In this special episode of Truth About FX, Walter is joined by Fan economist and a private trader, Nicola McLaughlin. They talk about trading psychology and how it affects your results and how that can change your trading mindset, and your outlook in life as a whole.
Nicola talks about he used her background in economics and relates that to her trading experience.
Download (Duration: 45:34 / 52.1 MB)
In This Episode:
01:06 – trading club
03:05 – confession
05:43 – escape
07:22 – more concrete
09:05 – positive thinking
11:58 – the golfer
16:09 – a head game
19:23 – limitations
21:51 – greatest benefit
24:24 – on pause
27:04 – counterproductive
30:16 – emotional connection
33:03 – a place of stress
35:12 – driving a car
37:16 – trading blind
41:06 – flawless
43:50 – invisible
Announcer: Sometimes, forex trading can be a wild and wooly place to be but forex trading doesn’t have to be the bad lands for your partner instead hunker down and bend your ear. You will be burning the breeze in no time. Here at the Truth About FX Podcast.
Walter: Welcome! It’s Walter here and today we have Nicola, a private trader and Economist. If you’ve seen some of our webinars, you know that she had a very popular webinar on her trading system and the psychology behind her trading.
She is going to talk a bit today about trading psychology and how that it impacts your results, how that can change your approach to your trading, how that can completely change other areas of your life as well. She is going to talk about these at the conference so welcome, Nicola.
Nicola: Thank you so much, Walter. I started when I was at University. I wasn’t trading forex, I was trading stocks and shares. I’ve got into a trading club with a couple of other students, economic students. We used the money that we earned to help pay for our Uni-fees and things like that.
So, that was my first exposure to trading but I never felt quite right and I drifted away from it and then, later in life after Uni, I’ve got into trading options, and again, it never really quite felt right. I mean, I was good at it. I just wasn’t comfortable with it for a long term thing and I just got drifted away again, then I became a mother. I was just reading about forex and I thought, “Let’s try forex.”
Once I discovered the world of forex, I realized it’s what I’ve been looking for the whole time because I’m much more interested in macroeconomics, the bigger picture and with stocks and shares, for example. It’s just all about the actual company and that’s less interesting to me than how the whole world works and currencies are perfect for that so, there you go.
Walter: Wow! That’s interesting. So, for you, a lot of it is the big picture. You enjoy understanding the market that you’re trading, is that so?
Nicola: Very much so. I love and the fact that there’s so many unknowns. It’s one of the reasons why I like the price-action trading because it does give you something that you could depend on. If you are trying to consider all the big issues at hand between the currencies, I mean I don’t think anybody can actually know. There’s these so many unknowns and I find it fascinating at the same time. It is only in my head.
I must confess that I do spend a lot of time reading newspapers and other articles about what’s going with the currency markets, I suppose, from than just watching the charts. I just find it fascinating and I really love it.
It’s like another language. I find looking at the candles almost kind of musical. When you really get to know them and they become second nature to you, there’s a beauty to them which also I quite like. I love trading on many different levels, emotional, I guess.
Walter: Does it ever frustrate you?
Nicola: Yes, most of the time. My frustration’s more with myself, with my own limitations. I am a bit of a perfectionist and which isn’t necessarily a good thing. It’s very important to me that my psychology is right and obviously nobody’s psychology is the same on any single day in any single moment.
Different things happen to us in life that you can’t predict and those things that are interesting and exciting but also sometimes frustrating. Particularly if you’ve set aside sometime and you’re thinking, “I’m really going to focus on this today” and you get completely thrown off course.
That’s frustrating but sometimes, all the waiting. If I’m in the mood for trading but actually I should just be sitting, waiting and waiting for the candles to close, that can be frustrating too. Again, that’s a frustration in myself. It’s not a frustration with the actual.
Walter: Yeah, I know exactly what you mean. It’s funny how it forces you to confront your issues more so than other ventures that I know. From personal experience, I can say that when you sit down in a normal job, if you were to sit down and your boss tells you how you’re doing, a lot of the things that your boss says may or may not be true except for other reasons. But, when it comes to trading, you can simply just look at your account and say, “Well, that’s true”.
Nicola: Yeah, I agree. That’s one of the beautiful things about it. There’s a real whole honesty there. You cannot escape yourself when you are trading. Your account balance is how you are as a trader. You cannot escape that reality. It is one of the traps, I think, of positive thinking. I mean, I’m a great believer in positive thinking.
One of the things you have to be careful of it is that it can sometimes be used to avoid looking at your weaknesses. If you’ve just refused to acknowledge that you’re not good at something and just focus on things that you want to be good at, sometimes you can cause more problems for yourself because you’re not bringing the whole of you along.
You’re not improving your weaknesses and that’s one of the things that trading really does. You cannot escape your weaknesses, you have to face them. You have to bring the whole of you along, not just the good bits.
I find that process is quite empowering because you really start to get to know yourself much better, good or bad. You’re constantly growing when you’re a trader and constantly developing even though if your system is the same as it was 20 years ago. You will not be the same person 20 years on. Does that makes sense?
Walter: Of course, absolutely! That’s interesting, what you’re talking about the positive thinking. Do you think there’s a common mistake that traders make when trying to use positive thinking or things similar to positive thinking? I understand what you are saying but, I guess in more concrete terms for the listener, is there something that you would say I’d watch out for that?
Nicola: Yeah, for sure. One of the things I was actually thinking about is that some of the people listening to this, if they ever find himself thinking along one or three lines — I’m going to just come out with now — they should be having warning bells in their head.
For example, whether they think a good day is a winning day, that is not necessarily means that you’re a good trader. It’s about trading in a right way, managing your risk, and taking your time with your decisions and not overtrading. There’s a whole multitude of things.
Walter: So, my understanding is that a lot of people, when they’re trying to apply positive thinking, they basically want to focus in on what they want. They focus on in their goal and it’s sort of almost act like their goal is right there before them.
It sounds like, to me, what you’re saying is if you do that, you are peppering over or spreading some peanut butter over your real faults. That’s not going to really change the fact that they’re going to rear their head up and they’re going to affect you as a trader.
Nicola: Yeah, exactly. When you’re focusing on your goals like this one thing, they need to be achievable because if you think you’re going to become a billionaire overnight, then you’re not going to believe in that goal deep down. Some in a level, part of you is going to be saying to yourself that’s not achievable and you’re already undermining your own thought process.
Positive thinking is really important and don’t get me wrong about that. I think you have to manage it in a way that makes you move forward in life rather than actually just demoralizing you and causing you more stress because you’re not achieving your goals.
A lot of people come out with positive thoughts but don’t realize or emotionally accept they’re going to be needing to change. In order to become that person that you think you want to be, it involves fundamental change on many levels. Those kind of changes are not necessarily easy.
It’s not just changing the day-to-day things you do but it’s changing your psychology, it is changing your habits and that can be quite challenging for some people and again can be demoralizing if they feel that they can’t make those changes.
That is one of the things I want to talk about at the conference to give people a lot of practical tips on ways that they can’t only manage to change that they want to bring into their lives but also helps to deal with the stress and distress they might feel at times with trading. Like, if they’ve busted up their account in the past or if they have some kind of anxiety when they’re trading, I mean there are so many different ways you can get stressed out trading.
It’s a stressful process but there are lots of really useful things that I feel I can help people with to just make their life easier with that kind of stuff. It’s about touching yourself in a way and not everybody instinctively knows how to do that in the most healthy way for them. Does that make sense?
Walter: Yeah, absolutely. So, are you trying to tell me that it’s not all about the trading system?
Nicola: No, it’s definitely not. And, I would very much say that we mean in the short term, it’s easy and any system will get your short term wins but, if you want to be a long-term trader and wins over the long-term, it’s definitely much more. For me, I believe it’s much about the money management strategy that you employ and the head game that you play.
I would say psychology is 90% of that. It’s so important and a lot of new traders don’t even acknowledged that it’s important but it’s the key. I think most long term traders would agree with that. If you put your head in the wrong place, you’re just going take bad poorly chosen trades and bust up your account.
Walter: Yeah, absolutely. It’s sort of like the golfer who knows how to do everything. The golfer knows how to drive the ball far. He knows how to putt and do all these great things but when it comes down to the tournament, if he is not able to execute it really doesn’t matter what he knows how to do, you still have to do it. I think that for a lot of traders, we get away from that. We get away from the focus.
You should be on the execution, I think is what I’m hearing you say. It’s not really about whether you won today, whether you’ve made money or lost money. It’s not really about finding the whiz-bang system that’s going to make you a bajillionaire next Wednesday. It’s really more about discovering your faults, figuring out a plan so that you, the unique trader that you are is able to extract profits and to do it in a way to make sense to you.
It’s about defending your account. It’s not really about finding the magic systems or these things that we think. When we first come in, we all think the same things and it’s only after a while that we discover that it’s a lot deeper than that, isn’t it?
Nicola: It is. I don’t know if many of your listeners know the Stoic Philosophy. Basically, one way of looking at the world, basically, to very simply say that there are two things. The things that happened to you and things that you are in control of. Obviously, the market is something you have no control of.
So, as traders, we need to just focus on the things that we do have control of in ourselves and our psychology. The way we choose to trade is something that we can alter. You can’t change whether or not the GBP is going to rise today or tomorrow but you can control the way you trade. It’s not something that you will master overnight. It’s a journey. It’s like everything with life.
It is something that people can learn a lot from your website, the things that you talk about all the time are so fundamentally important. I feel like a lot of people really need to have that message reinforced. Psychology is everything.
Walter: For the listeners that don’t know, Nicola, your webinar is one of the most popular ones that we had. A lot of people have actually picked up on your trading system in the forum. One of the things that I think is interesting about — we were talking about this earlier– is that so much of your webinar was on the psychology and yet, people are fascinated by your system, the way that you trade.
Again, gets back to the point. I mean, you could look at it another way and say the people that are following your trading and posting their trades and trade as you do or similar to the way that you do, they’re just drawn to that sort of style.
It is not that critical but that’s just something that resonates with them. I guess, my point is that you had a lot to offer in your webinar because you told us — you explained, it was a story — how you went to this process of transformation as a trader, the highs and the lows and everything. It was really fascinating.
Nicola: That’s right. I mean, it’s a journey and I think most successful traders have had some really low times in their trading journey. The fact that you’ve had a bad day or a bad week or a bad month does not mean you’re going to be a bad trader.
That is one of the messages that I want to get across to people is that you can achieve your dreams. You can, for sure, and just the fact that you haven’t so far maybe you’ve made lots of mistakes so far. It doesn’t determine your future. That’s why I’m saying it is a head game.
You have to be in it for the long term. You have to connect with your inner fire as if where. Start making small but practical steps to reduce the bad things that you’ve been doing and to help bring yourself to where you want to be.
I think my webinar was popular as well because people got a sense that it is possible and it isn’t just pipe dreams. I have had so many people in the past just been so negative about all. “Oh! That’s not possible, that’s not achievable. I don’t believe you can even do that” and I was like, “No. You make your own reality and I will help show you why and how.”
I’m happy to pass on anything that I’ve learned and I get a lot of fulfillment from knowing that I’ve helped someone get one step closer to their dreams so that’s why I’m coming to this conference.
Walter: Why do you think a lot of traders out there have difficulties reaching their dreams? What is it that’s holding them back?
Nicola: I think we limit ourselves by the expectations of our family, by the expectations of our upbringing, by the expectations of the world in which we are living, the social class that you’re from. I think the cause, there’s so many things that we limit ourselves to what we have been, how we have been raised to think it’s realistic for ourselves.
I see this alot with people who’ve had poor backgrounds and being told all the time that they’re not good enough. You start to believe these things even if you are telling yourself, “I don’t believe that. That’s a lot of nonsense”. At some other level, you take it in and it becomes a part of your identity.
That’s why I’m saying about how fundamentally important it is for us to recognise how hard it is for people to change because you’re not just changing your habits. You’re changing your sense of self and that can lead some people to feel a sense of crisis because it’s fundamentally threatening in a way. If you’re not that person that you thought you were, then who are you? How do you find that person that is willing to break those glass ceilings and to break yourself free of negativity that held you back for so many years?
It is hard and, once again, it is not something that happens overnight but it is achievable and there are lots of really easy things that you can do in your daily life that will help you to stop forging away through that.
Walter: That is excellent. I’m looking forward to that and I share your views on these limitations. It’s one of the things that I think about a lot, in fact. I hate to admit it but I probably have swung the other way. I’m really concerned about these limitations.
As a parent, I’m thinking about these things and how can I set it up so that my children don’t have these limitations that society and teachers and everyone places on them. I have to admit, I think I may have created a monster because my little boy will say things like mommy will tell him something and he’ll say, “Daddy said I can do whatever I want to”. Of course, I mean to say yeah, you can do whatever you want, you can do whatever you put your mind to and you can literally do whatever you want but you have to live with the consequences, right?
But, of course, he takes this just pure literal three year old like, “Daddy said I can do whatever I want to”. These are the sorts of things but the way I look at it is, we all get these things from a young age. There’s no escaping it. Even if I tell them this one thing, I can guarantee you a year from now, so many teachers and authority figures tell him that he can’t do this and he can’t do that. Slowly sort of boxing him in, isn’t it? I think you’re right. That’s the ceilings and those thoughts box us in as traders and keep us in a certain comfortable area.
Nicola: I think that’s right. One of the thing that struck me is that some people also say, “Well, that is just the way I am. This is the way I am. I can’t change the way I am.” But, to a certain degree, it’s true because you can’t really change your personality.
I mean, like I remember very vividly when my daughter was born, seeing her personality and realizing that she was too young for that to have been called by me. She was the way she was because that is who she is. You can’t change your personality but you can change how it is expressed. That’s really what I think you’re also alluding to. Your son has glassed some of the message but not all of it.
It’s learning how to manage ourselves in the healthiest way possible that’s going to bring us the greatest benefit, not just in our trading but also in the rest of our lives. I mean, this is one of the wonderful things that I’ve found is that the more I change my psychology which was motivated by wanting to become a better trader, more other things in my life have improved as well.
It’s like a trickle-down effect, as Economists would say. It’s amazing how, when you change the foundation stone, how the rest of the structure that you build on top of that will alter and getting back down into your deep, deep psychology is not easy but you can do it. I would say it’s the most important thing any new trader should be doing.
It’s more important than finding a new system because most systems, the fast majority systems will bring you profit. If you trade the right way, you can pick any system almost and it will work for you — maybe not every single system but a lot of them. You need to be employing healthy trading strategy and healthy trading plan that will serve you well.
Walter: Absolutely. I believe the reverse is true too. As you say, when you work on yourself with an eye on your trading, that can improve other areas of your life and I found that to be true but, also, I wonder if people who let themselves go in certain areas. I think that trickles into their trading as well.
For example, you’re really a good trader, you are going really well, you’ve been going well for the last 3 years and then one year for whatever reason, you’ve off your game maybe emotionally or physically.Something is a little bit off and then that ends up being the reason why you don’t necessarily perform that year as a trader. I think that’s also the case, often.
Nicola: I agree. Typically, big life events like grieving the loss of a loved one or marriage break up, these kind of things can really destabilize you. Even though on the surface you think you’re fine, in another level, you’re not. You’re dealing with some big stuff and that’s why it’s so important to become aware of where you are, of your own psychology whether or not you are in the best place for trading that year.
Maybe actually the best thing you can do for your trading account on that year is to put it on pause, go and do something else for a year. There’s no shame in not trading. It’s fine. Whereas to trade and be losing after trade, after trade, after trade, than it is just to say, “Okay, hang on. I am going to shut my account down and come back in two months time.”
It’s learning to recognize when that is the appropriate action. There’s a lot to be said for inaction in trading I think. It’s very easy for traders to overtrade thinking that the more they trade, the better trader they will be, the more successful they would be. Actually, it’s often the inverse. Trade less, you’re often have a healthier bank and trading account.
Walter: Yeah, absolutely. I heard a story once about a mountain lion or the cougar in the Americas and the lion in the African savannah and how they differ. It reminded me of trading where they said that the lions — they hunt in packs, right? They’ll attack the weak link on a herd or something like that. That’s basically what they do. They hunt in packs and it’s teamwork and they’re chasing down or whatever.
The cougar in North America, if you were to see a cougar when it was hunting, you might think it was actually sleeping because it might be just lying down on a rock, just having a look and watching rabbit or a deer or something. Once in awhile, something will come upon his path and that’s when it pounces.
If you took a cougar and drop it off in Africa, or you took a lion and dropped it off in Montana, they wouldn’t survive in those different environments because they’re set up for that. When I think of trading, I think of the cougar.
To me, learning to understand that a lot of what you do as a trader is you just sit there and you wait. It might look like you’re sleeping, it might look like you’re not doing anything but really what you’re doing is you’re waiting for that food to appear so that you can pounce.
Especially, if you’ve been in a job for a long time and to you working is sitting down and doing something, it can really shake you when you decide to become a trader because you feel like, “I’m not making any money now. I’m not taking any trades now. I’m not doing anything now. I need to do something”. I find it that can be counterproductive.
Nicola: It’s like when people start meditating for the first time and their brains just going crazy and they just can’t seem to focus their mind on any one thing. We are so used to know, in our society, we so used to being busy all the time, having stimulation all the time.
Trading is very hard like that because it can be really intense and then nothing and trying to keep your emotions calm when you’ve gone from a period of intense stress and result to nothing. It’s hard but, again, it’s part of the head game. You have to learn how to manage that in a way, that is not going to cause you to make poor trading choices. In a way, it’s about learning not being invisible to yourself.
I think a lot of people are so used to not paying attention to their thoughts, not paying attention to their feelings and they get stuck in a routine which is just a killer. They just sort of live everyday, like they’ve always lived everyday and they don’t bring new things into their life. They don’t shake it up a bit.
When you become invisible to yourself, you feel that things happened to you and you don’t realize the role that you’ve had to play in that situation happening. I’ve seen this. You have to think romantic relationships — it’s the easiest way to think of it — that with somebody, their partner will come and start screaming at them or something and they’re like, “Hey! Where did that come from? You’ve just gone psycho on me for some reason”.
You think, “Well, hang on. If you’ve done this and this, it wouldn’t happen.” But, they were not so aware of their own actions and their own behavior that today might seemed like a random occurrence. I think the same happens in trading that you can get so into the habit of doing things a certain way not realizing that you’re actually not thinking in a healthy way. Does that make sense?
Walter: Absolutely, yeah. It’s almost as if, you know the frog in the pot of water or whatever? You don’t realize that the temperature is being turned up until it’s too late.
Nicola: The other thing I’d say to all this is, in my original webinar that I did, I talked quite a lot about emotion and how I didn’t think I was stereotypical trader. At least not the sort of person that I’d always thought a traders should be because I’m quite an emotional, sensitive person.
It’s a subject which has taken up quite a lot of my time, trying to understand it because some of the latest research shows that actually in order to bring about any serious change in your life. You have to have an emotion behind the motivation for that change.
To just tell yourself, “I’m going to be a successful trader”, is not going to get you there. You have to have an emotional connection to that desire to change. I think there’s a certain category of trait to it. It’s not used to acknowledging emotions and they can sometimes feel very uncomfortable about the whole idea, maybe because they’ve been raised believing emotions are girly, for example.
One of the things I want to try and help people realize at the conference is that all emotion is useful even the negative ones. Even when you’re sitting there, thinking that you’ve performed really badly and your feeling to spare is learning to turn that around. To change your perspective on the situation and learning to improve the relationships that you have with yourself as much as with life and with trading.
It’s going to connect to all of these. I think it’s a fascinating subject and one that requires a lot more thought and consideration than the most people give it.
Walter: Do you think that many of the classic trading mistakes are basically due to not really understanding the emotions that you’re experiencing or something like that?
Nicola: I think. I was certain before we start recording this. Sometimes, I feel a bit like the naked trader agony on. I get a lot of emails from people who are telling me about the things that they’re doing wrong in their trading.
I’ve seen 9 out of 10 of them are due to impatience, which is okay. It’s an emotion or fear, an emotion or greed, an emotion that’s tied up in our trading choices. I cannot stress into this. It’s fundamental.
Walter: Obviously, you’re going to share with us your techniques that you use and that you are going to suggest that if they resonate with us, we can use them as well, at the conference.
I wonder if looking back in your own trading, have you noticed when your trading wasn’t going so well, can you look back now and pinpoint and go, “Okay, now, I see where I went wrong there. I was doing X or Y” or what? Have you?
Nicola: Yes, for sure. And again, it usually comes down to my emotional state. It’s learning to manage stress so that it doesn’t turn into distress. Often, when I’ve made poor choices, it’s because I haven’t recognized that I was in a place of stress and not dealing with that stress appropriately.
For example, impatience. If I’m feeling, “Oh my God! I just lost an x number of pips and now. I need to get back into trading and start to do another trade.” That’s me not handling the stress of a losing trade very well. That’s me not having processed the emotional impact of that previous losing trade.
I’m still, in a way, my head is still stuck in the past. It’s not here in the present thinking, “Hang on, is this really the best trade? Should I really be revenge trading as it were?” It’s situations like that that you really… The more you become aware of, the more you can feel more in control of the situation once you’re aware of it.
Walter: Yeah, absolutely. Sometimes, I feel like it’s almost like you’re an observer of yourself. Almost like you see yourself on another perspective or something like that.
Nicola: Yes. It’s not just observing because before you do it is observe. You don’t change and one of the things I want to help people with at the conference is I want to give people the tools that they need. Not only to triple their account, not only to make it the size that they wanted to be but also to help them at the times when the world’s going against them.
When they’ve got themselves on a great, big hole, how the hell did they get themselves out of it and that’s what I want to help people with. I want to explain exactly what they need to do so that they’re not just observing themselves in this pit but that they know the way to really get themselves out of it and be back to the position they want to be in.
Walter: Yup. That sounds great because I remember, in your story, you were talking about you’ve made reference to tripling your account, so that was when you started trading forex. When you started trading currencies, you did something like you’ve made some money, then you lost it all and back to the original balance and then you tripled it shortly after something like that. Was that right?
Nicola: It’s a bit like learning to drive a car. Initially, you press on the pedal too much, you press on the brake too much. It’s learning the balance. It’s learning how to operate all the different tools. I’m not quite sure how to express that but at the beginning of learning forex, I didn’t get the balance right.
I did mess up my account and I learned so much from it. That’s actually something that I’ve observed in life many times. It’s usually at the times when things that will gone terribly against me that you learned your most important lessons.
For me, those lessons were the importance of risk management of managing my money appropriately and the head game. In fact, I shouldn’t have the head game at the end. It should’ve been the first thing I put there because it’s all about how you control your psychology.
Walter: Thinking about trading and how your trading routine now compared to what it’s like to when you were trading early with shares and with the options and things like that. Do you approach it differently?
Nicola: Much differently. I’m much more disciplined. I’m much calmer, I have a plan, I know exactly what to do. I have a plan for what to do for when things go bad so that when things do go bad, I’m not distressed. I’m just dealing with them and it’s like my response is second nature to me, so I’m not just that panicking.
I know exactly what I need to do to get myself out of that situation and, of course ironically, I have enough plan. I don’t get in that situation. I don’t know. I mean, it’s been quite a long time but if I did, I would know what to do.
When I was at University, I was trading blind. I was really — looking back on it — I was lucky that I’ve made money because I really didn’t know what I was doing. It’s an interesting thing how we change. I think it’s just about being a lot more aware, like you’re saying, aware and disciplined.
Walter: And also, you have a routine as a mother. You have certain responsibilities and schedules and things like that. Speaking from my own experience, I feel like having some sort of schedule or things highlights of your day like, “I’ve got to pick up the kids at this time, I’ve got to go to the gym here, my friend wants to catch up or go surfing” or something like that. At this time, having a schedule, keeping me away from the charts, is probably one of the best things that I’ve been able to do from my trading and I don’t know if that’s the same for you.
Nicola: I trade the 4-hour charts, the daily charts and the weekly charts. It depends on how much time I have. I agree that the more you sit looking at the computer, the worst trading choices you are probably going to make because that is, for myself, I start obsessing.
I start staring. Like when in a trade, I find if I’m constantly staring at my trades, I get myself out of that trade too soon and similarly, if I’m in a losing trade, I might not cut my losses as quickly as I should do.
It’s much healthier to take a break from the computers, to clear your head, get yourself back in balance and come back. Look at the actual time that the candle has closed and make your decision in a calm, considered way rather than reacting. Again, it comes down to having a good plan.
Walter: Yeah, absolutely. How does a trader know when his or her plan is not good enough? Is there something that you can point to and say, “Now, you know…”
Nicola: Well, obviously, the bottom line whether or not you’re trading profitably, but also whether you have confidence in that plan. Do you feel like in that plan you’ve thought about many different scenarios and how you will deal with those different scenarios? Have you tested your plan in many different ways?
Does it feel like something that you can have confidence in? Because, if it was just a few lines on a piece of paper, it’s probably not going to be enough and it doesn’t have to be something you write down. You don’t have to have your trading plan written down but you have to have at least thought of about these things and know where to turn to them in your head if you need them.
Walter: Do you think that in order to have a trading plan, you must be able to write it down in such a way that it can be programmed into a computer and it made into an EA or something like that?
Nicola: My strategy that I gave out free at the webinar that I did and been working with very kindly with Mark Fletcher to turn that into an indicator and the EA and part of that process, I’ve learned that actually my strategy involves an element, is subjective to a certain degree.
I have to honestly say that I cannot get my strategy completely written down in a way that will work flawlessly because I use an element of judgement to whether I like that signal or maybe I’m just not very good at being specific with that criteria for these candles.
I think you need to be able to get the last chunk of it down, for sure. That fine-tuning personally, I believe in an element of instinct. Now, not all traders are like that. There’s a lot of traders who are very much into the automation and will consider nothing less. That’s not me.
I have a strong creative brain and I don’t always think straight lines. I don’t always know how I get to the answers of Math questions, for example. That is one of the biggest things I struggle with school, explaining my thinking process. I knew the answer but I couldn’t tell you how I got there and it’s the same with my trading.
Walter: I think, like you say, some people they want to have it coated out in the EA, the automated system, the robot takes the trade. But, what I found is when you talk to these people, sometimes what they’ll say or often what they’ll is they had this idea for the system and as soon as they coded it up and they looked at the results, it was crap. It didn’t work.
I think part of the reason why is because there is something that they are doing when they see those set ups on the chart that they are not translating into the code. I think a lot of the automated traders, they’re working really hard on this. They’re trying to add these sorts of elements like things that aren’t necessary. They are not necessarily aware of but they’re using that in making their decisions.
Nicola: Yeah, that’s so right. It also comes down to the fact that I probably always said — and I got this from you, I think — that you should pick a strategy that fits your personality and the way you trade in your own trading strengths. If a strategy can be programmed to the point where you don’t need a person, then that wouldn’t apply. That rule about choosing a strategy that fits you wouldn’t apply.
We still need to choose a strategy that, to a certain degree, fits our way of looking at the world. I said earlier that most strategies will work for you if you trade in a certain healthy way of trading but, at the same time, some will fit with you better. They will fit your worldview better.
That’s an element that you cannot quantify. I don’t know what that is, that element, but it does a significant difference to your bottom line. Then again, it comes down to knowing yourself. If you’re invisible to yourself, you’re not going to pick the right strategy either. You’re not just going to be making the wrong trading choices, you’re going to be picking the wrong strategies.
Walter: That’s right. It’s so interesting to me that the people are getting into arguments over systems and say they’ll never work because it seems so obvious that they’re just imposing their beliefs about the markets and they see everything to their filter, right?
Nicola: That is so true. They don’t just do that about strategies, they also do that to about what’s achievable. What kind of returns you can make each week? I’ve proven that to myself many times that the only limitations you have on how much you can return each week is your own limitations that you post in your head because there were traders out there achieving what other people would consider absolutely impossible. They’re doing it everyday and it’s all about the blinkers that you place on your view of life.
Walter: Yeah, absolutely. Well this has been really a fascinating chat, Nicola. I’m happy to hear this because I’m excited now. I really want to hear what you have to say at the conference. Obviously, a lot of people that have been following your trades in the forum will be happy to see you in the flesh, as well, so I really appreciate your time here.
Nicola: Thank you so much for inviting me. It’s going to be great fun. I’ve got a lot of exciting stuff planned for everybody.
Walter: That’s great! Well thank you so much for your time. I really appreciate it.
Nicola: Thank you, Walter.