Newsletter excerpt from 15 October 2010
Winners Start Where Losers Give Up
Trading is not just about charts, bars and moving averages, because trading is a behavioural activity. Your trading performance is purely a reflection of your behaviour. And your behaviour is a reflection of your knowledge, skill and attitude.
Last week I worked with a trader who was stuck in a losing BHP CFD position that was A$17,000 down. Ouch! So I asked him:"What stops you from closing out this trade?" He answered: "Every time I want to press that button to close the trade I wonder what if it turns around now and goes back into profit - leaving me behind with that massive loss? I really don't want to lose all that money! What am I going to do?"
And that's where most traders stop thinking! They stop thinking at those really important questions and they go back into that vicious loop of thinking "I am such an idiot! I don't want to lose all that money! What am I going to do? I am such an idiot..."
But this is exactly where you need to start your thinking! If you have a loss there is only 2 reasons for it:
- either there was a lack in trading knowledge / skill
- or there was a problem with your behaviour in terms of you are not doing the things you know you must.
That is all there is to trading!
This trader's logical thinking was overridden by self-sabotaging emotions. He felt unwell, his thoughts would race around his mind a million miles an hour and he felt helpless and stuck, didn't want to face his wife and couldn't focus on his job which annoyed his boss.
Whenever you feel like that, the first thing you need to do is change the spotlight of your focus back to facts. And facts are: What is your technical analysis telling you? Are there any fundamental facts that give you an indication for the probable future behaviour of this stock?
The problem with this trader's behaviour was not only didn't he know what constructive questions to ask that would give him clear answers and end his misery one way or the other, he also had no structure and written down step by step system on how to analyse the markets for profits.
During last weeks VIP Trader's Conference someone asked me what the main thing was that made me successful. And I must say it was no 1: I always look for the next thing to learn. I have amassed this massive amount of knowledge and by applying it I developed a high level of skill. Yes, I also worked a lot on my personal development, but in having met and worked with many accomplished traders I would say, that if you are exceptional at your craft, even if you feel bad about yourself, even if you are messy and have no discipline, even if you are full of yourself with a big ego you will be successful in trading...
So Traders, if you are stuck in a losing trade, ask yourself: "Is that trade still making me money? If not, what does my trading system say? Is there something that I need to learn?"
For your trading system I would recommend that you have a step by step written down trading system laminated next to your mouse and any time you go into an emotional overload or you get angry, annoyed, frustrated, helpless, disappointed, despondent when you really should make a sound trading decision simply shift the focus from yourself to the facts in trading: What does your trading system say?
Then after you have dealt with the loss position you need to do a post mortem:
If you followed your trading system and you still incurred a loss, I guarantee you there was someone else who made money. So that means that there is some new skill or knowledge that you can learn in order to make money on those kind of trades too, right?
And if you didn't follow your trading system by being impatient, impulsive, indecisive, anxious etc, well then do some work on yourself by looking at what is the underlying reason for this behaviour? Social pressures? Wanting to live up to your family's hopes and expectation? Feeling of loneliness and boredom to be filled with the excitement of trading? Fear of missing out - scarcity thinking? Looking at trading as your only way out of the job that you hate? When you solve those issues, then the resulting sabotaging behaviour in trading will dissipate automatically...