Do You Hesitate Placing Trading Orders?

Have you ever heard somebody try and explain why they took a trade, and it drove you crazy listening to it?

I have heard all kinds of attempted explanations for why a trader took a trade. It usually starts with a pause and a glance up to the ceiling. Then comes the rapid speed talk trying to explain it. And, then, finish with, "Know what I mean?"

The attempted explanation may sound like this: "Well, I saw this level, and it felt like the market had gone too far, and it should be ready to stop. It seemed like there was a Table Spoon chart pattern, and because the handle broke, the market was going to go up from this level. I've seen this many times, and it always works." 

By now, my head is spinning, trying to follow this conversation. But then, I'm a left-brain thinker (rule-based and analytical), using tools and calculations to make trading decisions. Traders who are right-brain thinkers trade with patterns their subconscious mind has seen many times or can locate recurring chart patterns quickly on a chart. Their minds work in a creative and pattern-recognition way. 

An Area of Trading Many Struggle With 

Trend analysis is an area of trading where I see these two thought processes causing issues. 

A popular way to identify trends has always been to use price action. A right-brain trader thrives on this chart pattern and identifies the trend immediately. Traders would say a market with higher highs, and higher lows is an uptrend. Or, they would say a market with lower highs and lower lows is a downtrend. In theory, that makes sense and seems pretty straightforward. However, I've seen traders, including myself, need help consistently finding trends with this method. Being a left-brain thinker, I need more specific rules to determine how I would evaluate a new high or low. Is it a measure of price beyond these points or some other criteria? 

Alternative ways of identifying the trend are using analytical trend tools. Analysis like moving averages, Moving Average Convergence Divergence (MACD), Parabolic Stop and Reverse (Parabolic SAR), Relative Strength Index (RSI), etc. All of these give definitive trend directions to a left-brain trader. In contrast, right-brain traders could need help with using such tools.   

If you use either of these two approaches to trend analysis and find you are not consistently and confidently finding the trend, then try the other way. You may find that your left or right brain is more dominant than you think. 

Intuition or Emotional Trading 

What is remarkable is that I have watched in total amazement as the market has turned close to where they said it would. From watching the markets over time, their right brains have seen and stored in memory some fabulous patterns. Like watching a movie several times and remembering an upcoming scene while trading, our right brain has seen these patterns and says, "Let's go! Here is a trade!" We have seen this happen hundreds of times!

Some might say right-brain traders use emotions to make decisions, but I beg to differ. The right brain can see patterns from your subconscious mind and then point them out much faster than any conscious thought you may have. Instead of being a purely emotional trade, they are now using intuition to assist their trading. 

The problem arises when the right brain wants to place a trade because it sees a pattern that it has seen multiple times while the left brain says, "Whoa cowboy, show me some rules here, or we are not going to do anything." The trader hesitates to place the trade due to the paralysis of analysis created by the conflict. You want to put the trade on, but something is stopping you, your left brain.

Imagine what a computer would do if you feed it an input like the trader above trying to explain their reason for taking a trade. Garbage in, garbage out is how they say it in the computer world. The computer can only read digital zeros and ones, black and white, no gray. Think of the left side of the brain as a computer that needs precise rules to take action.

New traders learning rule-based trading can struggle. They have been accustomed to doing things in life on the fly or winging it. Explaining your reason for taking a trade is just as important as seeing the setup itself. Being able to explain it will require rules, and these rules will assist in consistently trading the setup. 

To be a complete trader, we must train our left and right brains to work together. When a right-brain trader sees a setup and can logically explain the rules applied to that trade to somebody else, they've engaged both brains and are on their way to success.

Using the right brain to find these setups is OK to do. But now the work begins of writing rules (trading plan) for what you're seeing. Once these rules are written, you should be able to explain them to somebody else. I say somebody else to entail that if others understand your thought process, your left brain will allow these trades to be placed without conflict. With this right and left brain balance, traders may be able to take a trade or may chase the price when it starts to leave a level resulting in a poor trade location. 

Summary

The mental side of trading is responsible for 90% of a trader's success, not just the strategy. 

If you're consistently using the same ideas and not showing the results you wish, then it's time to find out what type of trader you are, a left or right-brain thinker-Then adjust your trading plan accordingly. 

Trading plans are the map to success when it comes to trading. Without one, you're nothing more than a sailboat in a bay with a broken mast that wants to get to shore, and you drift at the mercy of the waters.

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