Friends,
Success in trading all comes down to identifying high odds, low risk opportunities and then ONLY trading those opportunities. Add proper risk-management rules to the equation, and you have the makings of a successful trading career. For sure, as beginning traders we will take some time to home in on the style that suits us best, and to develop our own personal edge in the market. After that, the entire game becomes about keeping ourselves within the boundaries of the odds that we so carefully delineated.
I have spent a great deal of time reflecting on which precise thoughts and impulses tend to lead traders away from the above boundaries. A few of these demand special attention, as they tend to be very ubiquitous in the trading profession.
A friend of mine, who is not a trader but who knows a thing or two about life, is fond of spouting the following little slogan: "Compare and Despair". The more I've contemplated those three words, the more I think there is an important lesson here for all traders. Honestly speaking, I'm not sure there's anything more dangerous to a trader's carefully maintained equilibrium, and by extension their results, than the tendency to irresponsibly compare one's own trading style or performance to someone else's.
Let's say, for instance, that you are having a lousy week in the market. Maybe it's been a few weeks, and you've watched sizable gains from the prior month cut almost in half. And yet, if you took the time to really contemplate it, and examine past results, you might see that this is not unusual. Perhaps your style is such that there are occasionally draw downs of this sort, and they are the necessary cost of allowing yourself to capture truly lucrative moves when things are going your way. Or, perhaps there IS a slight flaw in what you are doing, something that could easily be remedied if you remained detached and unemotional about it. The chances are that the bulk of what you are doing is valid, but some small inefficiency in your system is causing the trouble.
And yet, just when you ought to be flushing these small bugs out of the system, or else giving yourself a pep talk affirming that the draw down is normal...you go poking around in all the wrong places! You start listening to some loudmouth on CNBC bragging about how he's having the best month ever, or else you go surfing around trading websites and message boards and glom onto the individuals who are just "slaughtering the market". Perhaps, in a truly deranged act, you even go to your trash can and fish out the ridiculous piece of hyped-up mass mail that was sent to you by the latest "Stock Market Guru", who claims how he and his readers have made 456% returns in the last 3 months. In fact YOU TOO can make these gains if you simply...
Getting the picture?
What sort of state do you think all of this will put you in? Will you remain clear about YOUR trading plan, and YOUR odds, and the one or two things you may need to do to get YOUR trading methodology back on track? Of course not! You'll be the living, breathing personification of self-doubt. Suddenly, everybody ELSE's approach will seem infinitely better than yours, and you'll practically hear the vast, borderless community of professional traders laughing their heads off at you and your pathetic trading plan!
From that state of mind, the whole array of Deadly Sins will gain easy access to your trading abode. Just take your pick. There's no way that you will remain the focused, disciplined specialist that you need to be in order to produce positive results. You'll be a bloody mess!
I have watched students literally switch between dozens of different approaches to the market, forever hunting for the "Holy Grail" of trading. The story is always the same. They have some success for a certain period of time using one approach, they get very excited about it, and then they inevitably experience a stretch like the one described above. Instead of going back to the old workshop and making a few key adjustments to an otherwise working plan, they end up talking to "so and so" who tells them how much money he is currently making trading currencies....or e-minis...or pork bellies...and then suddenly the student goes off and abandons everything he or she has built thus far, and starts back at square one with something different.
And what do you think invariably happens when the tough periods arrive? You guessed it. Repeat the above.
Anyway, this is the first of the mental demons I wanted to discuss - the tendency to compare one's results to others', and in the process to lose all conviction in one's own plan. Do yourself a favor all, and make sure the only one you compare yourself to is YOU. If you give yourself enough time to develop your approach, and set reasonable standards for yourself along the way, you will arrive at your destination in good time. You'll certainly get there WAY before the person who goes chasing the next hot thing every time they hit a speed bump.
Pristine.com |
