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Visualizing the Trade

Visualizing the Trade

Before the opening bell rings, Gary has clearly outlined his trading plan. He knows where he will enter, and which signals will indicate the plan has gone sour. But when he tries to execute the trade a few hours later, he can't control his emotions. He enters, the market moves against him, and he panics. Stuck and frozen, he doesn't exit as he had planned. The market continues moving against him, and he loses more money than he had planned. Rather than unnecessarily mounting losses, Gary can improve his performance by visualizing the trade before it happens.

Whether it's perfecting a golf stroke or improving a backswing, visualization can be used effectively to fine-tune a variety of skills. Many winning traders use visualization to prepare for a trade before it happens. In your mind, you can play and replay the trade. You can pretend to look at indicators on your screens and interpret the market action. You can experience the thoughts and emotions you'll feel as you watch the market action. You can allow your mind to visualize the precise movements your body makes as you click the mouse. Visualization is the next best thing to being there.

Visualization is based on the principle that a great deal of learning occurs in your mind, even if the activity is largely physical rather than mental. When playing sports, for example, it's possible to actually improve your skills by mentally rehearsing each action. Your body and mind can learn just by going through the motions mentally. You can replay an action. For example, you can pretend a tennis opponent hit a ball toward you, and you can imagine graciously returning it. You can imagine what you are thinking and feeling. You can practice over and over, and as you do, you'll hone your skills.

Visualization allows an athlete or a trader to prepare for how he or she might react to different scenarios. A football receiver, for example, can imagine trying to catch the ball as he is about to be tackled. A trader can similarly imagine what it feels like to execute a trade when the market is going against him or her, for example. You can pretend it is happening and feel the initial disappointment you might have. But rather than act impulsively, you can visualize acting calmly, and closing out the position. In the heat of the moment, without practice, you may be stunned and paralyzed. With visualization, in contrast, you can practice what you would do over and over again. You can practice monitoring your internal dialog. You can practice thinking, "The loss is no big deal. I've used risk management to cover the loss. Losses are an everyday event when you're a trader. I'll just stay calm and follow my trading plan." It helps to practice a stressful trading event in your mind before it happens. You'll learn to control your muscles, your thinking, and your emotions. Why try to practice this complicated set of actions during the trading day when all you do is choke? Do it off hours to prepare for the trading day. By using visualization, you can hone your trading skills during off hours until you trade calmly, decisively, and profitably.