The Psychology of Trading: How to Create and Maintain Your Winning Edge

By Jason Alan Jankovsky

This ground-breaking work will likely change the perspective many in the investment community have when dealing with the complex world of trader psychology. Jankovsky presents a simple and common-sense solution to the timeless and eternal question every trader tends to have: "How do I make more money from my trading?" Jankovsky confronts head-on the issues of Market Analysis, Discipline, Trading Systems and the use of Technology as viable solutions to this difficult question. Most traders are typically suffering losses regularly and the author shows conclusively why that problem is embedded inside the typical trader's psychology they bring to the table before they even do their first trade. Offering many fresh insights and new perspectives to ageless trading issues, confronting conventional thinking and destructive education, yet providing simple and easily enforced solutions; The Psychology of Trading is without a doubt the best work released by Jankovsky to-date.

The material is broken down into four separate and easy to understand sections, with chapters grouped so that each section provides a complete understanding of where the author is going through the entire book. By the time the reader finishes the last chapter and pauses to reflect on what was learned—there is no doubt that he or she will have a firm grasp on their own trader psychology, why their method of participating isn’t paying them more, why they suffer reoccurring losses, and lastly—quite frankly the best benefit—how to re-set their thinking into a net-winning approach; an approach they can enforce daily for maximum returns.

If you are a fan of Jankovsky’s other books (Trading Rules that Work, The Art of the Trade, and Time Compression Trading—all from Wiley & Sons Publishing) then you need to complete your collection with The Psychology of Trading. Time will show that the complete picture of market-knowledge Jankovsky discloses is one of the most unique ever documented and one of the most significant. His total body of work will heighten your market understanding and provide you with solid clues to your own needs as a trader.

• Language: English
• Publisher: Jason Alan Jankovsky
• Release date: Mar 11, 2020
• ISBN: 9780463562857

Jason Alan Jankovsky

Jason Alan Jankovsky is a 30+ year veteran of leveraged transaction trading. Trading extensively in Futures, Options, and FOREX since 1986; first as a customer and then as a registered Series III broker. He is self-taught and self-educated. Working in almost all facets of the trading business, he has authored several trading systems, trained other successful traders and has had his insights published in many industry periodicals. His numerous articles on global cash FOREX and trading issues have appeared in "Traders Savvy", "The Perspective", “SFO Magazine”, “Futures Magazine”,"FX Magazine", and other industry publications. He is a regular guest on The Timing Research Show as well as other business radio and television shows. He is the author several titles, "Trading Rules that Work: The 28 essential lessons every trader must master" (John Wiley & Sons, October 2006), "The Art of the Trade: What I learned (and lost) trading the Chicago futures markets" (John Wiley & Sons, October 2008), which is the autobiography of his education as a trader; and his third book, titled "Time Compression Trading: Exploiting multiple time frames in zero sum markets" (John Wiley & Sons, October 2010). He has focused on the Psychology of Trading as the key component to a successful trading methodology and teaches an eight-week course on trading psychology regularly to traders around the world. He appears regularly as a guest speaker at many public and private trading forums and has been invited to speak at round table discussions offered by events such as “The Orlando MoneyShow” and “The New York Trader’s Expo” He regularly offers trade coaching & mentoring; working directly with traders of all skill levels. He trades his own accounts every day. Born and raised in Chicago, IL, he is an avid Sailor, Private Pilot, and occasionally gets into the cockpit of a Formula Ford open-wheel racing car.

Book preview

Preface

Those who have knowledge, don't predict. Those who predict, don't have knowledge.

Lao Tzu The, The Tao de Ching

The reader needs to understand something about how this book came to be. At the time I am writing this I am about to turn sixty-years-old. The perspective a 60-yr. old has on his life, the world around him, his future, his past; his accomplishments or failures, his money, etc., is remarkably different than the perspective the exact same individual would have had when they were in, say, their 30’s…I don’t think I am any different.

If I would have made different choices when I was in my early life—I suppose my experiences would have been dramatically different. I am OK with all that—although I really think I would have been very good as an Astronaut…but you have to let go of the past I am told…

Because I chose to invest my life in trading and the markets, I can honestly say that my life unfolded in a way that was unexpected. It has been a wonderful set of experiences, and I never would trade one part of it for anything…even floating weightless wondering how to get home…

My career in the markets hasn’t ended. And the markets themselves will never end. But sooner or later I will come to an end. That’s just how it works. My account will be replaced by someone else’s account. The markets will say to that trader: So, whatta YOU got? and that individual will start out on perhaps the most remarkable journey of his life…maybe to end up in ruin; financially anyway. Maybe to reach the heights of success and prosperity; wasn’t that your hope when you opened your account?

Well, for me, it was somewhere in between. All the time. If one part of my life was reaching for the moon—another was crashing into tiny pieces. If I made a million…maybe my love life sucked. If my health was in perfect condition, maybe I just got screwed by a business partner and I have nothing now. Or maybe everything worked—and I thought that meant God was blessing me …. only to be followed by nothing working a week later and that meant God is judging me… Or maybe I was just an incredibly naive individual with absolutely no background for what I was getting into…or worse yet…. someone who thought they knew what they were doing…. ouch.

I decided to write this book because the fact is—and I mean this with every fiber of my being—what I know about the markets and trading is priceless. I don’t mean that I know more than you, or that what I know is better than what others know. What I mean is that I have discovered something about the nature of reality that was unexpected for me. The markets taught me that. I chose to take my intellect, my discipline, my education, my tenacity, and carry it into that unexpected something. What I discovered is what some people call enlightenment; although I wouldn’t call it that. I would call it something closer to Finally putting it all together

I decided to write enough of what I have learned into this book so that anyone—and I mean ANYONE—with enough of the desire to know will uncover for themselves what it is that they need; so they can get to that place where they really they want to be. The world is not unfair—unless you think it is. If you want to get to that place you are thinking of right now—you can get started on the pathway to that place today. Are you prepared for the process of getting there? What if the journey is longer than you can make? Would you still get started? What if it was shorter once you discovered something you didn’t know before? What if you could make the change in one day and start making your fortune tomorrow?

You see, trading isn’t really about the money. At least for me. It’s about reaching your full potential at something—and knowing it. It’s about having complete control over yourself—so that nothing—and I mean nothing can break you. It’s about having the ability to do anything you want—but choosing the power to do as you ought. It’s about walking on water if you have the balls to try it. It’s about sinking to the bottom if you have the balls to accept that risk too. It’s about unlimited ability and the knowledge that you have earned it without sacrificing any part of yourself to do it.

How high is high? How far is success? How far down is failure? Does any of that matter once you see the sunrise over a perfect beach holding the hand of someone you know really loves you? And you know you don’t deserve her but there she is? And it never would have happened if you hadn’t been trading?

I said at the beginning of this preface that my perspective on things as an older man is different than when I was a younger man; but is it really different? Or is it just looking at the same thing from two different angles? Are both points of view accurate? Just separated by time? Why is a distance in time required for you to change your point of view? What if you could change your point of view without investing all the time most people need to? Could you create an advantage for yourself others don’t have? Right now?

Well—could you?

I wish there was some way to fully communicate to you the power I feel in my daily life. I put everything aside and focused on how to win at trading. What I discovered was a reality that I never knew existed—and it was always there all the time; for everyone. Why are so many unable to tap into this reality?

I believe it is because they simply don’t know it’s there. Worse yet—they won’t open the door to finding out. Probably because they don’t think they need to.

And that brings us to this book. I am going to fully document my thinking for you. Starting out with the beginning point and following through to the endpoint. I will show you everything that I discovered for myself—and why it matters. I am going to show you how to make lasting changes in your life that lead to better trading. I am going to open a new door for you in hopes that you might see more of what is already out there waiting for you. Quite frankly—it doesn’t matter if you see trading like I do at all. Or if your priorities change like mine did. Let’s be brutally honest: You invested in this book (hopefully) to get something that will help your trading make more money; right? You might not be interested in all the fluffy-feel-good perspective I have at this point. That’s cool. It only matters that you open the door for yourself to find out if this material can assist you. It's OK to close the door too. But the fact is—there is an answer out there for you somewhere. Anyone—and I mean ANYONE—can discover what they need to excel at trading. I sincerely hope you find at least some of the parts you are looking for inside the pages of this book. It’s my pleasure to at least point you in the right direction. I think you will find that I am on to something much more than making money. But let’s be frank, it’s all about the money right now. So, let’s get to work making that next million—and when you do…

Come find me on that perfect beach if you can, (but bring your own babe).

Introduction

All our knowledge has its origins in our perceptions

Leonardo Da Vinci

It was the fall of 2019 and I was looking out the window of my office at my home in Bradenton, Florida. I usually take time at the end of every year and attempt to refocus my thinking on the deep issues of trading. I like to use the New Year as a starting point for fresh beginnings; or sometimes a review of an old beginning that isn’t doing so well. Mostly my intention is to find a better way to stay as sharp as I possibly can for the upcoming year; and commit to trading my opportunities at the highest level I can. Staring out the window seems to help with this for me.

I don’t think what I am trying to do is unique or different from anyone else and what THEY are trying to do with THEIR next block of usable time and/or potential money-making opportunities. Sometimes I have to remind myself that not everyone is a trader attempting to exploit price action in Equities, Interest Rates, Futures, Options, Currencies or Round Blue Bricks…I think everyone has some sort of process they like to use for the purpose of making certain progress is being made regularly. I would like to believe that people seeking a high-level achievement take time to reflect and re-consider things along their pathway. I think those individuals prefer to evaluate their progress regularly. They need to know if they are wasting effort or going in circles. Most traders would agree that the question of wasted effort is one of our biggest concerns.

So, I sat gazing out the window and found myself really looking at the old tree in our backyard. I just had to have it trimmed because parts of it have had issues and was dead; large chunks of dead tree could just drop on my head if I ignored this for too long. After I had the tree-trimming-service complete a major overhaul of this huge growth I was really surprised at what was the difference. The whole tree looked different; not smaller—just different. A large amount of usable firewood had been cut down and piled up for our use if we wanted it. I don’t think I would ever need firewood again. Firewood in South Florida is usually used in the colder months for outdoor entertainment around a bonfire firepit; I probably had a few years or so worth of bonfire wood now.

I found out from the tree-guy that this tree is a Laurel Oak tree and this particular Laurel Oak is likely over 200 years old. That is really old for this type of tree he told me; which explains the large amount of deadwood. This tree was quietly growing on the North American continent when native American Indians still roamed this whole area; this tree pre-dates almost everything we see as normal or modern All the accepted norms of business, finance, technology, transportation, communication, medicine, industry or anything else you can think of as modern or daily life. I suddenly realized this tree was already old and suffering parts of itself to death when the computer was invented—what if this tree could talk?

What I am trying to say is this: What are the odds?

What are the odds that I personally would be looking out this particular window at this particular tree awestruck by the enormity of the history behind and before this tree; suddenly aware of my own insignificance in the process of seeing How Things Work? All because I thought it wise to avoid a dead tree branch from falling on my head today….

How much of what goes on around us all day, every day, is staggeringly complex, hugely unfathomable anyway, and totally beyond our comprehension? Yet it goes unnoticed for the most part simply because we choose to let things go unnoticed around us for the most part.

If we take the blinders off our eyes and our minds, we discover that we are living in a very improbable place after experiencing a very improbable series of events; most likely missing the cues that could elevate us to a level of living & thought currently beyond our ability to even believe possible. Our lives become what they become despite our regular attempts at staying on a pathway that we believe is good for us—while all around us there is something happening, and we might not even know it is happening. But there are things right here in plain sight that speak of those things. It is right in front of all of us all the time…and yet we still miss it. What are those clues? Why do we miss them? What is life trying to tell you?

It’s my point of view that trading is exactly like this concept—there is a much larger and significant way to see what is going on around you and within you when you trade. It has nothing to do with market study or analysis; it has to do with your perceptions and how you manage them.

The reason some people succeed at things that others fail at is because they possess a certain something that is not present in the loser-group. We can call this a lot of different things—but it all represents the same similar quality, I believe. Some people possess the ability to think outside the box for example, but isn’t that really the same thing as saying they have a better attitude toward something or a positive attitude about something? I meet people who are single minded about something; winning athletes tend to be aggressive toward their sport. It seems to me that this are all really attempts at saying the same thing in a similar manner.

What is that something? I believe it is this: The winners behave differently than the losers.

Yes, winners tend to think differently but at the bottom core—they behave differently. The winning boxer takes that one more punch when he is exhausted—and the observer might say he is not a quitter when describing him. But what is someone who isn’t a quitter? Someone who throws that one extra punch…Your thinking might be I will never quit but that would MEAN I am going to throw one more punch no matter how tired I am Your behavior shows that you think a different way. And it is your behavior that really matters.

One of the greatest musicians of all time still is Wolfgang Mozart. When asked privately why he wrote the music he wrote the way he wrote it—he replied, I listen to the birds singing and I imagine what that sounds like to the ear of God OK…what does that mean? That means he didn’t really write music the way most musicians write music, he listened to the music that was already happening around him and then WROTE DOWN what he heard inside his own head. He was doing something different than other people. Mozart was probably asking questions differently than other people. Maybe when he wanted to write his next great symphony, he would go out into the woods looking to find new birds he hadn’t heard sing before. Maybe A little Night Music is really what he heard when he came across two jaybirds arguing with a Seagull. He did SOMETHING DIFFERENT with the same skills as others.

This difference in the way certain people behave can be just astounding in some ways. For example, Jackson Pollack was an absolute Genius in my opinion. Ask yourself What is it exactly that painters do? They put paint on a canvas in order to create an image they hope will invoke something in the viewer. Pollack did that without letting the paintbrush touch the canvas. He painted by walking all over a canvas laid out horizontally on the floor rather than hung vertically in front of the artist. No one before or since has been able to create what he did. Simply amazing…He did SOMETHING DIFFERENT with the same tools.

Henry Ford—same thing. People want to move things from one location to another. Ford said I have a better idea for doing that at a time when the horseless carriage was seen as a minor fancy, something more like a fad or only for those silly enough to throw away money on funny contraptions that don’t do anything valuable. Ford took the basic idea and created a way to make those contraptions efficient and build them for a low cost. He didn’t do anything new—in fact he was late to the party as far as car manufacturing was concerned around the turn of the 19th century—but he figured out how to build a lot of cars quickly and cheaply. He did SOMETHING DIFFERENT with the same tools as others.

We could invest a lot of time looking at various industries and arts looking for special people we could call successful; those who have reached levels of performance or influence beyond the average individual. In my view, we would be looking for the same basic underlying something that is expressed in an unlimited number of ways. It’s the something that matters; the basic stuff that achievement seems to be cognizant of when the rest of the participants do things along the status quo. I really hate the status quo. In fact, one of my pet-peeves—one of the things that will infuriate me instantly—is when I offer a trader a solution to a trading problem, but it is met with the response: I’ve never done it that way

My hope is to communicate to you that your acceptance of the status quo might be part of your problem if you can’t make consistent money from your trading. You need to find some way to enhance your participation into the realm of the high-achievers you want to emulate; you need to accept that the average way of doing things—the typical method espoused by the typical average performer—is simply not going to offer you a viable pathway to your fortune. What you need to do is something different. How are you going to learn to do something different if your thinking is really no different than the typical losing trader? How can you reach the top of your potential if you are doing the exact same thing every other average person is doing?

What specifically are you going to do that sets you apart from the rest of the players?

Before we start getting into the material, I want to offer you a final observation about trading. Bear in mind, I’ve invested more than 35 years of my life in the business of trading. What I say next could be considered heavily vetted; it could be carrying a lot of credibility. I don’t want you to accept it because it might be heavily vetted or credible. I want you to consider it because it makes sense to you without needing to explain why. It just resonates with the feeling of Yeah—I get that

No one in the business of trading knows any more than you do right now. In fact, most of them probably know less. There is a fundamental problem inside the mind of humans as a group. This fundamental psychological problem is responsible for all the major conflicts we all have to invest regular effort into solving. Specifically, one of the ways this fundamental problem comes out in the trading arena is a focus on the assumption of a benevolent authority working behind the scene somewhere. In other words, there is some sort of a final authority that is generally working in everyone’s best interest; this authority somehow knows everything or controls everything relating to the markets. For example, people generally believe that the U.S. Federal Reserve Bank is an authority in the banking system; and therefore, can be trusted as far as how the Fed performs relative to the markets. Traders tend to believe that the Fed is a positive influence on the financial marketplace. The Fed can be trusted. The Fed works on the behalf of the citizens. The Fed is responsible to control the money supply. All of this is considered a positive and healthy environment for the purpose of managing the U.S. economy; and keeping the integrity of the U.S. Banking System intact. We need the Fed. The Fed is good and works for all of us.

But the fact is, nothing could be farther from the truth. The U.S. Federal Reserve is really a private bank owned by a handful of (mostly) foreign nationals. It isn’t part of the U.S. Government. It doesn’t have the authority to issue currency. It routinely interferes in the equities & interest rate markets to prevent collapses; and among other things, The Fed operates on a fractional reserve method of accounting for assets & liabilities; making it basically a house of cards. It is loosely founded on a concept called The Land Bank, an idea created by an 18th century criminal named John Law—who was a murderer and a thief. Right now, The Fed has hundreds of times more obligations than cash to meet them with. If only a small fraction of U.S. Citizens were to withdraw their money from wherever it was inside our financial system—the U.S. economy could collapse completely. The U.S. economy could collapse to the point where the U.S. Dollar might become worthless across the globe. This is not my opinion—go read The Creature from Jekyll Island (Amer Media, 5th edition, C. 2010) if you can find an uncensored copy of it…

I am not trying to scare you—I am trying to enlighten you to the fact that things are not what they seem. The problems we have with the Federal Reserve don’t really matter in the long run because when THAT institution fails, another will take its place. And whatever negative consequences develop—those will be met with an equal but opposite positive from somewhere else. A lot of money will be made when the #@*% hits the fan here in the U.S.A. someday. The question is from where? And by whom? How bad will it really be? Will you and I get rich when the #@*% hits the fan? I am certainly going to try…

What I hope to communicate is that as far as trading the markets goes, no one really knows what they are doing. They may sound very convincing and very credible; but the fact is—they want you to believe everything is under control because they are terrified you will find out it isn’t. And it really isn’t. Nowhere is this truer than inside the markets. The financial markets are populated and run by people who really are hoping against hope that nothing goes wrong while they are in charge or playing the game; because if that happens—the gallows await…

What I am trying to say, the final thought I have for you before we get started on building your fortune, is really very simple. Don’t put your confidence easily in experts, gurus, officials, governments, or any other group of people who hold out their hand in friendship proposing to help you. The only person you need to have confidence in is YOU. YOU are the architect of your own fortune and your own future. Develop your own method of better thinking—develop your own method of behaving differently. Create something that is yours and is not beholden to anyone else for any reason. Your perception plus your actions creates the circumstances you call your life. That is where your fortune comes from.

And believe me—it is out there waiting for you.

So, let’s get started….

Part I

Understanding the Traders’ Problem

You Are the Problem

It is better to conquer yourself than to win a thousand battles

--The Buddha

If you had met me at my 18th birthday party and told me where I would be when I was 60 years old—I would have laughed so hard I would have hurt myself—then dismissed you. I would have said something like: Hey—I know EXACTLY how my life is going to go and I have BIG plans (sir); Thank You for your (HA) insights but I don’t really think you are in a position to offer me a credible assessment of my future…GOOD BYE!

Then I would have turned my back on you and left. No one is going to tell me what time it is…

Childhood arrogance aside, the fact is I really believed I could achieve anything I set my mind to; and I still do. For a time in my early years as a businessman/salesman/entrepreneur I did very well for myself. I was what they used to call a Whiz Kid … At school, I got very good grades. In general, I had a nice personality, was articulate and usually was an enthusiastic individual. If you want more details, I discuss some of my starting points in my second book The Art of the Trade (Wiley & Sons Publishing, C. 2008) but I just want to make the point that MOST people with some (or all) of those kinds of abilities tend to do very well for themselves over the course of a career at something. They are good skills to have and develop. They are skills that the management-types know lead to success; and by the word success we mean things like better sales, better business relationships, better problem-solving skills, etc. Starting at a young age at something you love and pouring your whole heart into it will certainly open a few doors for you at the very least. This is the frame of mind I had when I started out in life looking to make my mark and get rich doing it.

Then I got into the markets…

As I discuss in The Art of the Trade, I was completely unprepared for the world I was getting into. I don’t want to go into all the intimate details of my early years in the markets other than to say not one skill I was born with, or had developed, ever helped me take any money from the markets. That is the bottom line. And if you are honest with yourself and your current results as a trader—you will agree that your situation is exactly the same; or very similar. Nothing you brought to the table when you started trading ever helped you earn dime one. Which is usually beyond confusing for most people. Maybe you have asked yourself: How can I do so well at (fill in the blank) and have such losing results at something that appears to be so simple?

When I was a registered broker, I saw this situation every day. I’ve had clients that were Ph.D.’s in their fields close account after account with net losses. I’ve had clients that were Board Members at Dow Jones listed companies go debit in their trading accounts. I had one client who was a technical engineer at the Jet Propulsion Laboratory in Pasadena, CA., he flew the Hubble Space Telescope—not a dumb guy—this man still lost his entire account in less than 3 months buying a market that went his way more often than not; he just kept over-leveraging against everyone’s instructions; including the compliance office at the exchange.

All of these people, and many others, were just like you. Smart, degreed, successful in their field, articulate, financially secure, happily married and sometimes well-groomed… they just couldn’t trade their way out of a wet paper bag.

Statistically, this is nothing new. The government sanctioned regulators and other watchdog organizations will tell you that about 85% of trading accounts opened at any time during the past 150 years or so of organized exchange trading have closed out at a net loss; some small losses and some big losses—but losses regardless. As far as the markets are concerned, whatever you bring to the table in hopes that it will make your cash grow, is either not needed (and something else is needed) or makes no difference to results. It seems that the markets don’t respect anything about the participants; or what they bring to the table when they play. The only thing that apparently matters is your cash, which apparently is a food source or something for the markets.

If you are a new trader trying to determine if trading is really something that is right for you, it’s important for you to know I am not trying to discourage you. In fact, I think trading is right for everyone. Sooner or later any person with at least something on the ball will find themselves in a cash position where taking a little risk makes sense. Done properly, trading can be a HUGE advantage to your growing portfolio. Dr. Harry Markowitz shared the 1990 Nobel Prize in Economic Sciences for his ground-breaking work in the field of Modern Portfolio Theory. He showed conclusively that diversifying part of your existing portfolio of equities, bonds and real estate into leveraged investments (such as professionally managed Futures/Options/FOREX) will decrease portfolio volatility over the life of your investment career and also add a significant percentage gain to it. He didn’t say trading in these markets was less risky; he said trading can be worth the risk when done right YOU are hoping to do it right, I believe. So why are the statistics what they are? Why do individual traders, just like you the reader, still suffer large losses?

I’ll tell you why:

Because you (and everybody else) are thinking the wrong way. You have absolutely no clue about the real nature of the trading environment. Worse yet, you think you do because of the alleged market knowledge you have been absorbing over the course of your trading career so far. But the fact is, nothing you have learned has made the difference and you already know that. None of the skills you brought to the table has helped either. You have done everything you knew how to do—and the results are not what you thought they would be. Maybe you still don’t see a way out of this problem—and you are discouraged enough to quit altogether. It wouldn’t surprise me if you did quit. Some people won’t pay the price of admission in this field.

But the good news is, if you are willing to make the changes that need to be made, and willing to get the knowledge you really need to win, the markets will open their doors to you just like they have for all the winners that are out there. The small percentage of winners is a relative thing; it’s not about what is possible. The reason the percent of winners is small is because most people will quit after losing something. If you don’t quit—you could put yourself in the winning group. The question is: Will you run out of money before you figure it out for yourself? Some people are forced to quit, hopefully that won’t be you if you are committed enough to the learning curve to become a solid winner.

Before we get started on the rest of this book, which is the pathway I personally discovered by studying myself along with other winning traders, I think it is crucial for you to take some time and reflect on what it means to experience what is referred to as a Paradigm Shift I personally feel that the bulk of this material is going to do several things at once for the reader.

Reviews for The Psychology of Trading

[Emmanuel · Rating: 4 out of 5 stars]

Great and insightful text. This book gave me a wider perspective into the markets and enhanced my trading zeal and psychology