If-Then Analysis….. Eliminating your hesitation factor out of trading

Greetings all,

I have been talking about situational awareness from the first article on this website. Without any doubt, it is a must-have a quality no matter what profession you are in. It is furthermore important in professions like piloting, wars, sports, trading etc. where the outcome is uncertain and executing at our best and keeping ourselves in the high-performance mindset during the execution of the skill are the only things in our hands. And it’s easy for me to say this but the question is how.. We hesitate to make a move when our mind freezes with information overload or when we see a surprise. The same is true in trading. Situational awareness is the one that reduces this freezing of mind. Soo…

How can we maintain situational awareness in trading??

Even the answer for this question is simple. Use if-then analysis in your approach.

You must know how the price will behave in the near future if your expectation is correct. You must have a plan either to act or sit aside if price behaves as per your expectation.
You must also have a plan if the price doesn’t behave as per your expectation so that you won’t doubt your decisions when the pressure is on.
Form an analysis tree using if-then statements. It need not be on paper or something. Visualizing them in your mind is good enough. I promise you, if you are thorough with the market dynamics and your strategy principles and if you are maintaining proper situational awareness using IF. Then analysis, hesitation will step aside eventually and you can make more out of your trading. I came across the same in the early morning trade today and that triggered me to post an article on this. I will add that example at the end of the article, but before that, let me explain with some painted jpegs for a clear understanding of the procedure.

Imagine that there is a situation like the following image and we wasn’t to form an if..then cases for maintaining situational awareness.

Following five are the possible future scenarios of the market that came into my mind while preparing this article.

True that there are more and I think you got an idea of what I was saying about if-then analysis by now. If you have all these possible scenarios in your mind before the price reached there, you will escape from the surprises of the market most of the time and that saves a huge chunk of the bank account. You need not visualize all the possible movements of the market. Just consider those scenarios which you are interested to look into. The above example is simple and like always, the market is not that simple in reality.

Look at the following example from today’s NIFTY futures markets and see how this if-then analysis takes the hesitation part out of the game.

Like I mentioned above, I am only concerned about the scenarios I want to look at ie. in my bias direction.

But both scenarios proved wrong as the market opened within the range. Now the possible scenarios are as follows.

It looked like the second scenario played out, but the market gave a TST nice short entry at the resistance triggering the entries of the shorts at LWP. If it immediately reverses, it will be a trap like the 3rd scenario. If it continues to move down, I will look for the first scenario.

Finally, the 3rd scenario proved to be correct. This is the outcome.

Capture – Copy

This IF. Then analysis continues even after my trade entry. In fact, I do it every moment I sit in front of the charts to maintain the feel for the market flow.

This is impossible if you don’t use active trade management in your trading. If your plan includes passive management, stay away from this as it does more bad than good for you.

Notice that forming the bias is the most important thing in the above procedure. Market structural journal again comes handy here. My initial bias discarded a lot of market movements by restricting me to look only for long trades. Also notice that I was correct only once. I placed myself in the correct direction by applying If.. Then an analysis of the information provided by each new candle. Using the If.. Then approach, I maintain a feel with the market flow and the chances of getting freeze with indecision which results in hesitation to place an order are significantly decreased as there are very few chances for the market to surprise me. I know, it is simple to explain using a hindsight example, but this is the trade I have taken today and you can do that too with some practice and experience. Apply them for simple setups like the 5 setups I have mentioned on this website and expand the skills later. Remember, this type of trading needs extreme levels of focus and emotional control. You must not lose your focus out of frustration when the market proves you wrong. Because, you will be correct only once and after that, you will be in a trade.

Feel free to pose your doubts if you have any in the comment section and I would love to answer them .

Hope this helps.

User says:
Excellent write up. Thanks.
Now I have a serious question. Of late, I am getting some doubts, whether I can really be a successful professional trader. I may not be losing much, but I am not winning either.
I have been trying hard for more than 2 years, but the results are not satisfactory. I also have another doubt. Maybe with some more perseverance, I can make it.
I took to trading because my Textile machinery business declined 3 years ago. Now I have nothing else to do. Hence I am focusing only on trading. Would like to know your views, since you have walked this path and reached the destination successfully.
Forget about setbacks and I am quite sure that you will succeed in this. I have been watching your progress day by day and you are in the perfect path. Don’t get carried away by the information overload. It is very very simple and you can do it. Two years is a very small time to learn something very tough. Continue with the efforts and plan not to lose much in the learning phase. Take only one lesson at a time in the professional section of the trade school in this website, master it using bar replay and live trading and move to the next. Don’t try to include everything at a time in your daily trading as it will damage your skill.
As far as your trading is concerned, considering that you are not losing much, you are halfway down the path. Moreover, you are controlling the greed which is clearly evident from the charts of your blog. Learn it patiently, protect your capital, you will shine.

User says:
I am passionate about trading. I am full time in that ..it means I think 24 hr about trading (from wake too early morning to bed at late night …i only think about trading ). I make hard work. I read a lot of books related to trading.
when I visit the first time to your website I like it. [ i want to say very open here…..please bear me …(maaf kar dena ..aapko bura lagega ) …dont cause of your method …cause if you show profit point here on chart …it looks very attractive for me ….and I start to read your blog …]
yes, I am greedy ……if you don’t show profit point on chart maybe I don’t have an interest in your blog.
it’s my personality.

before visit here I am DP method follower. I love it very simple . after reading your blog I say ..there is a lot of similarities both of you. I respect both of you.

about my problem
I read your blog many times …up to clear my concept. ( i do same with DP method also ). both times I am very very energetic at start …and after in-depth ….. I lost my interest slowly …and for a time of apply method in real-time …. I am very low at interest ( my mind find excuses …Yes my mind divert another way…my mind find some bullshit things )

my one mind says you can do it …and that way I start my process…. I am very passionate whenever I start (any work ..any method …like ..start gym …start reading book….start follow methods like your method …DP method ) ..but after few days I lost my interest in it …..and after few days I give up …. and after few days whatever I start, I Stop it. …..after few days my interest start in any other things ( any method …any thing like ..gym, reading ..hunting new things )…… I start it passionately … and stop it ( as mentioned above) …..that is my problem.

i cant one one thing as long ….i think i cant continue any work and its my problem .

I want to really serious about trading and I want to be a successful trader .but last few yr I am standing here ..no progress.
I hope you understand what I am saying.
when I visit here before a month ago …i spend 10 hr a day to read and think about discretionary trading
but now almost I lost interest in it ( please bear me …but it’s real and it’s my problem)
( i read a lot of things here. it’s very long sorry for it )

Don’t you realize you are setting yourself a trap 🙂
Name of the trap is: Emotionalism

Bhagavad-Gita clearly talks about you!

“Arjuna, be impartial to failure and success, this equanimity is called discipline, the action is far inferior to the discipline of understanding, so seek refuge in understanding, pitiful are men drawn by fruits of action, disciplined by understanding one abandons both good and evil deeds, so arm yourself with discipline!”
-Bhagavad Gita

You are not passionate about trading you are irresistibly attracted to money i.e fruits of the action. Nothing wrong at all but realize the trap you are setting yourself in.

Emotionalism is the ground where delusions, anger, denial, depression all grow except clear thinking. In fact, emotionalism completely takes away the calm clear thinking and turns you into a mad man in denial.

The day you feel relaxed about winning or losing in markets will be the day your first lesson of the market is going to sink in. This has happened to all successful traders after a big set back or huge loss, after that they decide there is no more to lose, nothing more to prove… just calmly collect themselves and start working systematically without overwhelming themselves as they did previously!

It’s kinda weird in all sports building up emotions and screaming up and down can help but its hardly productive in the market like environment!

User says:
Without emotion how human being survive . ?
if we win or celebrate and loose we sad …its human nature how we survive without it. I think it’s our life’s part.

if possible pls explain

Think emotions as the speed of your bike, within normal limit it helps to move forward excellently.
One day you get this wonderful idea, let me double the speed so I can reach my desires quickly… once the bike crosses its design limit, it starts to shake, fails to turn properly at road curves, starts to skids…

but you are a super hero, you like the thrill and think this is so cool and I am not other mediocre guys who ride at the speed of a bicycle…

The bike is unstable but your attitude has not changed and worse you have doubled down… and want to become more cool…

You triple the speed of your bike.

Then realized… damn my front wheel has is no more taking the pressure and it’s about to come off in the next speed breaker, my breaks are not working as they are designed for… even breaking won’t help now…

see, disaster is completely guaranteed.

So, now tell me how to handle this situation.
To move forward we need speed, but being blind to the bike design and only focusing on desires… will do exactly what you don’t want!
Focusing on the discipline of proper bike riding, breaking, speed control, maintenance, helmets etc. etc. i.e focusing on process will get to your desires soon!

Here is another trick, once you lose control, you tend to lose more and more control and turn into mad man in denial. Have your checks and bounds before you lose control i.e preplanned strategy, accepting it fully and following it is the way to go.

User says:
I respect your word and follow path …I have many bad habits. I lose control in front of screen …
I try to improve myself step by step

I completely empathize your present scenario and I know exactly what you mean as I was there previously. But let me clarify one thing before going into a detailed reply to your comment, greediness is not a bad thing always. Few people find it as a pushing force towards their goals as they are greedy about achieving them. Remember, you will get results in reality when you end the task well, not when you start it. Everything you project expecting good when you start it are imaginary results and that will not define your passion. I am no psychologist and I don’t actually know whether I am the right person to say it or not. Don’t call it as a passion when you cannot carry that connection with the profession you have chosen until you achieve it. Just because you think about it 24/7, it might not be the one for you. Glad that you put the comment here expressing your inner frustration while learning, but you are the one who needs to find the root cause about giving up something. Before giving up, just give a thought about why you have started it in the first place. If you are finding that giving up is the best thing to do than the reason for starting it, give it up and there is nothing wrong with it.
Finally, comments will not hurt me whether they are good are bad. Each and everyone need not have the same opinion about everything. After all, different opinions will make the market.
Hope this help.:)

User says:
I don’t want to be a failure …dont want to give up … my inner soul says I want to be a successful trader ….whatever work, a task I will do it .. I start with very passion ..but it cant continue …that only problem.
are you face this type of problem/situation or approx. in your life ..?
is any solution on it ….? any other way to face this problem …or any other way to look at this problem.
Trading is a profession where setbacks are almost inevitable no matter how experienced you are. And during the learning phase, success looks like next to impossible in it. I have written an article in psychology section about this here, http://www.discretionary-trading.com/passion-and-addiction , give it a read. And don’t forget to look at the Steve job’s video I have embedded at the start of the article. You are the one who needs to raise yourself on your toes when situations crush the hopes in the profession and you cannot do that if you don’t love what you are doing.
Yes, I have faced this kind of situations and I face them almost every day. But I do have a strong reason to continue and improve what I am doing and that pushes me forward to try and improve the next trade. Take a break and think why you need to trade and finding that answer will change the way you trade for sure. Trading is all about psychology and the way we make trading decisions are more important than why we make them. Work on your psyche. and find answers. http://tradingqna.com/13315/psychological-challenge-hitting-powerful-article-overcome#a13331 , Madan’s comment in that question might help you do sort the points down.