We all have heard about the importance of risk management and how crucial it is to our success.

However, nobody really talks about all the elements of the risk management. The most talked about risk management is market risk. Then credit risk. After that, you hear about counterparty and operational risks.

As a previous risk manager, I can tell you that all of these are important to your success. You need to look at your process and make sure that you have a great risk management system in place.

There is one element of risk management that is seldom talked about and often overlooked. This element can make or break your trading success.

Often, it is forgotten as part of the stress tests.

Have you guessed what it is?

If not, let me give you a hint. Depending on how you look at it, it can be consider part of counterparty or operational risk.

Some examples are as follows:

1. Do you have occasions when you know what to do but you don’t do it? Then you wonder what happened. You get angry and frustrated. You start losing money. If you don’t stop yourself, before you know it, you are in a deep hole.
2. Do you know of traders who have a system and know that their success is based on probabilities? However, they start picking and choosing which signal to pull the trigger on. Then they wonder why they are not making money consistently.
    
3. Have you ever put a trade on and immediately started doubting yourself? You move your stops, and you realize if you had just left it alone, you would be more profitable?

Have you figured it out yet?

If you have guessed that it is your mindset, you are correct.

All the above examples have one common thing – the human factor. Unless you have a completely automated system, you are the operator. Your results depend on you.

It does not matter what happens. It matters how you react to the event and where you put your focus on.

You can have the best systems in place. However, if you don’t develop your Mental Edge and are not in the zone, you are not going to execute your trades properly and thus you will lose a lot of money.

This element is so important that JP Morgan has a group called the ‘Behavioral Finance Team’ which deals with how mindset influences the execution of their trades.

Your action plan for designing your risk management system is:

1. Counterparty risk: Make sure your business plan matches who you are
2. Operational risk: Put yourself in a supportive environment
3. Counterparty and operational risks: Develop your Mental Edge

Risk management is vital. To ensure more successful execution of your trades and a consistent way of making money, make the above action plan part of your overall risk management system.

Here is to making trading success your habit™,

Tags: market psychology, mental edge, Nazy Massoud, Personal Risk, Psychology, Risk, Risk Management, trading emotions, trading success

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One of the things that I am hearing more and more these days is that traders are not making money consistently.

Do you know anyone with this challenge? Do you know them intimately?

So, what can you do to make money consistently?

1. Deal with your trading as a business

If you think of your trading as a hobby, then you produce the results of the hobby and making money becomes secondary.

For your trading to be successful, it is imperative to create a proven process to make it a success.

2. Have a written plan that matches who you are

This is a very important step. We want to have a proven plan that succeeds. However, if it does not match who you are, you are setting yourself up for failure. It will work for a while, but because it goes against who you are, after awhile you find reasons not to follow it.

3. Have a money management system in place

When you have a system in place, it enables you to manage your risk better thus allowing you to preserve and grow your capital on a more consistent basis.

4. Create your own daily routine

Everything we do is a routine. If you think about it, when you get up, you follow certain routines. However, most of us are not conscious of our routines. So, create one that serves you and sets you up to make money consistently.

5. Be patient

I know that some traders love the excitement of trading and once the excitement is gone, they get bored and start sabotaging themselves. Does this sound familiar?

If you are looking for excitement, find a hobby that can provide you the excitement.

This is one of the most important skills of your trading success.

6. Don’t focus on the money

By focusing on the money, you get hooked on the trade that you have placed in. Therefore, you are less likely to be in the zone and really noticing what is happening in the market.

You need to detach yourself from the result of your trade. This does not mean that you don’t care. Of course you do, and that is why you have placed your trade. It means that you are not married to your position. You are free to be in the zone and really notice what is happening versus what you hope and wish to happen.

7. Develop your Mental Edge

This is a crucial step. Stephen Covey has a 90-10 principle. He mentions that 10% of your life is determined by what happens to you. 90% of life is decided by how you react.

Events happen to us. What differentiates the super stars is how they react!!!

“Any fact facing us is not as important as our attitude toward it, for that determines our success or failure.”
~Norman Vincent Peale

Remember, this is a process. Any step in the right direction moves you closer to your goal.

“Continuous improvement is better than delayed perfection”.
~ Mark Twain

Here is to making trading success your habit™,

Tags: market psychology, mental edge, money management, Nazy Massoud, Personal Risk, Psychology, Risk, trading emotions, trading success

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Yes, spells, you heard me correctly. You may wonder in this day and age, why are we talking about spells?

What are spells? In today’s culture, it is called subliminal messages or going one step further, it is your own beliefs.

Spells are beliefs/thoughts/actions that we follow without really knowing why.

A simple example is when you go to supermarkets. They use scents to encourage us to shop for the things that we probably would’ve not bought otherwise.

Another example is media. On a daily basis, we are bombarded by negative messages. So, we tend to focus on what can go wrong and are constantly waiting for the other shoe to drop.

Read the rest of this entry »

Tags: emotional risk, market psychology, mental edge, money management, Nazy Massoud, Psychology, Risk, trading emotions, trading success

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We hear staggering statistics that approximately 95% of traders fail in their ability to consistently profit from the markets.

What are the 10 major mistakes that these traders make that cost them dearly?

1. Having no trading plan

When you don’t have a plan, you don’t have a template to follow. It becomes very costly when your emotions are high and you have to make decisions on the fly.

2. Using strategies that do not match your personality

You hear of a trading strategy that has worked very well and you are anxious to follow it. One important factor to consider is: does it match who you are and your lifestyle?

3. Having unrealistic expectations

Most traders assume that it is very easy to make money in trading. They have unrealistic expectations with regard to their initial capital, their risk profile and how much money they can expect to make.

4. Taking too much risk

Usually when traders are down, they want to make their money back very quickly. Therefore, they increase their position size without thinking about the risk/rewards.

5. Not having rules to follow

Most traders think if they have rules to follow, they are restricting themselves. It is on the contrary. Having rules allows you to be more flexible since you have thought about lots of issues beforehand.

6. Not being flexible to market conditions

It is very important to see the markets as they are and not as you want them to be or as you assume them to be.

7. Failing to take responsibility for your results

When the results are not in your favor, the tendency is to blame the markets, circumstances, advice of others… When you blame things outside of yourself, you become a victim of circumstance. When you take responsibility, you can react differently to your circumstances and become the success you know you can be.

8. Being addicted to volatility

One of the reasons that people get into trading is because they like the excitement of it. If there is no excitement, they create it. This is one of the reasons that traders sabotage themselves.

9. Not having a process to keep track of your performance

If you don’t keep track of your results, how do you know what has worked and what has not? How can you tweak your process to get the best results that you can?

10. Not dealing with your Emotional Risk

When dealing with money, there are lots of emotions involved. Emotions are part of everyday life. What separates the successful traders from others is how they react to their emotions.

So what can you do to become a more consistent trader and increase your profitability?

1. Think of trading as a business and have a trading plan.
2. Make sure that the strategies you select, match your personality so you can follow them.
3. Have a realistic expectation of what your returns are. Include all the costs associated with your trading business.
4. Have an idea for your risk/reward ratio. Don’t confuse trading with gambling. If you are increasing your position, make sure that your strategy warrants it.
5. Have trading rules and follow them. Think about them as contingency plans. Because when your emotions are very high, the tendency is that you make very poor decisions that can cost you your account!
6. Be flexible to the market conditions. When you see the market as it is, you have a much better chance of managing your portfolio and increasing your profits.
7. Take responsibility for your results. Taking responsibility does not mean that you have control of everything that happens. It means that you have a choice of how to react to the things that happen.
8. Find out why you are in the trading business. If it is for the excitement of it, find other hobbies or activities that you can get your excitement from.
9. Keep track of your performance. This is a way of objectively looking at how you are doing, what you did right and what you learned. Be gentle with yourself.
10. One of the most important things that people don’t handle is their Emotional Risk. When emotions run high, the quality of decisions goes down. It is very important to learn how to react to your emotions and thus increase your profits.

“At first, something seems impossible. Then it becomes improbable. But with enough conviction and support, it finally becomes inevitable.” Christopher Reeves

Tags: emotional risk, market psychology, mental edge, Psychology, Risk, trading emotions, trading success

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How are you feeling in the midst of all these changes?

Are you calm and collected or are you overwhelmed?

These times are challenging for most people. We are constantly bombarded by the negative news. We are hearing about massive layoffs day after day. We are hearing about budget deficits and turmoil in the markets.

So how can we deal with all of this?

There is good news and there is bad news. The good news is that there is a way to get ourselves off this rollercoaster. The bad news is that it is not comfortable.

So what can we do?

Embrace the change.

Are you still using your old strategies? Do they work in this environment? If not, staying with them is like hoping and wishing. That does not get you any favorable results. The more you try them, the worse your results get, and you put yourself even more in despair.

This does not mean that you have to change everything. The tiniest changes yield massive results!!!

If you want to be successful in the markets, adjust and adapt. Look at new opportunities. Identify the little changes you can make today that will have an incredibly powerful impact on your business.

Remember, small steps are OK, and as a matter of fact, they are encouraged. That way, you dip your toe in the water and have a better way of knowing whether the new strategy that you are testing works for you or not.

Have you heard the story about the Swiss watch?

For most of the 20th century, the greatest watchmakers in the world were the Swiss. A Swiss wristwatch was the finest in the world and they dominated the market. They set the standard.

It was the Swiss who came forward with the minute hand and the second hand. They led the world in discovering better ways to manufacture the gears, bearings, and mainsprings of watches. They even led the way in waterproofing techniques and self-winding models. By 1968, the Swiss made 65% of all watches sold in the world and laid claim to as much as 90% of the profits.

Do you know which country sold the most watches in the 1980s? If you guessed Japan, you are right.

In the 1980s, the Swiss had lost most of their market share and had to lay off thousands of watchmakers. Between 1979 and 1981 (in only three short years) 80% of the highly skilled watchmakers lost their jobs. They slipped from 65% to 10% of the world market.

What happened? The Swiss refused to change. They would not embrace the new technology of the quartz crystal, which was ironically invented by the Swiss, and they clung to the ways of the past. “This is the way we have always done it” became their battle cry and they lost.

Do not be afraid of change – Embrace it!!!

Ask yourself:

1. What tiny shifts will lead me to the changes that I want?
2. How can I apply these changes so I can get the result that I want?

You’re not going to change your results unless you change what you’re doing!

Here is to making trading success your habit™

Tags: emotional risk, market psychology, mental edge, Psychology, Risk, trading emotions, trading success

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These are uncertain and confusing times. Everywhere you look, any conversation you listen to, it is about the economy and its impact on our lives. We hear about deficit, raising taxes, unemployment and lack of liquidity. It is enough to make everyone enter a negative emotional spiral.

How can you deal with these uncertain times?

1. Manage Your Emotional Risk 

• Limit your input – Be conscious of how much time you spend talking / listening to others about the negative impact that these markets are having on our lives.It reminds me of a quote that I heard: “Worrying does not empty tomorrow of its troubles, it empties today of its strength.”

• Separate your results from who you are – Yes, I realize the majority of us define ourselves by what we do and how much money we make. This is the time to rethink that.

• Reduce your stress – This allows you to be more creative and enables you to plan rather than react.

It is crucial to manage your emotional risk, and yet it is challenging. What are some ways that you can manage it?

Napoleon Hill says: “If you don’t control what you think, you can’t control what you do. “

1. Manage Your Expectations

Be realistic with the goals that you are setting for yourself. When you have unrealistic expectations, you set yourself up for real pain…

Remember, tough times don’t last forever. To thrive in these situations, you need to be resilient, strong and flexible.Roger Crawford says: “Being challenged in life is inevitable, being defeated is optional.”

1. Recalibrate Your Skills and Strategies

This is the time to think about how you can reposition yourself to make it in these markets.Look at your strategies objectively and see if they still apply. Don’t be attached to how things were. These times are like nothing we have experienced in our lives.

If the old strategies don’t work, come up with new ones and see if you need to develop new skills so you can apply them to the new strategies.This is the time that you need to think and act differently.

Napoleon Hill says: “The majority of men meet with failure because of their lack of persistence in creating new plans to take the place of those which fail.”

1. Give Yourself an Emotional Stimulus Package

This is very important. It is about coming from a place of gratitude. Yes, I know when we are hearing all about doom and gloom, it is challenging to be grateful.

Ask yourself, how can I find more meaning in my life?

My challenge to you is to find at least 3 things that you are grateful for. It can be as simple as, you have your family, your health and people who care about you.

William Arthur Ward has a quote: “The pessimist borrows trouble; the optimist lends encouragement.”

To summarize, the 4 steps we can take to succeed in the current market conditions are:

1. Manage Your Emotional Risk
2. Manage Your Expectations
3. Recalibrate Your Skills and Strategies
4. Give Yourself an Emotional Stimulus Package

There is a quote by Yoda that says: “Train yourself to let go of everything you fear to lose. . . The fear of loss is a path to the Dark Side.”

Tags: emotional risk, market psychology, mental edge, Nazy Massoud, Psychology, Risk, trading emotions, trading success

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