Trading Psychology: Rewire Your Brain for Maximum Performance in Today’s Markets

By Scott Redler

Chapter 7:  Get Obsessed With Price Action

"You can’t do big things if you’re distracted by small things.”
-Nelson Mandela 

As you know, we're focused on trading psychology in this guide. It’s not about teaching you specific technical tactics

But, we're going to discuss an important related topic -- the mortal danger of chasing “bright shiny objects.” 

What is a bright shiny object? It’s something new and exciting that distracts you from the basics. Traders fall prey to this all the time because they think "new" means the same thing as "good." 

It could be a new asset class like forex or cryptocurrencies, or new chart patterns, or new indicators.

Chasing bright shiny objects, losing money with them, and then trying even more bright shiny objects will leave you psychologically and financially drained. 

Because every time you fail at something new, you can’t escape feelings of regret and thinking “if only I’d stuck with…” And that’s just the damage to your trading psychology. What about the money you’re losing in the market?

So if you are not winning in your trading account right now, do this: focus on understanding price action, specifically trend analysis. And forget everything else until you get the basics down. 

Because there is a very simple recipe for outperforming in the market. Remember, simple is not the same thing as easy. But let’s go through it.

Imagine you’re starting a new year today. Let’s talk about the big factors that will impact your performance.

First things first, are you long or short?

If the SPX is going up and you’re 100% long, odds are you’re going to do well. Why? Because when the market goes up, most stocks go up. 

Next, think about sectors. Say the market is rising and banks are leading. If you’re overweight banks, you’re going to outperform.  

Then we can drill down to individual stocks. If JP Morgan (JPM) is the best performing bank, and it’s your biggest position, then you will do really well. 

So what’s the recipe for outperforming?

  1. Nail the market trend
  2. Be in the right sectors
  3. Be in the right stocks

Is it simple? Yes. Is it easy? No. 

But you won't make money until you understand these concepts.

3 steps to making $$; 1) Nail the market trend 2) Be in the right sectors 3) Be in the right stocks. It's simple but not easy... #tradingpsychology

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Now let’s think about a disaster scenario.

Let’s say it’s January 2008. And you think the market’s going straight up, and you’re overweight banks with huge positions in Bear Stearns, Lehman Brothers, and Washington Mutual.

You’d lose a boatload of money, and you’d be frustrated and angry. 

The key to avoiding frustration is focusing on the basics of trend analysis. If you can’t analyze a basic trend, playing with cryptos and options and forex and whatever else will only hurt your trading psychology. Because you come to realize “I’ve been wasting my time on all the details instead of the big things that really matter.”

Imagine you were training for a marathon and had to choose between two coaches.

Coach #1 says “first we need to make sure you have the right sunglasses and headphones.” And Coach #2 says “let’s focus on building your stamina, having the right nutrition plan, and tracking your progress.” You would choose Coach #2, right? Because he’s focused on the big things that matter, not small details.

Trading is the same way. If you want to win, you must focus on big core concepts, not superficial extras. If you get the overall market trend right, odds are you’re going to do well, even if you don’t master every detail of risk management and entries and exits.

Being right on the big things tends to take care of the little things. So get good at the important stuff before you get fancy.

Action Item: Commit to an Obsession with Price Action

Write 150 words on things you spend your time on that have nothing to do with understanding today’s price action. Then cut them from your routine and process for 30 days. And before you learn anything new, ask yourself “is what I’m doing helping me understand the market better?”

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