.
Trading as a hobby. Some traders consider trading as a hobby and not a busin
ess. Professional traders have a business plan. Where's yours?
The pros use a trading notebook to log every trade and review it periodicall
y so they can spot bad habits developing. The diary also helps them see developi
ng trends in the markets and helps them shift strategies to capitalize on evolvi
ng trends.
Trading for the adrenaline hit. I know a woman that made something like $300
,000 in the stock market and then frittered away the entire sum and more just be
cause she enjoyed the adrenaline high that trading brought. Another person has a
full time job, but he sneaks time to monitor his stocks during the day, placing
trades on the sly. He loves trading for the rush it brings and he is doing well
, up 50% in about a month. The time bomb waiting to explode is that he does not
know how to sell. A short-term trade that goes bad turns into a buy-and-hold sit
uation until the stock recovers. The nail in the coffin: He is trading with his
retirement money.
Top
Trading Commitment: Solutions
What is the solution to lack of trading commitment? It often depends on the prob
lem. I told one trader that was having problems selling by imagining that his mo
ther was in the trade instead of him. What would he advise her to do? Some may f
ind it helpful to think of the ideal trader. What would they do? Would they hesi
tate selling a position, or would they sell it and move on to the next one?
Make a list of your problems. If you do not know what your problems are, then tr
ack your trades. Are you entering too early or too late? Are you selling well be
fore you should or holding on past the peak? Are you trading when you are upset
or unduly happy? Are you trading for the excitement instead of the profit? Is th
ere a common element or flaw shared between your trades? Do you hesitate when en
tering a trade, suspecting that this will be the one that knocks you out of the
ball game? Do you know that this trade is a "no brainer," a sure win, so you dou
ble your bet and then lose three times as much when you know that the trade will
work out but doesn't (so you hold on too long)?
Deal with the mental issues that are causing these behaviors. Make peace with th
e obstacles to commitment and put them behind you, rendering them impotent and u
nimportant. For example, if you fear taking a loss, then imagine taking a series
of huge losses. How would you feel if that were to happen? Make the thought of
these devastating losses so real, so alarming that taking a small loss is insign
ificant by comparison. Make taking a loss in a timely manner seem routine. Over
time, those losses will diminish in importance such that taking a loss in a time
ly manner becomes easy.
Whether you are trading full or part time, trading commitment is measured by how
serious you are about trading well. It is not about profit. It is about executi
on. If you execute each trade to the best of your ability, the profits will foll
ow.

This article was based on an idea from Tharp's "The Secret of Trading Success: C
ommitment" article in the 1994 Bonus issue of Technical Analysis of Stocks & Com
modities magazine.
-- Thomas Bulkowski
I received an email from a beginning trader who asked, "Why can't I sell on time
?" If a position went well, he would ride the wave upward and sell when he thoug
ht price had peaked. But when it dropped, he stood unmoving like a deer in headl
ights. I gave him the following suggestions.
Use stops. This is an easy one. If you place a stop loss order with your bro
ker, you eliminate the sell decision. Just be sure to pick the right place for a
stop, not too close and not too far away. If the stock moves in your direction
then use a limit order at your target price. That way, when it hits your target,
the order executes and takes you out automatically.
Use your imagination! Imagine that this is not your trade, but your mother's
. What would he advise her to do? Act on your advice.
Pretend you're me. How would I (or your favorite professional trader) handle
the same situation? Would I hesitate or just sell the dog? Whatever you answer,
act on it.
Did the novice trader take my suggestions? No, and now he is down almost 50% on
two more trades. Instead of swing trading them, he has switched to buy and hold,
waiting and hoping for them to come back.
Trading Hesitation: Psychology
Let's take a closer look as to why traders hesitate pulling the trigger (placing
a trade).
I remember reading somewhere that rats, given the choice between food and pleasu
re would starve themselves to feel good. Traders are no different. They may also
be rats, but that's not my point. If you associate trading with losses (pain),
you will be reluctant to jump into a trade. Too many wins (pleasure) and you fee
l as if you can't lose, so you tend to take riskier trades. The secret to succes
sful trading is to balance the two.
Consider the trades you made last year or last week. If you followed your method
ology, would you have more money or less? Instead of having big losers, if you u
sed a stop on those trades, would you have saved more money?
If you hesitate placing a trade or enter late, then you may be letting the pain
of loss color your instincts. Imagine the trade turning into the biggest winner
this year. Think positively. Recognize that you will not win every time, so each
loss if just the cost of doing business. If you get a trading signal, imagine a
cting on it and winning. Repeat creating the image of placing a trade and then w
inning. Doing so will help put fear in its place. It will still be there caution
ing you, but it should not be a wall you cannot scale.
On the exit side, the idea is the same. When you get a signal to exit, take it.
Imagine that you are cutting your loss. Imaging how you would feel if you contin
ued to hold the stock and price were to drop in half. If this is a profitable tr
ade, imagine that you are getting out at the very peak with price then tumbling
downhill.
Think about how your portfolio will grow if you continue to execute according to
plan. Then imagine how you would feel if you ignore your rules and see losses p
ile up.

You can also try affirmations. "I will trade according to plan." "I will use a s
top on every trade." "When I get a trading signal, I will take it." Repeat your
favorite mantra every day for three weeks and your subconscious will accept it a
s a truth. You will become happier and perhaps more successful.
Successful trading is all in your head (well, not really, but it sounds good. It
helps if you know what you're doing). Solve your hesitation problems by imaging
that each trade will be a winner and each losing trade will remain so small as
to be insignificant.
Top
Trading Hesitation: Closing Position
Here is a short list of additional solutions.
Focus on technique. If you obeyed your trading signals or traded according t
o your trading plan, would you have made more money?
Stops, again. If you used stops on every trade, would you be more successful
?
Think positively! Know that this trade could be the largest winner of the ye
ar, and that's only the beginning. Imagine that this trade begins a series of wi
nning trades.
Cost of doing business. Each losing trade is just the cost of doing business
. If losses get too large, you are out of business.
Imagination, again. When you get a trading signal, imagine that you act on i
t promptly and it turns into a winning trade. If you are in a trade, imagine hol
ding the stock and watching it drop by half. How do you feel?
Affirmations. Affirmations are like medicine. Repeat three times daily, pref
erably after meals: "I will trade according to plan." "I will use a stop on ever
y trade." "When I get a trading signal, I will take it."
Pulling the trigger at the right time can be as easy as that or as difficult as
you want to make it.
This article was based on an idea from a "Trading Hesitation" article by Rooseve
lt in Technical Analysis of Stocks and Commodities magazine, September 1994.
-- Thomas Bulkowski
When my brothers and I rode our bicycles to the train trestle that spanned the S
eneca River, no one wanted to jump in.
Eventually, I took the rope that hung down from the bridge and jumped off. I was
Tarzan swinging and then letting go, plunging into the water below. My two olde
r brothers said to themselves, "If Tom could do it, so can I." They followed me
into the water in quick succession.
And then I froze.
I froze not because the water was cold, but because fear paralyzed me. My brothe
rs continued swinging off the bridge, but I worried about giant turtles, swimmin
g snakes, and broken glass bottles hidden by the muddy water. I only made the fi
rst jump, and I have always wondered why I couldn't make the second.
Perhaps I had the fear of success.
People are coached by their parents and friends to avoid looking like a loser, t
o do their best, to always be a winner. This need to succeed at all costs makes
trading more difficult. Traders afraid of looking like losers fail to cut their

losses short, riding positions down to prices at which they can no longer hold.
Then they sell for massive losses. Those traders become the losers they sought t
o avoid. They know the next trade is going down, too, setting up a fear of enter
ing new trades. If they do dip their toe into the trading water, they jerk it ou
t at the first sign of a reversal instead of following their trading plan and le
tting price move in the normal rise - retrace fashion.
Do You Have Fear of Success?
Take this quiz to see if you have a fear of success.
Have you been taught to do your best, to be a winner, to always look good (o
r similar sentiment)?
Do you have a fear of change?
Do you fear the unknown?
Do you feel the need to win at all costs?
Are you willing to take responsibility for doing what it takes to achieve su
ccessful results repeatedly?
Are you afraid of looking like a loser?
Do you trade so as not to lose instead of pushing the boundary of your comfo
rt zone?
Do you routinely hold losing positions longer than you should?
Answering yes to any of the questions from 1 to 3 combined with more than one of
the questions from 4 to 8 could mean you have a fear of success.
Top
Fear of Success: Three Possibilities
Here are three common scenarios that illustrate the fear of success.
Win then loss.
The fear of losing is related to the fear of winning. Based on prior winning
trades, Basket Case Bob viewed his self-image as an extraordinary trader and tr
ied to win every trade, regardless of the cost. He frequently held positions lon
ger than he should, ignoring exit signals, and saw winning positions turn into l
osing ones and saw losing positions go deeper into the red. His unwillingness to
learn from past mistakes meant that he was destined to continue making the same
ones.
On trades when price dropped, he doubled down -- added to losing positions - and felt compelled to sell only after massive losses and often just before the
stock bottomed.
One trader I knew routinely placed a stop so close as to almost guarantee th
at he would be stopped out for a loss. Even when price moved up, he would trail
the stop too closely so profits never amounted to much.
Another trader conducted extensive research on each stock which he then igno
red. He did not have confidence in his work, and his results showed it. His need
to look successful prevented him from holding onto a position long enough to ma
ke a profit.
Fear of falling (not failing).
On another trade, Basket Case Bob increased his position to 200,000 shares a
nd then panicked, as if he stood balanced on a tight rope and then looked down.
He lost his focus on how well the trade was obeying his rules and instead focuse
d on the money. Each penny drop meant a $2,000 loss, a message that reverberated
in his brain like an unfading echo. Instead of pursuing the potential for a big
win, he cut the position size and returned to his comfort zone.

Recognize where the boundary of your comfort zone lies and that such negativ
e thoughts will come when you push the boundary. Ignore those warnings of doom a
nd focus on how well the trade is progressing.
Overly cautious.
In his early days, Basket Case Bob made all the right moves and turned a sma
ll wad of cash into a mountain of profits. After a large, unexpected loss (a dea
d cat bounce), something changed. He began to second guess his analysis and avoi
ded many trades. When he did take a trade, he often changed his mind and exited
quickly. In other words, he lost his confidence and became overly cautious.
Another trader was reluctant to ramp up his profits by taking larger positio
ns. He failed to realize that the mechanism he had in place to limit losses woul
d still work for larger positions. All he had to do was push the boundary of his
comfort zone and increase his position size. Being unable to do so meant he cou
ld not increase his income as much as he wanted.
Top
Fear of Success: What Can You Do?
Try one or more of the following to help you conquer your fear of success.
Ignore Profits and Losses
Focus not on how much money you are making but on technique. Did you enter a
t the right time? Did you exit too soon or stay too long? What technique could h
ave improved your profitability? If the markets are more volatile, did you cut t
he position size to reflect that volatility? When the markets are calmer, did yo
u increase the position size appropriately yet still retain the diversity in you
portfolio?
All of these questions focus not on money but on execution. Do not let a los
ing trade overshadow your potential for a huge gain.
Defeat Self Image
An inflated ego or excessive concern with your image could cause a fear of s
uccess. Continually being stubborn in the face of overwhelming evidence or even
hints in the market place that your trading position is in jeopardy may be keepi
ng you from becoming the trader you want to be. Learn to listen to that voice in
side that says you have it wrong, that it is time to exit a position. Do not all
ow that voice to scream, "Sell Now!" every time you enter a trade, but I find it
s guidance to be remarkably accurate.
Listening to the advice of others is fine providing it does not overshadow y
our own guidance and research. Sometimes the television visionaries have it wron
g. Learn to trade your own position and ignore the pundits. Combine their advice
with your own to formulate a trading plan and then follow that plan.
Discover the main factors that drive your success and failure, and then focu
s on improving each one.
Top
Accept Change.
The markets change over time (from bull to bear, high volatility to low and
back again), and your trading plan and trading style need to adapt too. But chan
ge is more than one of style. Change your perception of the universe. You can ac
cept change by letting go of your self-image and confronting the limiting aspect
s that plagued you in the past.

To remove the fear of success, take responsibility for your actions. A trade
that goes sour was not caused by a bad fill nor by listening to a pundit on tel
evision. Accept that sometimes you are wrong and that the markets will move in u
npredictable ways. Prepare for all outcomes by creating a trading plan that cove
rs those contingencies, but also by examining your feelings. Learn about your co
mfort zone and seek to expand its boundary.
Learn to view trading anxiety not as an impediment, but as an opportunity. H
ave the confidence to pull the trigger with assurance that you are making the ri
ght decision. There should be no hesitation, no self-doubt when trading.
Set Goals
Understand what you want trading to provide. Is it the freedom to have the a
fternoons off? Is it the ability to buy anything you desire without worrying abo
ut where the money is going to come from?
Once you have set your goals for your trading business, ask yourself what is
stopping you from achieving them? Are you willing to spend money to become educ
ated about market techniques? Are you willing to pay for a system? Will you foll
ow the system? Will obeying your trading rules give you the success you seek? Wh
at is preventing you from becoming a better trader?
Learn to ignore the "What if I fail?" question and focus on setting achievab
le goals for both the short and long term. Adopt a trading strategy which you ca
n follow. If you deviate from the path laid out by your strategy, figure out why
. Make the changes necessary to get back onto the correct path.
The successful trader has no room for self doubt. He has a trading plan which he
follows. When he veers from the plan, he understands why and does not let it be
come a habit. He understands the motivations that propel him forward, and he und
erstands the emotions that pull him back. A successful trader does not fear succ
ess, he plans for it.
This article was based on an idea from Technical Analysis of Stocks & Commoditie
s magazine, November 1995 issue titled, "Fear of Success," by Kiev.
-- Thomas Bulkowski
information.
Keep It Real
Opportunity Cost
Trading Inventory
Fear of Rejection
Trading Conditions
Moods Make a Difference
Accept Ambivalence
Insecurity and Anxiety
Commitment, Investment and Involvement
Ignore Everything
Delayed Gratification
See Also
Bruce C. Kramer wrote an interesting article for Technical Analysis of Stocks &
Commodities magazine in the December 1995 issue, titled, "Trading Decisively." H
is title reminds me of the joke, "A day of firm decisions, or is it?" This is my
version of his article.
Before we get to the article, here is an interesting twist. The name Bruce C. Kr

amer along with his 704 area code phone number (which accompanied the article) m
atches a man that committed suicide on February 25, 2009. After his death, it wa
s discovered that he ran a $40 million Ponzi scheme for years. An article from t
he Associated Press said that in February 2009 his trading accounts held just $6
00,000, about 1% of what they were supposed to hold.
Trade Decisively: Keep It Real
A day trader I know keeps chanting, "All I want to do is make 10 cents per share
." Some will tell you that setting a goal too low makes winning more difficult.
The point is this: Keep your goals realistic. If you want to win 85% of the time
, but research reveals your system wins just 60% of the time, you are going to b
e disappointed. That disappointment could cause you to abandon the system. If yo
u want to hold positions for weeks to months, but your system gives trading sign
als almost daily, then you invite disaster.
Keep your expectations in line with the track record of your system. Knowing the
limitations of your trading style and trading system is key to trading decisive
ly.
Trade Decisively: Opportunity Cost
Deciding not to take a trade involves a cost, just as holding a losing position
does. That price is called opportunity cost. It is the price you pay for missing
out on a big winner. It is the price you pay for creating a bad habit, that of
skipping trading signals. It is the cost of watching price drop, changing a winn
er into a loser, or a small loss into one even the government cannot bail you ou
t of. When you chose to avoid taking your trading signals, then the chances of s
uccess diminish. You have to trade to make money.
Top
Trade Decisively: Trading Inventory
Having confidence in yourself and your ability helps lead you to trade decisivel
y. Achieving such confidence means...
Having a thorough knowledge of how your system works, its flaws and assets;
Knowing the behavior of the stocks you trade and the markets in which you tr
ade them;
Not only creating but following a trading plan; and
Managing risk by following sensible money management rules.
A picture/cartoon of an egret with a long neck
A trading inventory also includes yourself. Enjoying sitting in front of the scr
een watching the price bars move up and down suggests you would like day trading
. Being bored watching the ticks minute by minute or having your mind drift to m
ore enjoyable endeavors suggests swing or position trading might be a better fit
.
Building trading confidence includes the knowledge that on some days you should
not trade, such as when you are angry. Anger can come from a losing streak, but
also from fights with your spouse or anything else that ignites you before or du
ring the trading day. Knowing when not to trade is a skill just as important as
learning to follow your trading signals. Possessing that kind of trading knowled
ge helps build confidence and that leads to trading decisively.
Trade Decisively: Fear of Rejection
The fear of rejection creates a need to succeed. If we are successful, we will b
e liked. Who wants to hang out with a loser? The need to succeed and avoid rejec
tion means we will avoid decisions that could cause a loss. Often that means fin
ding an excuse not to trade. If you do not trade, you do not lose. Hence, you ar

e a winner, but one that cannot enter a trade. And not trading means missing out
on all of those winning trades, creating an opportunity cost.
The more you trade, the more losing trades you will have, and the more accustome
d to taking a loss you will become. It shares a lot like eating chocolate for th
e first time. The mouth feel, the velvety texture thrilled you. But if you kept
eating it, the sensation would become ordinary. You want the taking of a loss to
feel ordinary, like adding in the cost of commissions. A loss is the cost of do
ing business and nothing more.
Top
Trade Decisively: Trading Conditions
Perfect trading conditions rarely exist. If you wait for a dozen signals to agre
e before taking a trade, you will do a lot of watching instead of trading. Novic
e traders tend to pile on indicator on top of indicator, but pros use few. Pros
understand that many indicators signal the same thing at nearly the same time. M
any indicators do not add value. Your system tests will prove this to you. Do yo
u really need three moving averages when two will work? Do you even need one? If
price is trending upward, why do you need an x bar moving average to tell you p
rice is rising?
Having a robust system developed from few indicators and few conditions means an
optimum of flexibility. Exhaustive tests on your system will give you the confi
dence to know that it can handle almost anything Mr. Market throws at it. That c
onfidence helps you obey the signals it issues, and that helps you trade decisiv
ely.
Know your tools and your trading system. Knowledge is power. That knowledge will
tell you to keep expectations realistic. Unrealistic expectations means a highe
r opportunity cost when you watch winning trades go by. Acquire that knowledge b
y taking a personal inventory of yourself and your system. Know when it works an
d how well it works.
Recognize that when you are angry, your trading can suffer just as trading when
you are too happy. Learning when not to trade is a discipline that needs honing,
too. Thorough system testing will reveal how tolerant your system is to what th
e market can throw at it. You need to be flexible, too, having the patience to s
uffer a series of losses or draw downs before your system recovers. If you wait
on the sidelines, you could miss one winning trade after another.
Trading decisively is a combination of all of these things.
Top
Trade Decisively: Moods Make a Difference
When I was day trading, I discovered that when I was upset, I threw caution to t
he wind and traded everything, not caring how a trade performed. When I was joyf
ul, like after a series of winning trades, I felt as if I was invincible and als
o took every trade.
If you trade often, you have probably experienced those
words, pay attention to your mood. No one says you have
ur head is not screwed on right, then take the day off.
ke return an overdue library book. A picnic is nice. At
ts will be provided.

same feelings. In other

to trade today, so if yo
Do something unusual, li
no additional charge, an

Learn to trade only in the proper frame of mind. That way, your decisions will n
ot be colored by your feelings. You will be better able to trade decisively and
successfully.

A picture my dog wearing glasses

Trade Decisively: Accept Ambivalence
If you are contemplating a trade, you may have mixed feelings about it. Some ind
icators will signal a buy and others a sale. When you make a trading decision, t
hough, such ambivalence and self-doubt should disappear. If you trade often enou
gh, ambivalence will also fade from being an issue. Experience teaches you that.
After your trading day ends, you may want to continue practicing so that each tr
ade becomes rote. To trade decisively, push aside any feelings of ambivalence an
d make a decision to trade or not.
I read about one trader that instead of stopping trading, she cut her position s
ize to almost 0. That way, even though she knew the trade was going to be a losi
ng one, she did not let her emotions dictate how she traded. She just kept pitch
ing, knowing that in time her system would begin working again.
Top
Trade Decisively: Insecurity and Anxiety
Insecurity and anxiety stem from not knowing your trading system well enough. If
testing revealed that the maximum draw down was 25% before a recovery and the c
urrent trade is down 15%, you should feel confident that the trade will recover.
Knowing how your system behaves and trading it often enough will reduce the ins
ecurity and anxiety that accompany trades when they begin to go bad.
Trade Decisively: Commitment, Investment and Involvement
How many times has your spouse or significant other asked you to accompany them
on an outing, saying "You'll have fun!" After the event is over, you discover th
at they were right. That is an example of becoming interested after involvement.
If you don't try something, you won't know if you like it or not. "Successful d
ecision making requires commitment to the decision as well as interest and invol
vement in the endeavor," writes Kramer.
Successful trading requires a commitment to learn how to trade and to actually d
o it. Practicing it on paper or simulating it online are wonderful, but they are
not substitutes for actually trading. If you make a commitment in time and mone
y to learn how to trade, then do it. Make some trades to see if the lifestyle an
d income are right for you.
Trading decisively means having a commitment to the process, to treat each trade
as a new opportunity to hone your skills and achieve your goals.
Boy is this a load of crap.
Trade Decisively: Ignore Everything
If you have spent time developing a system and it issues a signal, should you ca
re that the talking heads on your television are saying the world is going to en
d? Learn to block out all that distracts you from making an informed trading dec
ision. Concentrate on the trade in progress.
Beginning traders soon learn to monitor only a few securities at a time because
they cannot handle more than that. Once they become an expert in how those secur
ities behave, then they can add additional indicators or securities to the mix.
Does trading have to be more complicated than saying, "If the RSI drops below 70
then I will sell. When it rises above 20, then I will buy?"
When your concentration is interrupted by extraneous thoughts or distractions, t
hen trading decisively becomes more difficult. It reminds me of Kevin Costner sa
ying "Clear the mechanism" in the movie, For Love of the Game. He played Billy C

hapel as a pitcher in a game with no hits against him. His ability to clear away
the crowd noises, ignore the pain in his shoulder, and just focus on throwing t
he next pitch allowed him to experience his best game ever.
Like Billy Chapel, traders need to have that kind of dedicated concentration.
Top
Trade Decisively: Delayed Gratification
At first I found it difficult to understand how delayed gratification leads to t
rading decisively. Kramer explains that there are two aspects to delayed gratifi
cation. The first is to know your system thoroughly before trading it. Put in th
e hours to learn how your trading system behaves in all market situations that y
ou are likely to encounter. Knowing your system thoroughly will give you the con
fidence to trade it successfully.
The second aspect is to follow the signals of your system. Now that you have put
in the hours necessary to develop and understand your system, you might as well
follow it. Having the confidence to know that not every signal will be a winnin
g one, but over time, the profits will accumulate. Your testing proved that. Bel
ieving that your system works will allow you to trade decisively, without hesita
tion.
Having suffered through the five hours it took to write this article, let me lea
ve you with one anecdote.
Linda, a financial consultant I know, has an amazing ability to pull the trigger
without hesitation, that is, to trade decisively. I wrote her an email saying t
hat a utility stock she had bought had just cut their dividend. What did she do?
When the market opened, she sold it above 26 (down from 32 the day before), but
well above the low of 19 and change. She saved her clients almost 27% by tradin
g decisively. Experience has taught her to cut losses without a second thought,
and to relax while the profits accumulate when a trade goes her way. She is an i
nspiration.
When a trade goes against me, I just picture Linda owning the same stock. What w
ould she do?
-- Thomas Bulkowski
Barrier #1. Loss: Undefined.
Barrier #2. Hesitation.
Barrier #3. Stubborn Beliefs.
Barrier #4. Suicide Trading.
Barrier #5. Euphoric Trading.
Barrier #6. Missing Breakouts.
Barrier #7. Losing Focus.
Barrier #8. Being Right or Making Money?
Barrier #9. Inconsistency.
Barrier #10. Missing Money Management.
Barrier #11. Dollar Dependence.
See Also.

This article is based on a sidebar from the August 1996 issue of Technical Analy
sis of Stocks & Commodities magazine, in an interview with Robert Koppel, writte

n by Thom Hartle, titled, "Psychological Barriers to Trading." I reduced the num

ber of barriers because they were either duplicated or made little sense, and I
added one of my own.
According to the article, Koppel and Abell, in their book, The Innergame of Trad
ing, pictured on the right, discuss psychological barriers to trading successful
ly.
Trading Barrier #1. Loss: Undefined.
Before I make a trade, I define my upside target and also my stop loss price. "A
t what price would the market be telling me I'm wrong?" I ask myself. Some trade
rs don't set profit and loss targets, and I confess that if the trade is rushed
or if I have many trades to place quickly, I may forget to fill in my trading no
tebook where I describe the price targets.
The article makes an interesting point when they write, "If you are afraid to ta
ke a loss, don't trade." I would add that if your inner voice is telling you to
avoid the trade, then do so. If you are always fearful that the next trade is go
ing to be a loser, then that is another problem altogether. It may be that you d
on't trust your trading system, or you fear success. Figure out what the problem
is and fix it.
Trading Barrier #2. Hesitation.
You receive your trading signal and then what? You watch it go by, believing tha
t if you hold a bit longer, price will continue the uptrend or will soon change
from a loss into a profit. You could be right...or wrong. One thing is clear is
that you are ignoring your trading signals, and that is never good.
Plan the trade and trade the plan. If you set an exit price and the stock reache
s it, then close out the trade either for a profit or loss. Taking a loss should
be just as easy as taking a win. If it's not, then keep practicing until it is.
Top
Trading Barrier #3. Stubborn Beliefs.
The worst trades I make are those in which I know how the stock is going to beha
ve. They are the a no-brainers, the trades so obvious anyone could make them. Wh
en the unexpected occurs, I sit paralyzed, unable to believe my eyes and unable
to pull the trigger to exit. The loss grows, seemingly without bounds.
Now that I know about this problem, I try to examine all sides of a trade, cover
ing how to adapt should the trade go wrong or price begin a dead-cat bounce.
Don't let your beliefs dictate your trade. Only price should do that.
Trading Barrier #4. Suicide Trading.
Have you ever been so mad at the world that you didn't care what happened? I rem
ember approaching a day trading session in that kind of mood. I made unusually l
arge and risky bets, but I don't remember if I was successful or not. Probably n
ot. Now I don't trade if I'm upset, and you shouldn't either.
Trading Barrier #5. Euphoric Trading.
This is the opposite of the last one, but the results are often the same. How ma
ny times have you made trade after trade that wins? You feel invincible. When I
feel as if I can't lose, that's when the market gets me as bloody as a CSI episo
de. I take a loss, often a big one.
Now I know better. When I have the euphoric feeling of invincibility, I stop tra
ding.

Top
Trading Barrier #6. Missing Breakouts.
This one is not about getting into a trade well after it has begun its move. Rat
her, it is about failing to get into the trade at all. You watch price move from
the sidelines.
I did that with Ashland (ASH). I correctly identified a head-and-shoulder bottom
and added it to my watch list on March 17, 2009 when it was trading at about $7
. Then I sat back and waited and waited and waited. Meanwhile the stock climbed
and climbed and climbed. And each day that it climbed, I kept chanting, "I shoul
d have gotten in. I should have gotten in."
The stock hit 30.
Trading Barrier #7. Losing Focus.
When I started day trading, the light shining through the window always caused m
e problems. It was a distraction, just as my dog barking or the phone ringing.
When you are in a trade, keep the focus.
Trading Barrier #8. Being Right or Making Money?
There are a few traders I know that advocate scaling out (selling part of a posi
tion) on the first trade of the day so as to book a profit. They want a win behi
nd them to set the tone for the day. But if you were to rephrase their style and
ask them, "Which is more important, winning or making money?" They will answer
"Making money," and yet that's not how they begin their day trading. They sell p
art of a winning position (increasing the win/loss ratio) instead of making more
money by selling later.
They have a valid point, that of a psychological need to set a winning tone for
the day, but I'll take the money.
If you scale out of a trade, check your numbers. Would you have done better if y
ou sold the entire position at once or in pieces? A clue to the answer, at least
for me, occurred during losing trades. If I sold the entire position, I kept mo
re of my money than selling half and hoping I could recover if price bounced. I
found that by scaling out, I sold at an even lower prices, compounding my loss.
Now, if I have a losing trade and want out, I sell my entire position at once. F
or winning positions, I almost always sell my entire position also at once. The
only time that is not true is to reduce the position size to rebalance the portf
olio.
Top
Trading Barrier #9. Inconsistency.
If you obey your trading signals some of the time and not others, then why are y
ou trading using that system? You can't tell ahead of time which trade will be a
winner and which one won't. Thus, you have to obey every trading signal that a
system gives you. If you can't do that, then find a system in which you can.
Trading Barrier #10. Missing Money Management
The big one here is using stops on every trade, but it also includes the proper
position sizing and sane use of leverage. I stopped trading the ultra ETFs becau
se the twice leverage made me lose money as often as I won. I do better and feel
more comfortable trading the 1x variety.
Money management is all about preservation of capital, of keeping those losses s

mall and your profits larger. If you can do that, then you can probably make it
in this business.
This year (as of mid 2009), my average loss is 9.5% but my average gain is 36.1%
. One regret is the loss number is twice as high as it should be, but I have bee
n trading inexpensive stocks which tend to be more volatile. They move more than
10% in one day. Wow.
Trading Barrier #11. Dollar Dependence
I added this one because it's a bad problem with an easy cure. What's the proble
m? You focus on the money. How many times have you said, "The loss is too big to
sell!" How many times have you looked at your profits and decided to get out? I
did that just the other day after a 110% gain in Conseco in five days. Turns ou
t I sold the day price peaked, but the stock could have continued to drive highe
r.
I does not matter at what price you bought a stock. What matters is when you sel
l. Forget about profits and losses and concentrate on how well you are obeying y
our trading rules. You compound your stress when you look at the bottom line eac
h day or after each trade. Instead, concentrate on whether or not now is the tim
e to sell. If you can do that, then your stress level will drop and the profits
will take care of themselves.
It sounds easy and it is, but one trader I know just can't accept it. He keeps c
hanting, "All I have to do is make a nickel on each trade." He is so focused on
making money that he may never make it as a trader.
-- Thomas Bulkowski
Trading Stress: Symptoms
Five minutes before the opening bell, Basket Case Bob's hands area already sweat
ing. His fingers shake from the adrenaline coursing through his veins. His heart
pounds louder than the bass drum in a marching band. Every sound, every movemen
t catches his eyes as if he is avoiding a lion that will reach out from his comp
uter screen and drag his limp body into the trading jungle.
In other words, Basket Case Bob has performance anxiety which comes in many flav
ors, such as:
Breathing difficulty
Palpitations
Tense muscles
Muscle cramps
Trembling hands
Sensitivity to noise
Loss of appetite
Loss of sleep or restless sleep
When the opening bell sounds and the chase for the perfect trade begins, the sym
ptoms fade but do not disappear. Often it is outside of the trading day that the
se problems manifest themselves.
Modest amounts of stress can help focus attention on the task at hand, enhancing
performance and preparing you both physically and mentally for a challenging tr
ading day. The optimum amount of stress can steer you out of dangerous situation
s, alert you to a trade about to go bad, allowing better concentration, memory r
etrieval, and enhancing your ability to cope with complex trading situations or
volatile trading environments.
Too much stress and anxiety increases as performance drops. Errors are more like

ly to occur. Dormant fears of failure may awaken to torment you again, leading t
o trading mistakes, missed signals, or missed opportunities. Have you ever had d
ecision paralysis, when you sat and watched a trade go against you, but did noth
ing to stop the bleeding? And when you did act, it was just before the stock tur
ned?
When Intel reported worse than expected earnings after the market closed a few y
ears ago, I placed an order to short the stock that was double my usual amount.
When I tried to go to sleep that night, it kept bugging me. That's when I knew I
had exceeded my comfort zone. I got up and cut my position in half and felt bet
ter for it.
The opening the next morning was marked by violent reversals and within the firs
t minute, I was losing big (the stock dropped then reversed). I exited the posit
ion just before the downtrend resumed. Had I used the 5 minute scale, the day tr
ade would have been successful because the stock continued to slide throughout t
he day, but I was unprepared for the stock to go against me so quickly. I rememb
er sitting there watching the stock climb, unable to believe my eyes. I felt par
alyzed and when I did act, my instincts were wrong.
Top
My reaction to freeze and then the knee jerk, "fight or flight" response was typ
ical for a high stress situation. Had I been more prepared, I may have recognize
d that any move up would be short lived (but you never know) and that the openin
g would be volatile. Waiting for a few minutes before placing the trade would ha
ve turned a large loss into a winner.
Compare my behavior during that trade with another stressful situation. During c
ollege, I resided on the 9th floor of the dorm. When my friends pennied me in (s
tuck a bunch of pennies between the door and the jamb, making it harder to unloc
k or even turn the doorknob), I fooled them by walking out onto the window ledge
.
I felt my blood coursing through my veins and my nerves were tingling, but I was
determined to win and walk the ledge to the room next door. I focused on my goa
l, and when I got to the room and found the window closed, I remained as calm as
one could be in that situation. I banged on the window until my neighbor opened
it, and then I crawled inside.
Once safely inside, that's when I became nervous. I pictured myself 100 feet up
and tripping, or having a gust of wind come along and turn me into a 150 pound b
omb.
Perhaps you have similar tales when you get nervous after the fact, but in the m
oment, you are calm and functioning at peak performance so long as you focus on
the task at hand. And that's the key, isn't it? Focus on your goal, not on what
might happen or on what happened in the past.
Top
Trading Stress: Solutions
As I mentioned, stress in small amounts can be beneficial. It heightens performa
nce when you most need it. One key to handling stress is to push the boundary of
the comfort zone, widening it so you feel more comfortable in a more stressful
environment. For example, with my Intel trade, instead of doubling my position a
nd far exceeding my comfort zone, I could have increased the position size more
modestly. The increased size would have added to my stress level and pushed the
comfort zone boundary, but not to the point of panic.

When I started trading, I found that I sabotaged my trades when I made too much
money. If I looked at my open trades and one had $2,000 in profits, I would cons
ider selling it (a winner) and holding onto losers, hoping that they would turn
around. The solution was to concentrate not on the profits but on execution. Buy
ing at the right time and selling at the right time is more important than money
. If you trade well, then the profits will come. Not looking at the numbers allo
wed me to push beyond my comfort level for the profit I made.
Ask yourself if you lose more money when you are worried about losing. A losing
streak or a significant loss can tear down the confidence level while increasing
anxiety. Higher anxiety makes you more prone to mistakes, blocking the trading
messages so vital to your success, increasing the fear of failure, and making yo
u focus not on a current or potential trade, but on how awful you are doing.
By focusing on trading technique instead of how you feel about a trade, you can
break the emotional cycle. Review your trading plan and concentrate on sticking
to it. Focus on how price is behaving and not whether you will have another losi
ng trade. Forget about what happened on the last trade and just watch the curren
t one unfold, knowing that your trading plan has mapped out the route to success
.
Breathing exercises can help to calm you. Breathe from the abdomen instead of th
e chest, taking air in and out with deep, slow breaths.
Top
Look at the screen and imagine where you want price to go. Focus on your goal of
a successful trade and not worry about what will happen if it fails. Allow the
excitement of the trade to help keep you focused on the goal of following your t
rading plan. When a gloom and doom image or thought appears, brush it aside with
a new image or thought of achieving success in this trade. Forget about past lo
sses and know that this trade will begin a string of trading wins.
Here is a list of things to try to make stress work for you instead of against y
ou.
Focus on this trade, not on prior ones.
Review the mechanics of a trade (stop loss points, price targets, support an
d resistance zones) instead of dwelling on feelings or emotions.
Plan your trade and trade your plan.
Breathe deeply and slowly from the abdomen and not shallowly and quickly fro
m the chest.
Imagine where you want the trade to go and know that this trade will become
a big winner, starting a string of wins.
Accept that not every trade will be profitable. Losses are the cost of doing
business.
Being better able to deal with stressful situations comes from experience. Allow
stress to add to your performance. And when your hands begin to shake and beads
of sweat appear on your brow, that is your body begging you to return to the co
mfort zone. Breathe deeply to calm down. Maybe switch to a higher time scale whe
re the pace is slower. You want to push the boundary of the comfort zone without
falling off the ledge.
And if you do find yourself up on that ledge, don't look down. Focus on getting
off the ledge safely.
This posting was based on an idea from "Stress and trading success" article by K
iev in the July 1994 issue of Technical Analysis of Stocks & Commodities magazin
e.

-- Thomas Bulkowski
I received an email from a beginning trader who asked, "Why can't I sell on time
?" If a position went well, he would ride the wave upward and sell when he thoug
ht price had peaked. But when it dropped, he stood unmoving like a deer in headl
ights. I gave him the following suggestions.
Use stops. This is an easy one. If you place a stop loss order with your bro
ker, you eliminate the sell decision. Just be sure to pick the right place for a
stop, not too close and not too far away. If the stock moves in your direction
then use a limit order at your target price. That way, when it hits your target,
the order executes and takes you out automatically.
Use your imagination! Imagine that this is not your trade, but your mother's
. What would he advise her to do? Act on your advice.
Pretend you're me. How would I (or your favorite professional trader) handle
the same situation? Would I hesitate or just sell the dog? Whatever you answer,
act on it.
Did the novice trader take my suggestions? No, and now he is down almost 50% on
two more trades. Instead of swing trading them, he has switched to buy and hold,
waiting and hoping for them to come back.
Trading Hesitation: Psychology
Let's take a closer look as to why traders hesitate pulling the trigger (placing
a trade).
I remember reading somewhere that rats, given the choice between food and pleasu
re would starve themselves to feel good. Traders are no different. They may also
be rats, but that's not my point. If you associate trading with losses (pain),
you will be reluctant to jump into a trade. Too many wins (pleasure) and you fee
l as if you can't lose, so you tend to take riskier trades. The secret to succes
sful trading is to balance the two.
Consider the trades you made last year or last week. If you followed your method
ology, would you have more money or less? Instead of having big losers, if you u
sed a stop on those trades, would you have saved more money?
If you hesitate placing a trade or enter late, then you may be letting the pain
of loss color your instincts. Imagine the trade turning into the biggest winner
this year. Think positively. Recognize that you will not win every time, so each
loss if just the cost of doing business. If you get a trading signal, imagine a
cting on it and winning. Repeat creating the image of placing a trade and then w
inning. Doing so will help put fear in its place. It will still be there caution
ing you, but it should not be a wall you cannot scale.
On the exit side, the idea is the same. When you get a signal to exit, take it.
Imagine that you are cutting your loss. Imaging how you would feel if you contin
ued to hold the stock and price were to drop in half. If this is a profitable tr
ade, imagine that you are getting out at the very peak with price then tumbling
downhill.
Think about how your portfolio will grow if you continue to execute according to
plan. Then imagine how you would feel if you ignore your rules and see losses p
ile up.
You can also try affirmations. "I will trade according to plan." "I will use a s
top on every trade." "When I get a trading signal, I will take it." Repeat your
favorite mantra every day for three weeks and your subconscious will accept it a
s a truth. You will become happier and perhaps more successful.

Successful trading is all in your head (well, not really, but it sounds good. It
helps if you know what you're doing). Solve your hesitation problems by imaging
that each trade will be a winner and each losing trade will remain so small as
to be insignificant.
Top
Trading Hesitation: Closing Position
Here is a short list of additional solutions.
Focus on technique. If you obeyed your trading signals or traded according t
o your trading plan, would you have made more money?
Stops, again. If you used stops on every trade, would you be more successful
?
Think positively! Know that this trade could be the largest winner of the ye
ar, and that's only the beginning. Imagine that this trade begins a series of wi
nning trades.
Cost of doing business. Each losing trade is just the cost of doing business
. If losses get too large, you are out of business.
Imagination, again. When you get a trading signal, imagine that you act on i
t promptly and it turns into a winning trade. If you are in a trade, imagine hol
ding the stock and watching it drop by half. How do you feel?
Affirmations. Affirmations are like medicine. Repeat three times daily, pref
erably after meals: "I will trade according to plan." "I will use a stop on ever
y trade." "When I get a trading signal, I will take it."
Pulling the trigger at the right time can be as easy as that or as difficult as
you want to make it.
This article was based on an idea from a "Trading Hesitation" article by Rooseve
lt in Technical Analysis of Stocks and Commodities magazine, September 1994.
-- Thomas Bulkowski
Worry and Anxiety
Picture of my dog, resting.
Before we can learn how to be happy, we must figure out what is making us unhapp
y.
First up is worry and anxiety. Basket Case Bob climbed his way up the ladder of
success by learning how to trade, developing a trading plan, and following that
plan.
Now that he is a successful trader, worry accompanies each trade. How did that h
appen? In many cases it begins with a loss. Losses are part of the business of t
rading, of course, but he blamed himself for each loss. Even though he followed
his trading system religiously and worked with his trading plan, he continued to
blame himself as if each loss was a mistake he made instead of the market takin
g a random turn. That blame caused anxiety which changed him from a happy trader
to one full of worry.
Top
Rules
Here is a list of rules that Bob used to fix himself.

Quiet space. Find a quiet space near the

plate, undisturbed by anyone.
X minutes daily for two weeks. Set aside
or two weeks.
Feel miserable. During the contemplation
cept feel miserable. Do whatever it takes to

office where you can sit and contem

a certain amount of time each day f
time, your task is to do nothing ex
feel miserable.

Bob chose to begin his contemplation by spending two hours each day feeling mise
rable for the first few days. That may sound like a lot, but it pales in compari
son to the 16 hours of awake time he spent worrying each day.
Soon after beginning the exercise, he found a pattern to his misery: The same wo
rries and anxieties occurred repeatedly. He also found that he enjoyed worrying.
Why? Blame his mother.
It's Mom's Fault
Basked Case Mom used to worry so much and was such an expert at it that she taug
ht classes on how to worry. When she died, Bob filled her shoes and continued th
e family heritage. In other words, he started to worry, too. When the losses beg
an adding up, so did the worry and anxiety.
After finishing the two weeks of contemplation, Bob reported that he would begin
laughing each time he looked at the park bench where he chose to feel miserable
. He began conversing with his mother instead of keeping her memory alive by wor
rying. "I'm happy again," he says. He continues to worry, but it lasts just minu
tes not hours.
This exercise worked for Bob because he would start laughing each time he starte
d worrying, interrupting the sequence of negative thoughts.
Some successful traders believe that their constant worrying helps prevent losse
s from growing. And that belief sets up a habit that creates unhappiness.
Top
The Excitement Junkie
Basked Case Bob started trading not for the money nor for the challenge, but for
the excitement, the adrenaline rush it provided. This excitement forced him to
overtrade, to keep that excitement coming, and that bred mistakes. Those mistake
s were costly, leading to unhappiness. When he became unhappy, his anxiety and s
tress levels increased along with other emotional states, turning him into a lar
ger basket case.
Anxiety strikes most traders, but second place belongs to unhappiness brought on
by an addiction to excitement.
What Gives You Pleasure?
Moving from the excitement of trading to more subtle pleasure is a worthwhile ob
jective. For example, create happiness by meeting a profit goal, experience the
perfect trade, have the freedom to do what you want when you want, run a success
ful business, and so on. Find out what gives you pleasure besides excitement, an
d then work on achieving that each day. If you move away from the adrenaline rus
h to something else, you stand a better chance of becoming happy.
Top
Conditional Unhappiness
"I will be happy if I make $50,000 this year," Basket Case Bob says. When he rea
ches that goal in May, what happens? He sets a new goal. "I will be happy if I m

ake $100,000 this year."

Do you see what is happening? Each time he reaches his goal, he moves it. It's g
ood to have goals, but they should not be tied to happiness. Why? Because as soo
n as he reaches the goal and has permission to be happy, he sets a new goal, rob
bing himself of the happiness he sought in the first place. Happiness becomes a
moving target, and he remains unhappy because he spends most of his time trying
to reach new goals.
Top
Solutions
Picture of a flower.
Happiness is a backlit photograph (from my back yard).
The solution to this cause of unhappiness is to sever the link between setting g
oals and happiness. The bad linking of happiness to goals can come from yourself
("As soon as I have enough money to buy a larger yacht...") or from the family
("When I can afford a new house/jewelry for the family/spouse, then I will be ha
ppy").
The key to happiness is to discover what makes you happy. Does meeting a set of
conditions make you happy or is it something deeper than that? Does making your
first million really give you happiness or does happiness come from the knowledg
e that you can buy almost anything you want, whenever you want? Does happiness c
ome not from reaching a set goal, but to the meaning and fulfillment that reachi
ng the goal symbolizes? Does true happiness stem from making $5,000 on a trade o
r going to the animal shelter and using some of those profits to save a dying do
g?
If happiness comes not from crossing the goal but from memories, then you can ex
perience happiness any time you want. All you have to do is remember a time or a
situation in which you felt happy. You can almost bottle it and take a drink fr
om the bottle when you need to, such as when you feel anxious, stressed, or just
unhappy.
I remember the thrill I received when seeing my name published for the first tim
e in Stocks & Commodities magazine. I wrote an article in 1993 discussing a tren
d channel trade I made. Not only did I win in the trade, but I made a few dollar
s from the magazine, and the ego boost was a nice welcome, too. You probably hav
e similar tales of happiness caused not by reaching goals, but by the emotional
rewards, the pat on the back, the accolades fellow traders sing, the anticipatio
n of your first car arriving in your driveway, powered by not gasoline but tradi
ng profits.
Savor those situations and file them in your memory for the future. When you are
unhappy, open your mental filing cabinet and pull out some of them. You can bec
ome a happy trader, one free from worry, stress, and anxiety. Hopefully, you won
't have to die first to get there.
-- Thomas Bulkowski
Lucky Lil
Basket Case Bob has a new girlfriend! Let me tell you about her. Lucky Lil is a
successful lawyer that is ready for a change. She is a methodical thinker that p
lans every step and her farsighted style has served her well in her career. Now,
she wants to model that success and apply it to trading, believing that a farsi
ghted approach is best suited for her.

With $300,000 in the bank, she begins working on a business plan because she is
starting a new business, the business of trading. During the day, she continues
as a lawyer, but in her spare time, she works on her startup company. Once her b
usiness plan is completed, she starts to implement it.
She contacts several top traders and asks them for advice. "Which trading strate
gies work best?" "What resources will I need?" "How can I spend the least amount
of time and get the most bang for my buck?" Her questions are numerous, but her
patience runs deep.
The traders recommend the usual resources, such as books, seminars, and tapes. S
he compares the responses from each trader and learns their approach to trading.
"Jeff's style works for me, but not Larry's." Like a hearty stew, she boils off
the parts she dislikes and keeps what she expects will work for her, building a
n extensive library of resources and contacts in the process.
She hires a system designer to create a platform of hardware, software, and tech
niques to implement the trading strategies that her favorite traders suggested,
using an approach that fits her style.
When that is done, she hires a trading coach to steer her through the mine field
s encountered each day to minimize losses. The coach is there for technical assi
stance and for emotional support. When she stumbles, she wants a knowledgeable s
houlder to cry on. When she succeeds, she wants someone there to share her succe
ss with and who encourages her to improve her trading skills.
Putting all of this in place took Lucky Lil 13 months of work and cost her dearl
y: $100,000, leaving her $200,000 to trade. But during the startup phase of her
company, she still practiced as a lawyer and was able to earn $100,000. Now, she
was ready to trade for a living.
Top
A picture of a praying mantis.
Basket Case Bob
Bob is unlike Lil in several ways. Lucky Lil is farsighted, carefully studying h
er options before taking the next step. Basket Case Bob is the guy sitting at a
red light, engine revving, hands gripping the steering wheel, waiting for the li
ght to change. Traffic does not move fast enough for Bob. He is responsive, not
planning ahead, but handling situations as they occur.
Bob is very personable, and his people skills allowed him to earn a good living
as a manufacturer's representative selling plumbing supplies. Although he likes
meeting people, he dislikes the travel time, being stranded on the road, and the
long boring hours spent alone in a car driving from one customer to the next. H
e yearns for a new life, a life as a successful trader.
With $200,000 saved, he decides to quit his job and begins trading from home ful
l time. Whereas Lucky Lil spent months making plans, preparing, testing, and lea
rning her trading skills, Bob is lazy. "Planning is a waste of time," he says. H
e is disorganized and hates details. With skills crafted over years of dealing w
ith people, he understands supply and demand, fear and greed. He can see those e
motions reflected in the charts he stares at each day.
He signed up with a full service broker and took every trade the man suggested.
The man's title was as good as his skills: the trades made Bob broker. He lost h
alf his money, $100,000, and then decided on a new approach.
He went hunting for an investment adviser and selected the man with the most pol

ished delivery. "He's a salesman, and so am I," he said. "I understand him. One
salesman would never cheat another." That belief cost him the other $100,000.
Looking back over the year it took him to burn though the $200,000, he decided t
hat the solitary life of a trader was not for him. He needed other people to sha
re his feelings. He enjoyed the company of others too much to spend countless ho
urs each day, alone, starring at monitors. Besides, he was broke. He needed a jo
b. He went back to sales.
Top
Randy Andy
Randy Andy is a farsighted trader wannabe. He followed the same preparation as L
ucky Lil by interviewing top traders, gathering resources such as computers, sof
tware, and books, while keeping his day job. He spent countless hours researchin
g trading setups, ones to make money, but also the physical layout of his tradin
g office.
A year went by and he was still adjusting the monitors. When he had it down perf
ectly, he saw a picture of another trader with larger screens and decided that t
he layout he had just wouldn't do. He scrapped it all and went with a bank of la
rger monitors, starring at him like giant eyeballs.
After that, he started searching for a broker to handle his trades. Should he go
with a full service broker or a discount shop? He couldn't decide. He listened
to other traders, polled the audience in a chat room for suggestions, looked at
recommendations from his favorite trading magazines. Another year went by.
Five years later, his office has been re-equipped with new computers, larger mon
itors, upgraded furniture with the best software that money can by. He is still
shopping for a broker, after dumping the last five, still doing research on the
best trading techniques, still pondering whether he wants to trade stocks, futur
es, or options. He hasn't made up his mind if day trading, swing trading, or pos
ition trading are right for him.
Randy Andy is a farsighted trader that has yet to trade. He uses the many choice
s of creating a startup business as an excuse not to move forward. He is using t
he planning process as a mechanism to avoid trading, to avoid taking risk, and t
o avoid making decisions.
Smooth Sally
Top
Friction between their trading styles caused heated arguments between Bob and Li
l. He gave her the shove, and she gave him the finger, and the two went their se
parate ways.
Now, we find that Basket Case Bob has a new girl friend: Smooth Sally. He chose
better this time because she is also a responsive trader.
Little bumps along the road of life, like a car accident, would not phase Sally.
She is a cool player, letting things ebb and flow naturally. She lives day-by-d
ay, not making long range plans. She knows what she likes and dislikes, has gene
ral goals, but no specific timeframe to achieve them. It's like she is going on
a road trip by just pointing her car in the direction of the sun each morning an
d following wherever it leads.
When an opportunity presents itself that intrigues her, she pounces and focuses
her energy on making the opportunity work for her.
What makes Smooth Sally different from Basket Case Bob is that she has the uncan

ny ability to sift through and discard the bad opportunities, the scams, and the
bad trades. Bob just trades them all.
Being chatted up in a Chicago bar by a group of floor traders, she asked many in
teresting and penetrating questions. Just the quality of her questions impressed
the men. When she said "I'd like to try that!" one of the other spontaneous and
responsive traders said, "Sold!"
She started as a runner and impressed her coworkers immediately. She worked hard
, being both fast and efficient. When she made a mistake, she admitted it and le
arned from it.
Several months later, a trader offered to train her as a broker.
A casual observer would say she has good luck. Those that know her well would sa
y that luck had little to do with her success. It was her hard work and ability
to sniff out a winning opportunity that made her successful. Perhaps that is wha
t luck really is, the desire to keep pounding away until the breaks come.
Top
Trader Types
Farsighted traders are methodical, detail oriented, planning every stage of thei
r trade. Responsive traders prefer to take what comes. They know a good trade wh
en they see it. Which approach to trading, responsive or farsighted, better suit
s your style? Lucky Lil saved $300,000 and hired a trading coach for support, a
programmer to build her trading systems, bought computers, software, and so on,
spending $100,000 while still working as a lawyer.
Smooth Sally didn't have a plan because she didn't need one. When an opportunity
presented itself, she jumped in and did the best she could, creating opportunit
ies along the way.
Which type of trader are you?
If you are a farsighted trader, one that likes to plan ahead, then be sure to co
ver all possible contingencies. Reuse the trading plan so the planning process d
oes not overwhelm you by taking too much time to create. Then follow the plan. C
lear away any self doubts you may have and trade with confidence. Take each sign
al as it comes and trade it.
If you are a responsive trader, then learn to listen to the intuitive signals wh
ispered to you in your mind. Learning to hear and trust those voices only comes
from experience. Try to determine what works best for you. Make smart trading ch
oices instead of taking every opportunity that comes along.
Both the farsighted and the responsive styles are valid approaches. I use a comb
ination of both. I like to plan my trades but when the voice says sell, I do (we
ll, sometimes). Time and time again, when I ignore that voice, I either cut my p
rofits short or have a loss staring at me.
A few years ago I bought my first 22" monitor. It was like looking at price acti
on through the Hubble telescope! I could see every bull and bear constructing ev
ery candle line as it occurred. It took a while to get used to the larger visual
landscape.
In September 2009, I bought another 22" monitor for my other computer, where I d
o my pattern recognition work, and viewing patterns on the larger screen felt we
ird at first.

Change. Every trader has to adapt or die.

Opening Position
Psst. Wanna Buy Some Shoes?
Big Changes
Coping with Change
See Also.
Opening Position
When your life depends on how well you trade, any change to your routine or setu
p can make a big impact. It upsets your equilibrium, your balance, and if you to
pple over, it could mean trading losses that seem to last forever until you adju
st.
The opposite approach of this is a seasoned, winning trader who makes small chan
ges every day to stay on top of their game.
It reminds me of the movie, "Navy Seals" when Michael Biehn is driving a jeep ov
er a bridge on the way to a wedding. Michael swings the steering wheel from side
to side as if the jeep is swerving from lane to lane and yet they are moving as
straight as an arrow. His portrayal is just not believable. The adjustments dri
vers actually make are small ones, and that is similar to the adjustments season
ed traders make each day, perhaps without noticing.
Top
Psst. Wanna Buy Some Shoes?
Small changes can make a big impact. For example, Basked Case Bob was under stre
ss and that stress was giving him back pain. He went from doctor to doctor tryin
g to find the cause.
"Take an aspirin," one doctor told him.
"Get some exercise," said another.
Picture of a spider
"Go play in the street," said a neighbor. "That will cure all of your pain."
Finally, he mentioned his pain to another floor trader. "Change your shoes," the
man said, "and not with the cheap stuff. Buy an expensive pair that's made for
your feet."
So Bob did, and it cured his problem.
Fast forward a few years. The stress from trading is still there, but it's his k
nees that are giving way this time. His trading is suffering along with his body
.
"Let's run some tests, starting with a CAT scan then an MRI followed by an exten
sive series of x-rays," one doctor told him.
"Surgery is your only hope," said another.
"Go play in the street," said the neighbor.
Then he talked to another floor trader. "When was the last time you changed your
shoes?" The trader sniffed the air and added, "and your socks, too?"

After years of wearing his shoes, the soles had worn down and they were no longe
r as effective as they used to be. A new pair cured his knee problem. Without th
e pain, his trading scaled to new heights.
Small change, big impact.
Top
Big Changes
Imagine what chaos ensues when a marriage breaks up. A trader is alone for the f
irst time in years, probably in new digs because the ex got to keep the mansion
as part of the settlement. The closet he or she is now living in just isn't larg
e enough and it's overpriced anyway.
Having to find your footing under those circumstances is difficult. The inevitab
le trading losses increase an already stressful and uncomfortable situation.
Simple changes can make a big impact, depending on the situation. A change in an
assigned parking space may sound trivial unless you were given that space as a
reward. That space is a status symbol and the whole company knows it. Losing tha
t cherished space can cause anger, resentment, depression and feelings of inadeq
uacy.
More significant changes can cause fear, overwhelming discomfort, anxiety, insom
nia, loss of appetite, heart palpitations and high blood pressure. Even the smal
lest additional stress can seem like a major event. Traders may be unable to tol
erate cold or heat, noise, and other factors with tempers becoming lit fuses lea
ding to bombs waiting to detonate.
Top
Coping with Change
How can you cope with change? Here's some suggestions.
Look for signs. Change causes a loss of energy and enthusiasm, perhaps depre
ssion. Be alert (the world needs more lerts ) to these types of changes. Inabili
ty to sleep or sleeping too long without feeling rested are signs of a problem a
s are the ones listed before: overwhelming discomfort, anxiety, loss of appetite
, heart palpitations, and high blood pressure. If you can recognize the signs, t
hen you can take action before the problems adversely affect your trading.
Take a vacation. Get out of the stressful situation and let your body relax
away from the worry and stress of trading. Your adrenal glands need time to powe
r down before they shred themselves and your body.
The vacation need not be a long one. Just a day or two of rest, if taken oft
en enough, might be enough to help you cope with any stressful situation. Someti
mes just planning the vacation can lighten your mood.
Picture of a bug
You can retire at 36 like I did, but that causes additional change. Try goin
g from collecting a steady paycheck to having none at all, not even unemployment
. Perhaps many of you have experienced that already, given the economy. If so, y
ou'll understand that walking to the mailbox used to be fun, but not now. Knowin
g that there could be a bill waiting inside to bite you makes getting mail a pai
nful experience.
What cured that feeling for me was 1) finding a new income stream (like trad
ing), and 2) switching to electronic bill paying.

Give it time. Imaging that you have moved to London where they drive on a di
fferent side of the road than the way they do in the states. A person from the U
.S. driving over there for the first time causes stress and brings rote behavior
(driving on the right side of the road) into conscious thought (to drive on the
left). "Should I be on the right or the left?" "Which way do I go around a rota
ry?" But given enough time, you can learn to drive the new way. Given enough tim
e, you will adapt to the changes in your life and things will return to feeling
normal again. Given enough time, you can eat a bowling ball, but I digress.
Seek help. If things are really bad then perhaps professional help is the an
swer.
In short, change takes getting used to.
-- Thomas Bulkowski
The Problem
Question: What Causes Trader Loneliness? Answer: Draw downs.
I was surprised by that. My guess would have been the isolation inherent in trad
ing for a living, especially if you do it out of your home like I do. But loneli
ness happens to floor traders and successful traders surrounded by other traders
.
Basket Case Bob is an example. You might recall that Bob met a girl and turned i
nto a happy camper again in the last episode. He married the girl, had a slew of
rug rats (kids), is active in the community and in professional organizations.
But he is lonely. Why? Because Bob is a trader.
Like a skilled surgeon having a patient die on the operating room table, a trade
r will have to face a series of losses. Those losses cause confidence to wane, e
specially when they last beyond the maximum draw down period experienced by a sy
stem. As the losses continue, the trader has no one to turn to, no one to confid
e in, especially if they are successful and other traders look up to them. It's
lonely at the top.
You don't have to be a top trader to
. You question your methods and your
he saying that anyone can make money
nack for making money, and it's time

feel lonely when trade after trade goes bad

prior success. Was it just luck? Remember t
in a bull market. Maybe you have lost the k
to find a new line of work.

Pressure at home adds to the burden. Your wife has a birthday coming and she wan
ts anything so long as it's made of gold and peppered with carbon crystals. How
are you going to tell her you can't afford diamonds?
Top
You're A Great Trader
When a series of losses has cut your confidence, being told by your significant
other that you are a wonderful trader -- the best in the world -- doesn't help.
You don't need meaningless words to prop up your sagging self-image. Instead, yo
u need someone to say, "It's going to be fine" or "I know how to fix that." Thos
e words relieve you of the feeling of hopelessness. The person you confide in ta
kes on the responsibility for creating a positive outcome.
I remember when I was a senior software engineer working on a print redirector.
The print redirector was a program that worked in the background and when you tr
ied to print, it would send your request not to your local desktop printer, but
to another printer on the network. An entire organization could share one printe
r. Every time I made a call to the operating system, it would vector off into th
e weeds and crash the system.

I spend three weeks searching for the bug in my code, and there was no one in re
search and development that could help me (or so I thought). I felt very much al
one and under stress with management wondering why it was taking so long.
I found out that the bug wasn't in my code at all. It was an undocumented "featu
re" of the Microsoft operating system that you had to make a different operating
system call so it could swap internal stacks before making the call I needed.
Top
Three Problems, Not One
There are three problems to overcome to cure the feeling of isolation.
1. Can You Hear Me Now?
Sometimes what makes a trader successful is not one that makes them the life of
the party. They hide their feelings. An emotionless trader, one that can push a
button without worrying about how much money they are making or losing, is a pri
zed quality. So, traders may have difficulty communicating emotions with others.
And when they do, it might not be successful. How can a brain surgeon explain t
o his wife/girlfriend/mistress (perhaps all three) the exact cause of the patien
t's death and be understood?
How can a trader explain that the MACD oscillator was showing bearish divergence
but he missed it? Or that stochastics said sell but was wrong. Again.
The emotionless trader may have difficulty expressing his emotions because he ha
sn't done so before, or because he is afraid to do so, especially to his peers,
who may point, snicker, and laugh.
2. Stoic
Traders are taught to repress their emotions so that they don't get too excited
when they win nor too bummed out when they lose. Similarly, they repress or deny
emotions such as loneliness so it doesn't affect their trading.
These repressed emotions are time bombs waiting to explode. And when they explod
e, they take a trader down with them. A trader begins to lose, and lose often. H
e torpedoes his own trades.
Top
3. Incurable
A trader in a negative mood may make excuses to avoid solutions that would snap
them out of those moods.
Solutions
Here are some suggestions to handle loneliness.
1. What's bothering you?
Sometimes traders feel ashamed to express what's bothering them or have psycholo
gical blocks from doing so. Sometimes, they just don't know what to say. Write d
own your concerns. Doing so removes any hindrance a person-to-person discussion
might have, and it gives you an opportunity to learn more about yourself.
2. Read what you wrote.
Like boiling the fat away from meat, remove any duplications or exaggerations. R
efine your list to a core group of concerns.
3. What should another do?
If another trader gave you the same list of concerns and asked for your opinion

about it, what would you say? Often you know the best way to cure yourself. Writ
e down your solutions.
Top
4. Write down your solutions.
The list of solutions will become a "to-do" list, a course of action you can tak
e. Once you begin to take the steps to fix your problem, you will be back in con
trol and feel better about your situation.
The next series of steps helps those who have difficulty sharing their feelings
with others. This reminds me of a neighbor who was abused as a child. Instead of
talking about it, he is drinking himself to death.
Top
A picture of my dog peering over the Lay-Z-Boy.
5. Watch a sad movie.
I'm not kidding. My personal favorites are "A Message from Holly," "Permanent Re
cord," "Brian's Song," or even "Up Close & Personal" and "Phenomenon."
I'll load up the VCR/DVD and grab some popcorn, maybe have tissues handy. Since
I'm watching them with my dog, who is only interested in snatching stray popcorn
, you may also wish to view your movies in private. That way, you can express yo
ur feelings however you wish.
A sad book will work as well.
6. Watch a happy movie.
This gives you another opportunity to vent your emotions. You can combine these
two and watch "The World According to Garp," which is funny until the ending. Fo
r a happy flick, I like "What About Bob?" Others that might do in a pinch are, "
Grumpy Old Men," "Grumpier Old Men," "My Big Fat Greek Wedding," "EDtv," and "Gh
ostbusters."
The point of these two exercises is not to add calories to your waistline, but t
o get you to express those pent-up emotions. That helps relieve stress. It provi
des an outlet where you can be as emotional as you like without worrying about w
hat the gossip mill is saying about you.
Top
7. Hotlines
Call an organization, such as a church or other group that has hotlines staffed
by people trained to listen to whatever you need to talk about. This reminds me
of an episode from, "To the Manor Born," where Penelope Keith makes appointments
with tradesmen to visit her cottage and discuss improvements, just for the comp
any, with no intention of buying their products or services.
A picture of a lizard.
Tell the trained listener that you just want them to listen even though they may
not understand everything you are saying. Once you are done expressing yourself
, and before they can give any advice, thank them for listening and hang up.
8. Help others.
Each year I go to a health fair where they suck your blood for testing and do ot
her fine stuff for free.
This year, I talked with two people from an organization that were looking for d
rivers to pick up individuals and drive them to doctor appointments and such. It
's a variation of "Meals on Wheels."

In other words, contribute your time to helping others less fortunate than you.
Doing so puts your life in perspective. It gets you out of the house to meet new
people.
9. Network.
Look for groups that have nothing to do with trading, so you can learn how to ex
press your emotions and thoughts. You can find those groups in the calendar sect
ion of your newspaper.
I enjoy going to the grocery store and talking to myself: "You're charging $5 fo
r 8 ounces of chips?!! Are you NUTS?"
Top
Wikipedia: "Burnout is a psychological term that refers to long-term exhaustion
and diminished interest in work." It often comes about when you push yourself to
o hard and for too long.
There are many symptoms that suggest you could be burning out. Take this quiz to
find out.
Quiz Time
Do you feel lethargic?
Would rather stay in bed than trade?
Do you wake frequently at night and then feel tired all day long?
Does trading feel like a hopeless endeavor, just like everything else?
Do you have a temper now but didn't before?
Do you lose your temper over little things?
Do you feel as if you are losing control over your trading?
Do you need stimulants like caffeine?
If you didn't find enough energy to complete the quiz, then that suggests you ar
e either burned out or a very lazy person. Answering more than one or two questi
ons with Yes does not bode well either.
Stress Triggers
Trading is a unique profession since the pressure to avoid losses is a daily cha
llenge that creates stress. Too much stress and you burnout like a rocket motor.
But stress often comes from more than just losing money, such as these triggers
.
Financial worries like too much debt or not enough money to pay the bills
Excessive losses and the need to "make it back"
Lifestyle changes such as divorce, job change, or even a death in the family
Conflicts with spouse, friends, or neighbors
Physical fights or even the threat of violence
Deadlines
Illness
Poor eating habits
Pain
Lima beans
Yes, I added Lima beans for fun.
Top
When stress becomes too high and sustained for too long, symptoms of burnout app
ear. You may have difficulty sleeping, or your anger rises. This may lead to an
impaired immune system, triggering colds, arthritis, and so on.

Trading triggers the flight-or-fight response, and that causes the adrenal gland
s to produce adrenaline. That adrenaline gives you instant energy, just as stepp
ing on a gas pedal does to a car. But over time, the response gets sluggish. An
exhausted adrenal system means the person will have difficulty falling asleep (i
nsomnia), then sleep soundly, but wake up still tired and remain that way throug
hout the day.
Once burnout occurs, often a trading career is over. Many change jobs and others
spend time repairing their bodies, minds, and broken relationships.
What's The Fix?
Picture of my dog with her ears up
What can you do to avoid burnout? Here are some tips.
Get plenty of daily exercise, just don't overdue it because too much exercis
e hurts adrenal function, too.
Take frequent vacations. They need not be long, but they should be as stress
free as they can be (in other words, leave bungee jumping for another lifetime)
.
Eat better to help the body cope with stress. Avoid high fat junk food, salt
y snacks, and processed food.
Meditate. Learn a method to reduce stress such as meditation.
Plan the trade and trade the plan. Be a disciplined trader, one that follows
his own rules. When you trade outside of your system, mistakes can cause stress
and stress leads to burnout.
Lead a balanced lifestyle. Learn to leave your work at the office. Go have s
ome fun.
The best cure for burnout is to prevent it from happening in the first place.
See Also
Are you a centered trader, one that lets emotions flow by without reacting,
focused only on the trade?
Do you trade just for the excitement? Discover why you need the adrenaline r
ush.
Do you have what it takes to become a successful trader?
Dealing with trading stress by expanding your comfort zone
Read the other psychology articles. They may help...or twist you up like a p
retzel!

-- Thomas Bulkowski
Barrier #1. Loss: Undefined.
Barrier #2. Hesitation.
Barrier #3. Stubborn Beliefs.
Barrier #4. Suicide Trading.
Barrier #5. Euphoric Trading.
Barrier #6. Missing Breakouts.
Barrier #7. Losing Focus.
Barrier #8. Being Right or Making Money?
Barrier #9. Inconsistency.
Barrier #10. Missing Money Management.
Barrier #11. Dollar Dependence.
See Also.

This article is based on a sidebar from the August 1996 issue of Technical Analy
sis of Stocks & Commodities magazine, in an interview with Robert Koppel, writte
n by Thom Hartle, titled, "Psychological Barriers to Trading." I reduced the num
ber of barriers because they were either duplicated or made little sense, and I
added one of my own.
According to the article, Koppel and Abell, in their book, The Innergame of Trad
ing, pictured on the right, discuss psychological barriers to trading successful
ly.
Trading Barrier #1. Loss: Undefined.
Before I make a trade, I define my upside target and also my stop loss price. "A
t what price would the market be telling me I'm wrong?" I ask myself. Some trade
rs don't set profit and loss targets, and I confess that if the trade is rushed
or if I have many trades to place quickly, I may forget to fill in my trading no
tebook where I describe the price targets.
The article makes an interesting point when they write, "If you are afraid to ta
ke a loss, don't trade." I would add that if your inner voice is telling you to
avoid the trade, then do so. If you are always fearful that the next trade is go
ing to be a loser, then that is another problem altogether. It may be that you d
on't trust your trading system, or you fear success. Figure out what the problem
is and fix it.
Trading Barrier #2. Hesitation.
You receive your trading signal and then what? You watch it go by, believing tha
t if you hold a bit longer, price will continue the uptrend or will soon change
from a loss into a profit. You could be right...or wrong. One thing is clear is
that you are ignoring your trading signals, and that is never good.
Plan the trade and trade the plan. If you set an exit price and the stock reache
s it, then close out the trade either for a profit or loss. Taking a loss should
be just as easy as taking a win. If it's not, then keep practicing until it is.
Top
Trading Barrier #3. Stubborn Beliefs.
The worst trades I make are those in which I know how the stock is going to beha
ve. They are the a no-brainers, the trades so obvious anyone could make them. Wh
en the unexpected occurs, I sit paralyzed, unable to believe my eyes and unable
to pull the trigger to exit. The loss grows, seemingly without bounds.
Now that I know about this problem, I try to examine all sides of a trade, cover
ing how to adapt should the trade go wrong or price begin a dead-cat bounce.
Don't let your beliefs dictate your trade. Only price should do that.
Trading Barrier #4. Suicide Trading.
Have you ever been so mad at the world that you didn't care what happened? I rem
ember approaching a day trading session in that kind of mood. I made unusually l
arge and risky bets, but I don't remember if I was successful or not. Probably n
ot. Now I don't trade if I'm upset, and you shouldn't either.
Trading Barrier #5. Euphoric Trading.
This is the opposite of the last one, but the results are often the same. How ma
ny times have you made trade after trade that wins? You feel invincible. When I
feel as if I can't lose, that's when the market gets me as bloody as a CSI episo
de. I take a loss, often a big one.

Now I know better. When I have the euphoric feeling of invincibility, I stop tra
ding.
Top
Trading Barrier #6. Missing Breakouts.
This one is not about getting into a trade well after it has begun its move. Rat
her, it is about failing to get into the trade at all. You watch price move from
the sidelines.
I did that with Ashland (ASH). I correctly identified a head-and-shoulder bottom
and added it to my watch list on March 17, 2009 when it was trading at about $7
. Then I sat back and waited and waited and waited. Meanwhile the stock climbed
and climbed and climbed. And each day that it climbed, I kept chanting, "I shoul
d have gotten in. I should have gotten in."
The stock hit 30.
Trading Barrier #7. Losing Focus.
When I started day trading, the light shining through the window always caused m
e problems. It was a distraction, just as my dog barking or the phone ringing.
When you are in a trade, keep the focus.
Trading Barrier #8. Being Right or Making Money?
There are a few traders I know that advocate scaling out (selling part of a posi
tion) on the first trade of the day so as to book a profit. They want a win behi
nd them to set the tone for the day. But if you were to rephrase their style and
ask them, "Which is more important, winning or making money?" They will answer
"Making money," and yet that's not how they begin their day trading. They sell p
art of a winning position (increasing the win/loss ratio) instead of making more
money by selling later.
They have a valid point, that of a psychological need to set a winning tone for
the day, but I'll take the money.
If you scale out of a trade, check your numbers. Would you have done better if y
ou sold the entire position at once or in pieces? A clue to the answer, at least
for me, occurred during losing trades. If I sold the entire position, I kept mo
re of my money than selling half and hoping I could recover if price bounced. I
found that by scaling out, I sold at an even lower prices, compounding my loss.
Now, if I have a losing trade and want out, I sell my entire position at once. F
or winning positions, I almost always sell my entire position also at once. The
only time that is not true is to reduce the position size to rebalance the portf
olio.
Top
Trading Barrier #9. Inconsistency.
If you obey your trading signals some of the time and not others, then why are y
ou trading using that system? You can't tell ahead of time which trade will be a
winner and which one won't. Thus, you have to obey every trading signal that a
system gives you. If you can't do that, then find a system in which you can.
Trading Barrier #10. Missing Money Management
The big one here is using stops on every trade, but it also includes the proper
position sizing and sane use of leverage. I stopped trading the ultra ETFs becau

se the twice leverage made me lose money as often as I won. I do better and feel
more comfortable trading the 1x variety.
Money management is all about preservation of capital, of keeping those losses s
mall and your profits larger. If you can do that, then you can probably make it
in this business.
This year (as of mid 2009), my average loss is 9.5% but my average gain is 36.1%
. One regret is the loss number is twice as high as it should be, but I have bee
n trading inexpensive stocks which tend to be more volatile. They move more than
10% in one day. Wow.
Trading Barrier #11. Dollar Dependence
I added this one because it's a bad problem with an easy cure. What's the proble
m? You focus on the money. How many times have you said, "The loss is too big to
sell!" How many times have you looked at your profits and decided to get out? I
did that just the other day after a 110% gain in Conseco in five days. Turns ou
t I sold the day price peaked, but the stock could have continued to drive highe
r.
I does not matter at what price you bought a stock. What matters is when you sel
l. Forget about profits and losses and concentrate on how well you are obeying y
our trading rules. You compound your stress when you look at the bottom line eac
h day or after each trade. Instead, concentrate on whether or not now is the tim
e to sell. If you can do that, then your stress level will drop and the profits
will take care of themselves.
It sounds easy and it is, but one trader I know just can't accept it. He keeps c
hanting, "All I have to do is make a nickel on each trade." He is so focused on
making money that he may never make it as a trader.
-- Thomas Bulkowski

Barrier #1. Loss: Undefined.

Barrier #2. Hesitation.
Barrier #3. Stubborn Beliefs.
Barrier #4. Suicide Trading.
Barrier #5. Euphoric Trading.
Barrier #6. Missing Breakouts.
Barrier #7. Losing Focus.
Barrier #8. Being Right or Making Money?
Barrier #9. Inconsistency.
Barrier #10. Missing Money Management.
Barrier #11. Dollar Dependence.
See Also.

This article is based on a sidebar from the August 1996 issue of Technical Analy
sis of Stocks & Commodities magazine, in an interview with Robert Koppel, writte
n by Thom Hartle, titled, "Psychological Barriers to Trading." I reduced the num
ber of barriers because they were either duplicated or made little sense, and I
added one of my own.
According to the article, Koppel and Abell, in their book, The Innergame of Trad
ing, pictured on the right, discuss psychological barriers to trading successful

ly.
Trading Barrier #1. Loss: Undefined.
Before I make a trade, I define my upside target and also my stop loss price. "A
t what price would the market be telling me I'm wrong?" I ask myself. Some trade
rs don't set profit and loss targets, and I confess that if the trade is rushed
or if I have many trades to place quickly, I may forget to fill in my trading no
tebook where I describe the price targets.
The article makes an interesting point when they write, "If you are afraid to ta
ke a loss, don't trade." I would add that if your inner voice is telling you to
avoid the trade, then do so. If you are always fearful that the next trade is go
ing to be a loser, then that is another problem altogether. It may be that you d
on't trust your trading system, or you fear success. Figure out what the problem
is and fix it.
Trading Barrier #2. Hesitation.
You receive your trading signal and then what? You watch it go by, believing tha
t if you hold a bit longer, price will continue the uptrend or will soon change
from a loss into a profit. You could be right...or wrong. One thing is clear is
that you are ignoring your trading signals, and that is never good.
Plan the trade and trade the plan. If you set an exit price and the stock reache
s it, then close out the trade either for a profit or loss. Taking a loss should
be just as easy as taking a win. If it's not, then keep practicing until it is.
Top
Trading Barrier #3. Stubborn Beliefs.
The worst trades I make are those in which I know how the stock is going to beha
ve. They are the a no-brainers, the trades so obvious anyone could make them. Wh
en the unexpected occurs, I sit paralyzed, unable to believe my eyes and unable
to pull the trigger to exit. The loss grows, seemingly without bounds.
Now that I know about this problem, I try to examine all sides of a trade, cover
ing how to adapt should the trade go wrong or price begin a dead-cat bounce.
Don't let your beliefs dictate your trade. Only price should do that.
Trading Barrier #4. Suicide Trading.
Have you ever been so mad at the world that you didn't care what happened? I rem
ember approaching a day trading session in that kind of mood. I made unusually l
arge and risky bets, but I don't remember if I was successful or not. Probably n
ot. Now I don't trade if I'm upset, and you shouldn't either.
Trading Barrier #5. Euphoric Trading.
This is the opposite of the last one, but the results are often the same. How ma
ny times have you made trade after trade that wins? You feel invincible. When I
feel as if I can't lose, that's when the market gets me as bloody as a CSI episo
de. I take a loss, often a big one.
Now I know better. When I have the euphoric feeling of invincibility, I stop tra
ding.
Top
Trading Barrier #6. Missing Breakouts.
This one is not about getting into a trade well after it has begun its move. Rat
her, it is about failing to get into the trade at all. You watch price move from
the sidelines.

I did that with Ashland (ASH). I correctly identified a head-and-shoulder bottom

and added it to my watch list on March 17, 2009 when it was trading at about $7
. Then I sat back and waited and waited and waited. Meanwhile the stock climbed
and climbed and climbed. And each day that it climbed, I kept chanting, "I shoul
d have gotten in. I should have gotten in."
The stock hit 30.
Trading Barrier #7. Losing Focus.
When I started day trading, the light shining through the window always caused m
e problems. It was a distraction, just as my dog barking or the phone ringing.
When you are in a trade, keep the focus.
Trading Barrier #8. Being Right or Making Money?
There are a few traders I know that advocate scaling out (selling part of a posi
tion) on the first trade of the day so as to book a profit. They want a win behi
nd them to set the tone for the day. But if you were to rephrase their style and
ask them, "Which is more important, winning or making money?" They will answer
"Making money," and yet that's not how they begin their day trading. They sell p
art of a winning position (increasing the win/loss ratio) instead of making more
money by selling later.
They have a valid point, that of a psychological need to set a winning tone for
the day, but I'll take the money.
If you scale out of a trade, check your numbers. Would you have done better if y
ou sold the entire position at once or in pieces? A clue to the answer, at least
for me, occurred during losing trades. If I sold the entire position, I kept mo
re of my money than selling half and hoping I could recover if price bounced. I
found that by scaling out, I sold at an even lower prices, compounding my loss.
Now, if I have a losing trade and want out, I sell my entire position at once. F
or winning positions, I almost always sell my entire position also at once. The
only time that is not true is to reduce the position size to rebalance the portf
olio.
Top
Trading Barrier #9. Inconsistency.
If you obey your trading signals some of the time and not others, then why are y
ou trading using that system? You can't tell ahead of time which trade will be a
winner and which one won't. Thus, you have to obey every trading signal that a
system gives you. If you can't do that, then find a system in which you can.
Trading Barrier #10. Missing Money Management
The big one here is using stops on every trade, but it also includes the proper
position sizing and sane use of leverage. I stopped trading the ultra ETFs becau
se the twice leverage made me lose money as often as I won. I do better and feel
more comfortable trading the 1x variety.
Money management is all about preservation of capital, of keeping those losses s
mall and your profits larger. If you can do that, then you can probably make it
in this business.
This year (as of mid 2009), my average loss is 9.5% but my average gain is 36.1%
. One regret is the loss number is twice as high as it should be, but I have bee
n trading inexpensive stocks which tend to be more volatile. They move more than

10% in one day. Wow.

Trading Barrier #11. Dollar Dependence
I added this one because it's a bad problem with an easy cure. What's the proble
m? You focus on the money. How many times have you said, "The loss is too big to
sell!" How many times have you looked at your profits and decided to get out? I
did that just the other day after a 110% gain in Conseco in five days. Turns ou
t I sold the day price peaked, but the stock could have continued to drive highe
r.
I does not matter at what price you bought a stock. What matters is when you sel
l. Forget about profits and losses and concentrate on how well you are obeying y
our trading rules. You compound your stress when you look at the bottom line eac
h day or after each trade. Instead, concentrate on whether or not now is the tim
e to sell. If you can do that, then your stress level will drop and the profits
will take care of themselves.
It sounds easy and it is, but one trader I know just can't accept it. He keeps c
hanting, "All I have to do is make a nickel on each trade." He is so focused on
making money that he may never make it as a trader.
-- Thomas Bulkowski
I remembered day trading when I was mad at the world. I said to myself, "I don't
care how this turns out!" and took too many trades that I would never have made
when I was feeling happier. The same thing happened when I felt as if I could c
onquer the world. I took every trade believing that I would win big. On some tra
des I made money and on some I did not. I would have done better by not trading
under those circumstances. Perhaps you have similar tales.
Your emotions affect not only you, but others around you. Try this simple experi
ment. Smile at the next woman you meet (this works better with women). My guess
is they will smile back at you. That simple gesture will brighten your day and t
heirs, too.
The same can be said for times in which you feel upset. It is contagious. If you
are tense, you will pass on that feeling to others. If you stick out your tongu
e at the next person you meet what will happen? They will either stick out their
tongue, too, or punch you out. Perhaps I have strayed a bit from the pack on th
at example, but you understand what I mean.
The emotions you feel affect your trading just like a pretty woman smiling at yo
u in the grocery store affects your emotions. A bad trade may make you angry, an
d that anger could cause you to make more bad trades, snowballing until you are
a stressed out wreck by the time the trading day ends. Strong emotions can cause
you to lose focus, making you more likely to ignore trading rules. And that can
lead to trading mistakes, perhaps costly ones.
Basket Case Bob
Now we come to Basket Case Bob.
It would be generous to call Basket Case Bob a miser. He takes two-ply toilet pa
per and separates the layers to make them go farther. He adds his trading winnin
gs to his rainy day fund, a fund from which he never withdraws. "Why not spend s
ome of that money and take a vacation?" He turns white as a sheet and grasps the
desk to steady his balance. Just the thought makes him feel as if he is about t
o pass out.
When his one and only friend, Joe, needed an expensive operation which he could
not afford, he dipped into his rainy day fund and paid for Joe's operation.

And then Basket Case Bob turned into Santa Claus. "What do I do next?" he asked
with excitement bubbling in his voice as the world smiled at him. He put 10% of
his funds into his rainy day fund, 10% he set aside for charity, and 10% went as
play money. The other 70% was reinvested in his trading operation.
That act of giving changed both his life and Joe's. Basket Case Bob felt more al
ive than he had in years.
Are you a case of Basket Case Bob waiting to be discovered?
Top
Solutions
If emotions rule your trading (such as failing to follow your trading plan, or r
egularly feeling tense, angry, unloved, unappreciated, or apprehensive), then tr
y these steps.
Think back to each incident in which negative feelings affected your trading
behavior.
What triggered the incident?
Where did it happen?
What happened?
Relive the episode. Examine every detail
Now imagine a similar incident occurs in the future. How can you handle it diffe
rently?
When you find that emotions are affecting your trading, try one or more of these
.
Stop trading.
Get some exercise, like going for a walk, jog or bike ride.
Stand up and stretch
Close your eyes and go to that special place that puts a smile on your face.
Replace negative thoughts with positive ones.
Repeat affirmations, such as "I will follow my rules" or "The next trade wil
l be a big winner" or "The next trade will begin a winning streak."
Analyzing trades when emotions dominated your behavior may help you avoid costly
mistakes in the future. Learn from the past to avoid making them in the future.
See Also
Trading excitement. Do you trade just for the excitement? Find out the reaso
n for that behavior.
Trading hesitation. Why do traders hesitate when entering a trade or exiting
one?
Trader qualities. Do you have what it takes to become a successful trader?
Dealing with trading stress. Learn how to deal with trading stress and anxie
ty to expand your comfort zone.
Read the other psychology articles. They may help...or twist you up like a p
retzel!

-- Thomas Bulkowski
T