Peak Performance Trading

By Dale Brethauer | Option Trading Blog

Jan 02

Hello, this is Dale. I have more than 35 years of experience as a professional stock investor and hedge fund manager. During my journey I've engineered what it takes to be a successful trader.

Today's lesson is going to outline the keys to "Peak Performance Trading".  Successful trading has to be more than determining the trade entry and exit. This however is what most of the literature deals with, it tries to answer the question what should I buy and when should I buy it. This lesson deals with everything but the trade entry and exit.

It is about self-discovery, and moving yourself to a point from which it's possible to be a successful trader for life. This requires a balanced approach to trading. Yes, you definitely need a rock solid trading strategy. A strategy that's been proven to be profitable over time, but in addition you need to incorporate the gray matter between your ears.  It's a balance of these two that will explode your profit potential. It's about a 50/50 split, you can't have a good strategy and not follow the rules, trade too much money, have too much at risk, not have a trade journal and review you’re trading.

The psychology of trading needs to be at the forefront of your efforts to achieve peak performance.  Successful traders do not place trades then feel they need to rely on a lucky rabbit's foot or pray to the market gods to have the trade turn out profitable. They realize that once they've analyzed the market and the trade is placed, they have no control on the outcome. By having these both strategy and the mental game working together, they trade in the zone, taking many small losses but letting their profits run.

 

Peak Performance Trading | The Mental Game

 

First let me share with you some personal experiences with the power of the mental game and how it's turned my trading around. As a young boy playing Little League baseball, I said to myself “you will get a hit”, and I got a hit. Rounding the bases I thought, “Wow that was easy the ball looks so big how could I miss it?” At a very early age I didn't know what I was doing but I was using the mental game to my advantage.

The human brain tends to lean towards negative thoughts/outcomes because it used to be essential for survival. Negative thoughts are more prevalent than not for most people due to this fight or flight mindset.

I ended the year as a homerun king and the batting champion. Later in high school I was having a little trouble with my foul shots, I remembered vividly for my earlier experiences and I told myself “get a hit”. So, I used the same technique telling myself I would make the foul shot, what a turnaround. I used this technique all the way through college ball.

 

Getting Yourself Out of Your Own Way

 

After graduation I started to work for DuPont, and played competitive golf. As an athlete I was a fairly good golfer, but I always had trouble putting. One day I read a book by Timothy Gallway, called the “Inner Game of Golf.”  His concept was to take your mind out of the performance, by taking the putter back and saying “back”, and when you struck the putt say “hit”. By focusing attention on those 2 points in the swing, it effectively washes out all the mechanical thinking and lets your motor functions (made strong through practice) do what they already know how to do.  The “back – hit” approach was exactly what I had discovered in my earlier life. I utilized this “back – hit” technique to this day, and my putting is now the strongest part of my game.

 

Trading in the Zone

 

Enter the stock market.  I've been trading stocks from over 35 years. I'm a student of the market, I know every oscillator and indicator. How they're calculated how to interpret their signals. My profitability was always fairly good early on, but it wasn't until I took a seminar by Dr. van Tharp on the “Psychology of Trading”, that my trading success really took off. I knew the power of bringing in the mental side of the game. He taught me to embrace losers, keep records, calculate my expected return per trade, have rules, stay with a rock solid strategy, and focus on the execution. All these concepts bought my trading into the zone. That's what I'm talking about here as far as get having peak performance.

In Jack Swagger’s book “Market Wizards” what he did was he interviewed a lot of very successful traders and money managers. He made notes as far as what were some of the keys that these people said made them a success. It’s interesting because not a lot of these successful people talked about trading entry. Most of them talked about the psychology of trading. You must know why you're trading the markets, why are you doing this. You want to make some extra income, you want to help put somebody through college, it's not you're just trading to make a lot of money.

The following are some thing that successful people talked about.  The methodology should limit draw downs, never risk more than one percent of your portfolio, don't over trade your account. You can make a good living trading the markets, but it's not a get-rich-quick scheme. You have to have a winning strategy. Spend your time on market research. Once you spend your time on market research, your trading will become effortless. You must be disciplined. You need to have trading rules. Don't try to predict the market. You need to be patience. Employ an approach that you're comfortable with. Whether day trading, swing trading, buy and hold. Don't stay with losing trades too long, and trade only when you have an edge.

 

Peak Performance Trading Actions:

  • Limit draw downs
  • Never risk more than 1% of your account on any given trade
  • Don’t overtrade your account
  • Research and create a rock solid trading system with rules

My systems:

Option PRO ( Monthly income option spreads on my "core 5" Index/equities)

SPX W.O.R.  ( Weekly income option spreads on the SPX index only )

  • Follow your trading Rules
  • Don’t try to predict the market
  • Exit losing trades at pre-determined levels
  • Trade only when you have an EDGE

 

 

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Trading for Financial Freedom

 

Now, let’s look at Dr. Van Tharp's book, “Trade Your Way to Financial Freedom”. He did a study of losing traders. They were losers because they had no goal. They had unrealistic expectations. They had a need for action they were exposed to too much risk. They jumped out of a trade prematurely and were too quick to take profits. They lacked confidence.  They had no rules, no records, no strategy, they didn't have a trading plan. All those are part of the psychology of trading.

 

Continuous Improvement Model

 

Here’s a continuous improvement model that has helped me along the way. Traders gain an advantage by continually learning and improving. This process model can be seen on the next page. If you use this every day, it'll keep your steadily increase your acumen.

 

Analyzing the Trade Life Cycle

 

You’re starting out here to analyze a trade. And that is the preparation, then you execute the trade, and then when you exit, you'll know the results. You evaluate these results and analyze it. You write it down in a journal, and you begin the process all over again. You learn from every trade you make. Preparation, execution, results, why, analyze it. If you do that continuously all the time your trading will improve. Because you're analyzing what's going wrong, with your methodology.

 

Peak Performance Trading | “The Trading Zone”

 

Let me share another thing with you to help - that I use to help me get into the zone before the day even starts. This is my morning routine. I always come down into my study and the first thing I do is watch the futures on CNBC. I don't care what the talking heads are saying, what I want to know is what happened overnight that might have changed my analysis. Then, I always read my affirmations, remember affirmations? I talked about those in a trading business plan Part I. Please go back and listen to that again. Affirmations are so important.

Now, I always review my trading rules, they're right in front of me. Now, I spend some time entering my trading journal what has been going on. I keep that up to date, and then, before I start my analysis I meditate for about 10 minutes. And this can be no more than just deep breathing.  What I’m doing is clearing my mind from grocery list, from what has to be done during the day, and I'm getting ready to focus on the market.

Once I've done that, I feel I'm in the zone and I'm ready. I'm ready to analyze. I analyzed the big five, Amazon, Google, Priceline, the RUT and the SPX. I look at the chart formations. Is there anything there that needs action? I checked the risk profile and profit zone. I know exactly what I'm going to do for any circumstance that might happen during the day.  And whatever happens in the markets it's not a surprise to me I just go ahead and execute. And that's all because, I've got myself in the zone before the day starts.

 

Peak Performance Trading | Flow Chart

 

Let's talk a little bit about this really cool chart.  What I'm looking at is performance on the y-axis, low and high, poor and ideal. And then on the x-axis is stress level from zero to a hundred. You’ll notice that the peak performance occurs right in the middle. When I have some stress, but not a lot of stress and that is peak performance. When you have too much money on any given trade, you're going to have a lot of anxiety, and that's going to cause you to have very high stress and very low performance.

On the other hand when you paper trade the anxiety is low. I think everybody should start out any strategy by paper trading, if you can't make money paper trading, you're not going to make money when you have real money in the market place. However sometimes it's easy to gloss over any mistakes you might make. Because you don't really have anything invested.

But if you have the proper amount invested, you're going to have a little bit of stress because you're active in the market, but you're not going to be highly stressed. So, your performance level will be extremely high, that's where you want to be. And that's why I spend a lot of time talking about the proper trade size, for your portfolio. That again is also in the trading business plan, I believe that's in Part II.

 

Meditation & Goal Setting

 

Now, what I'd like to do is just go over to meditations. I think meditations really help you to focus what you want to do. One is going to be on affirmations, the others on the power of meditation. And these are taken from a book by Melody Beattie called “Journey to the Heart.” And I've modified them for the trader. Now, the first ones about affirmations, and remember the affirmation is what you want to do and how you're going to accomplish your goal in trading. The second meditation is about taking the pressure off.

 

Meditation One

 

We can call things into play by what we believe, what we say, what we envision, what we speak, affirmations are one of these powers. Much of the stock market dance, is universal rhythm is out of our control. But while we don't choreograph it, we can work within the part that is ours. With the power that is ours. That's being in the zone and that's focusing on, where the trade should be executed, what is our edge.

We do this by what we believe, if we believe, that we have to fight the entire market and many "nay-sayers" well that's probably going to be true. Our beliefs about what we deserve will change as we journey through our adventure in the market. But there is also much we can do to participate in changing our beliefs and creating a more desirable world for ourselves.

What are your beliefs? Listen to yourself. Listen to what you think, what you say, how you react. Listen to yourself talk about your market experiences, and about what always happens to you. Listen to what you say about what you can and can't do. What do you hear yourself say is what you're going to believe. And that is probably what you're used to perceiving is happening. Try believing something different. Try asking the universe to help you change and correct your beliefs. Take an active part in creating your world and becoming a successful trader. Through affirmations, say those affirmations, say those beliefs, say them out loud. Write them down. Live them.

Now let's read about taking the pressure off. And once again, this goes back to the peak performance model, when you have a lot of pressure and a lot of anxiety, you're performance is not going to be ideal, it's going to be low.

 

Meditation Two

 

Sometimes we need a little bit pressure to get moving. But sometimes we put too much pressure on ourselves. You say, I must be a successful trader, we think and I must do it better and faster. We begin to believe that only by worry and fear and pressuring ourselves, can we become a success. That kind of pressure doesn't get the job done any better or faster. Simply makes us more tense and fearful and stops their creative juices. Too much pressure can take you out of the present moment, out of the zone, and cause poor performance. Let off some steam. Release your emotions. Take a deep breath. The answer will come, success will come.

 

Peak Performance Trading | Recommended Reading

 

I have these in my library. They are dog-eared, and highlighted, I look at these all the time:

“Think and Grow Rich” by Napoleon Hill.

“Trading in the Zone” by Mark Douglas.

“Market Wizards” by Jack Schwagger.

“Way of the Turtles” by Curtis Faith.

“Trade Your Way to Financial Freedom” by Dr. Van Tharp.

“The Art of Exceptional Living” by Jim Rohn.

The last three don't have to do with trading at all, but they have to do with getting mentally prepared for the game.

 

Final Thought

 

The psychology of trading is very important: rules, strategies, checking your ego at the door, cutting your losses short, letting your profits run.  Don't over trade, so, your anxiety level is too high. And then you need to have a rock-solid strategy. You blend the two together and you will have balanced trading. And your performance will rise.

In closing what I'd like you all to do, is swim like a shark, hunt like a lion, bat like Babe Ruth, and trade like a professional.

I have 2 systems I trade and teach/alert to our members – Option PRO & SPX W.O.R.  If you couldn’t already tell, I’m at the stage of my trading career where teaching others and giving back is of the utmost importance to me.  That’s why I’ve added features that most sites charge $300 - $500/month for $149/month with zero up-selling, everything is included.

About the Author

Options Infinity Founder and Mentor. Creator of the 3-Principle Method and avid Harley Davidson enthusiast.

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