If we are to become a great trader we will go through some variation of all 6 of these stages. Being aware of these stages can help you identify where you are now and where you need to eventually be.
Stage One: The Mystification Stage
Stage Two: The Hot Pot Stage
Never be too proud that you are unwilling to point out your flaws. In this article, you will see a number of examples where I have called out flaws in my trading. This is both therapeutic and also forces me to realize that my issues have little to do with my system and more around how I mentally approach the market.
If you approach the market from a negative perspective, you will lose money. Negative does not mean you expect to lose, but you may have a lot of fear in your trading or have not fully accepted the risk. Reviewing your equity curve and keeping a trading journal will help you navigate times when you fall off the rails.
Recognizing when you are wrong does not mean the stock deviated from how your analysis stated things should go. Remember, the market is completely random. Understanding when you are wrong is something you need to define. For me, it’s how much a position goes against me before I see a profit. Once this happens things will go one of two ways for me. First, the market will give me the mercy exit opportunity and will close the position with a minor loss or slight gain. Secondly, the market will continue in the opposite direction and I will take a bath. Please do not get caught up in my specific rules; more focus on the fact that you need to know when you are wrong. Accepting that you will not always get it right will save you all sorts of time and money.
More importantly, you will begin to think of the market in terms of averages. You will have x percentage of winners and x percentage of losers. There is no escaping this fact. Show me a trader that always needs to be right and I will show you a negative equity curve.
