The Greatest Trading Loss
What is the greatest risk you face in trading?
Is it loss of money?
Certainly, that’s what most traders believe. I tend to disagree though. In my opinion we have something much greater at risk, that very few of us consider during the ‘learning phase’.
The American political journalist and author, Norman Cousins, is quoted as saying, ‘Death is not the greatest loss in life. The greatest loss is what dies inside us while we live.’
Along similar lines, I would argue that loss of capital is not the greatest loss in trading. The greatest loss is what we lose from within. (more…)
DISCIPLINE: The trader must have the ability to control themselves and follow a plan. Discipline is a required skill in trading without it there is no edge, you are either a gambler or simply trading off fear and greed. You will not be successful, instead you will be gamed by those in control of their emotions.
RISK MANAGEMENT: Risk management must be a top skill for a trader to even survive in the markets. You must structure your risk per trade to be no more than risking 1% or 2% of your trading capital. You have to be able to survive 10 losses in a row. These strings of losses come around more often than a new trader would suspect. If you lose just 5% of your trading capital in each of ten trades you will be down almost 50% and need a 100% return just to get back to even. At this point you are ruined.
PASSION: A trader must love to trade, without a passion for the markets and trading the new trader will not survive the learning process because anyone with common sense would believe that it was not worth the struggle. Passion will be needed to bring a trader through the learning curve and later the losing streak.
* Distractions come from unfinished business;
* I’ve yet to meet an impressive person who has needed to impress people;
* Passion without commitment is wasted energy;
* The early bird gets the worm; the night hawk gets the early bird;
* Success comes when doing things right is combined with doing the right things;
* When you are doing what you’re meant to be doing, effort gives energy;
* In trading, as in life, you succeed by acting decisively on your convictions;
* You will never win if your goal is to not lose; * Successful people are productive; they traffic in efforts, not intentions;
* Narcissism craves admiration; self-esteem desires understanding. .
No issue so pervades the trading psychology literature as that of “discipline”. It is very common for traders to lay their plans and define their setups, only to find that their actions undermine their careful preparation.
A good deal of the advice dispensed by trading coaches and psychologists addresses this discipline problem.
But what if the lack of discipline is not a problem? What if we view departures from trading plans and intentions as *information*, not as weakness? As it turns out, those departures can be quite informative.
You see, we naturally gravitate toward the nexus of our values (interests), talents (native abilities), and skills (acquired competencies). On average, we tend to enjoy doing what we’re good at and we tend to build skills when there is a foundation of talents to support them. The artist who spends long hours at the canvas doesn’t have to draw upon “discipline” to sustain an interest in painting. The hard work is hard play: the discipline stems from a devotion to a craft–and to the ability of that craft to crystallize the artists’ interests, talents, and skills. (more…)
I spent hours reading and re-reading this book, and eventually made a summary of all the key quotes. In a series of posts I’ll be sharing these quotes with you, and hopefully they will inspire you to take your trading to the next level. I hope you enjoy my first selections:
1. You will need to learn how to adjust your attitudes and beliefs about trading in such a way that you can trade without the slightest bit of fear, but at the same time keep a framework in place that does not allow you to become reckless.
2. Trading is an activity that offers the individual unlimited freedom of creative expression.
3. The unlimited characteristics of the trading environment require that we act with some degree of restraint and self-control, at least if we want to create some measure of consistent success.
4. The hard reality of trading is that, if you want to create consistency, you have to start from the premise that no matter what the outcome, you are completely responsible.
5. One of the principal reasons so many successful people have failed miserably at trading is that their success is partly attributable to their superior ability to manipulate and control the social environment, to respond to what they want. (Unfortunately) the market doesn’t respond to control and manipulation (unless you’re a very large trader).
6. The tools you will use to create this new version of yourself are your willingness and desire to learn, fuelled by your passion to be successful. Successful traders have virtually eliminated the effects of fear and recklessness from their trading.
7. Attitude produces better overall results than analysis or technique. (more…)
Success in all aspects of life seem to follow those who do not try to act like someone else, but rather have a foundation of knowing who they are and act in that manner.
Many traders seem to want to act like other traders who have recently had a string of successes instead of being committed to their own strategy and trading style.
To be the best we can and have consistent success in trading takes a devotion and passion to learning our strengths and weaknesses and applying our skills to match up with these understandings.
Whether you are a risk taker or very conservative, both styles can reap profits as long as the trading matches with that personality. Just be yourself and let the results take occur.
They say that 90% or more of new traders get washed out of the market in six months – why would that be? I just had an insight into my own current state and the implications of it long term if it were left as an unconscious process…
The fact is that learning to trade is hard; very hard – but on top of that, it is a zero feedback learning curve. You don’t get marked or a pat on the back for your efforts; the only feedback you get is:
You think you are building up knowledge and skill in your conscious mind, but unbeknownst to you, in the dark invisible depths of your subconscious, you are slowly training yourself to HATE TRADING…
It is like constantly sticking your hand in the fire and going “Ouch! Ouch! Ouch!”
Your interest and passion for it is being quietly eroded. There eventually comes a day where you would rather do something else than trade that day; your instincts are telling you to avoid the pain.
It eventually becomes a DRAG…
Attracted by more pleasurable pursuits you realize one day that you haven’t traded for a week or two, but the very thought of it gives you a pain in the solar plexus… You brush the whole thing aside as an old hobby that was a large expensive waste of time.
You’ve been washed out. You are a statistic, but by now you couldn’t care less!
Successful trading requires the individual to have more than a certain amount of control over emotions and behaviors.
Emotions may include, but not be limited to, the following items:
1. Anger, anxiety, confusion, depression, disappointment, exhilaration, frustration, insecurity, passion, satisfaction, etc.
Behaviors may include, but not be limited to, the following items:
2. Arrogant, consistent, controlling, denial, following through, [im]patient, [ir]rational, letting go, perseverance, stubbornness, tenacity, etc.
Having control over these and other emotions and behaviors will allow for the trader to execute trades objectively, and more importantly, according to a strategic plan.
Sounds easy enough, does it not? “Execute trades objectively, and more importantly, according to a strategic plan.” Being that traders are human, it is not such an easy task to accomplish. It is not easy to be objective and diligent about sticking to a strategic plan day after day after day – especially with the constant volatility and erratic dynamics of the market tempting and enticing you at every turn to take actions that are NOT necessarily objective and NOT necessarily part of the strategic plan.