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Bulkowski’s The Centered Trader

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Candles Chart
Small Patterns
As of 02/15/2019
  Industrials: 25,883 +443.86 +1.7%
  Transports: 10,568 +30.06 +0.3%
  Utilities: 739 +3.09 +0.4%
  Nasdaq: 7,472 +45.46 +0.6%
  S&P 500: 2,776 +29.87 +1.1%
Tom's Targets    Overview: 02/14/2019
26,000 or 24,600 by 03/01/2019
10,900 or 9,900 by 03/01/2019
755 or 725 by 03/01/2019
7,700 or 7,050 by 03/01/2019
2,825 or 2,650 by 03/01/2019

Written by and copyright © 2005-2019 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Some pattern names are the registered trademarks of their respective owners.


Are You a Centered Trader?

Are you a centered trader, one that lets emotions flow by without reacting, focused only on the trade? Let’s find out by taking this quiz.

  1. Do you feel your trading lacks discipline (do you consistently follow your rules)?
  2. Have you developed a reluctance to trade the market, perhaps because of recent losses?
  3. Do you set specific goals for each trade which you fail to meet?
  4. Does the fear of loss sway your trading decisions in any way?
  5. Have you increased your position size to recoup money from a failed trade?
  6. Are you overly eager to make a trade, perhaps because of a big win, because you need the money, or for the adrenaline boost?
  7. Do distractions interfere with your trading?
  8. 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 pulse. You may be dead. Look for a defibrillator.

Answering "Yes" to all of these questions means you are really screwed up, and this article is for you.

If you answered "Yes" to some, but not all, of the questions, then that means you 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 sequence of emotional events caused by stressful trades, losing trades, or even winning ones. Typical emotional responses by an uncentered trader are:

  • Knowing that this trade is a "no brainer," "a sure thing" that ends in a loss 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 slow, the software is too clumsy to use or error prone, the broker gave you a bad fill, 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 of 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 self-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’t ask, "Do you think I can make it as a trader? Can people really make a steady income doing this?" They understand that trading is a business and losses are the cost of doing business. A centered trader has learned to take emotions out of trading. How? Experience has taught them how to react calmly to every situation. Another word for experience is practice.

When Captain Sully lost thrust from both engines after a bird strike, his airplane 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 and 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 objectives 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 with surprises.
  • Practice. Captain Sully’s voice remained calm during the flight and that came with 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 thoughts 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 the unexpected.
  • Do deep breathing exercises, meditation, visualizing a successful trade, and relaxation exercises will help before and between trades. During a trade, try breathing from the abdomen and not the chest. Take a deep breath of air and let it out slowly. Let the calming effect soothe and relax you.
  • Focus on the trade and ignore physical and emotional distractions. Your trading environment should not have pets and children demanding attention. If a negative thought comes into focus, replace it with another image of this trade turning 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 abdomen expand. Exhale and blow any tension out along with the air. Tighten one fist and tense the muscles in your arm and then relax them. Do this with the other arm, then the neck by tensing or stretching muscles and relaxing them. Work your way down your body, tightening and relaxing muscles along the way. Continue to breath from the abdomen, letting the tension melt from your body. Open your eyes 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 & Commodities magazine, February 1995 issue by Ari Kiev, titled, "Centered Trading."

-- Thomas Bulkowski


See Also

  • Trader qualities. Do you have what it takes to become a successful trader? Take this quiz to find out.
  • The centered trader. Take the quiz to test how centered you are and how to fix any problems you discover.
  • Trading like a Samurai. Learn how to trade like a Samurai, including six tips to help your trade better.

Written by and copyright © 2005-2019 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Some pattern names are the registered trademarks of their respective owners. In prison, there are wardens who are sadistic. At work, we have managers.