PSYCHOLOGICAL PROFILE OF A TREND-FOLLOWING TRADER
Although this profile is by no means exhaustive, I believe it will give readers enough of an understanding of the trend trader's personality traits to accurately assess their ability to implement these strategies successfully.
- Willingness to buy recent highs/sell recent lows. Unless traders adhere to this first premise, there is no point in reading on. Trend trading works because it is extremely difficult to buy highs and sell lows.
Psychological reminders to help with this problem:
- If trend trading were easy, then everyone could do it and it would not be a profitable strategy.
- When feelings of uneasiness, fear, and apprehension arise in anticipation of buying recent highs (selling recent lows), reprogram yourself to associate these feelings with success and profitability. (Reinforce this reprogramming with a review of the backtested results shown in this chapter.)
- Willingness to give back a significant portion of unrealized gains. Remember that no one knows when the trend will end. Instead of attempting to anticipate the trend's reversal, sit back and allow profits to accumulate.
As we have been programmed to associate being right with success and being wrong with failure, it is only natural for us to remember and focus on those instances in which our intuition told us that we were at the top or bottom (therefore, not forced to relinquish a portion of profits) and conveniently forget times when our predicted market turns did ...