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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Trading in the Now

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Busted
Patterns
Candles Chart
Patterns
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Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 08/17/2017
21,751 -274.14 -1.2%
9,152 -224.77 -2.4%
734 -5.20 -0.7%
6,222 -123.20 -1.9%
2,430 -38.10 -1.5%
YTD
10.1%
1.2%
11.3%
15.6%
8.5%
Tom's Targets    Overview: 08/14/2017
22,250 or 21,500 by 09/01/2017
9,700 or 8,900 by 09/01/2017
750 or 710 by 09/01/2017
6,500 or 6,150 by 09/01/2017
2,525 or 2,425 by 09/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

 

Opening Position

In some of the trading psychology articles I wrote, it's useful to imagine what will happen in a trade. That's important to keep your spirits up, your confidence high, but it can also cause problems if you get carried away. If you imagine that this trade is going to make you a million, it just might, but that type of thinking could blind you to what the charts are saying.

The flip side of this is the negative expectation: Every trade I make is going to lose. Such pessimistic thinking can lead to disaster when you subconsciously sabotage your trades to make it come true.

Trading in the now, then, involves having a positive attitude and a realistic expectation. Here are some examples that could cause problems.

  • Everything comes in threes. If you suffered two consecutive losses will a third be next?
  • If I'm short, the market will move up. If I'm long the market will drop.
  • As soon as my position turns profitable, the market will change trend and I'll lose it.
  • If I use a stop, the market makers and institutions will force the market to hit it.
  • If I don't use a stop, I'll lose big!
  • This stock/market has been trending forever. It has to reverse soon.

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Picture of a toad

The Pessimists

Many traders that speculate about what will happen in the future become burdened with anxiety.

Basket Case Bob is an example. As a child, Bob lived in a rough neighborhood in which robbery, muggings, theft, and even shootings occurred frequently. Those too weak to defend themselves were often the target of such attacks. His outlook on life took on a paranoid flavor, as if the next step would be his last.

When he started trading, his life experience influenced his behavior in the markets. He was always worried about the big boys taking him out by moving price against him. Each trade he placed was like an expectation that he would be robbed. The more he perceived the treat of loss, the closer he placed his stop loss orders until they hugged price so closely that he was stopped out for small losses and small profits. The trade couldn't gain traction.

This negative thinking prevented him from following his own trading plan for very long. By reviewing his trades, they showed his trading plan would have led to large gains, but he just couldn't get over his negative expectations of the future.

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Curing Basket Case Bob

For Bob, being overly cautious, pessimistic, and even paranoid was a way for him to feel comfortable, even happy, certainly safe. Breaking that habit was a challenge because it involved changing unconscious beliefs and his world shaped by experiences of a lifetime.

The cure was to change some of his associations. It's a lot like saying to a dog, "Come here!" and when it does, you slap it. Soon, it learns to stay away.

How do you change that behavior? Replace negative associations with positive ones. For a dog, say "Come here!" in a cheery, welcoming voice, and give him a treat when he does. Soon, he'll be wagging his tail when you call.

The key to changing Bob from a paranoid pessimist was to have him focus on something more important to him than the safe and comfortable feelings his negative thinking aroused. That something was the memory of his mother. She didn't want a life of luxury, rather, she wanted only the best for Bob. Her dream was to see him become confident, successful, and happy.

Bob only needed to associate his optimistic success with the fulfillment of her dream: that of him becoming happy and successful instead of worrying about traders lurking around dark corners, waiting to ambush him and steal his lunch money.

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Picture of a dog snarling

The Optimists

On the opposite side of the scale are the optimists, those traders who believe that every trade is going to be a big winner. They are the ones counting their millions as soon as the trade begins.

Belief in a positive outcome is necessary for success, but it has to have a firm foundation, such as a well-tested system, years of experience, or knowledge gleamed from hard work.

Solutions

If you are pessimistic, feeling that every trade is destined to fail, or overly optimistic as if every trade will add to your millions, here are some steps you can take to become better grounded.

  1. Surround yourself with optimistic people and traders, then try to share their beliefs.
  2. Write down the benefits of negative thinking (for Bob, this would be comfort, happiness, and safety), and contrast them to the benefits of positive thinking (such as wealth, status, happiness, safety, and so on). Writing them down helps your unconscious mind recognize the benefits of positive thinking, as well as clarifying them for you, too.
  3. Imagine that you are making a film about your life. How would you rewrite the script to change it from a pessimistic tone to an optimistic one?
  4. Think about the dreams, the stories, the lies you tell yourself and be willing to give them up, and be willing to change your perception of reality.
  5. What motivates you? Attach positive thinking to that motivation. In other words, if becoming a good trader or making money is your primary motivation, then construct positive ways and positive thinking to achieve your goals.

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Closing Position

Negative thinking sabotages your trading as does the unrealistic belief that every trade is going to make you millions. Being optimistic about your trading is the best approach, but only in moderation. You have to make the effort to become successful. The markets will not hand it to you.

-- Thomas Bulkowski

See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Excellent day to have a rotten day.