Be Precise And Analyze Where Your Trade Went Wrong 

Nobody’s a natural. You work hard to get good and then work to get better. It’s hard to stay on top.

– Paul Coffey

Those who succeed in the trading world are referred to a “Market Wizards” and they have the status of idols. They are the ones you aspire to follow as they have turned their capital into major profits and have kept going in the market for many years.

A prime example is Tom Baldwin who started out with a “skimpy capital base” according to Jack Schwager. But Tom managed to turn his “fearless” approach into a large fortune thanks to aggressive trading. Unfortunately as inspiring as the stories about those who succeeded against the odds or by ‘beating’ the system, they lead the novice trader to enter into trading with unrealistic expectations.

The issue is that perpetuating the beliefs that the only way to succeed is aggressive trading, or that you have to have innate abilities and instincts to be a successful trader means that the first hurdle the novice falls at will be believing in their mind that they don’t have these things. ie. their beliefs will lead them to feel that they can never be a successful trader as they don’t have what it takes.

They don’t see that a successful trader is born out of persistence and the application of learned skills such as detailed planning. It isn’t the case that everyone can be a successful trader but in general if you have persistence, confidence in your ability to succeed and relative intelligence you are in a good starting position. Then it’s a case of ensuring that you set sensible and specific goals, take trading seriously and keep going after a setback.

According to the psychologists there is a tendency to quit when someone hits a setback and explains it based on a generalization of their abilities. They don’t look at the specifics of what went wrong, what skills they are lacking or the issues. They make the ‘failure’ a statement about themselves, a confirmation of their lack of intelligence, abilities or personality and make the leap that these are permanent and therefore they should get out.

It is possible that some of their analysis is correct but the reality is that they need to look more closely at what are the specifics and identify the elements that caused that one failure and what can be done to prevent it happening in the future. Typically the reality is that there is one particular action that was needed or that wasn’t considered and adding that in would make a difference to future successes. I know personally because I’ve failed many times, and have had to learn specifically what mistakes I made in that instance to finally get better and overcome this obstacle.

A perfect example of this is Mike, a private trader I know who found himself getting carried away when he spotted one of the stocks he tracks but hasn’t yet traded suddenly go up during the morning. He jumped in and bought seeing it as a golden opportunity. But no sooner had it gone up, the stock went down again so Mike jumped out again rather than risk big losses. He also decided that it was an indication that he really isn’t cut out to be a trader and clearly doesn’t have the skills to be successful.

However, is this an accurate representation of what happened and why the trade went wrong? Well in this instance it is self-evident that the failure was due to the the lack of planning and that Mike didn’t even pause to consider the causes of the surge or whether this was just a rise to previous resistance levels or due to a corporate announcement etc. These are obviously failures but they are failures to plan and study.

These are things that he can learn to correct, become disciplined in his planning and reviews, prior to jumping in next time. Indeed, Mike can make the statement that he has learned his lesson and therefore this is not something he is liable to do so readily again.

It is very simple when in the thick of it to believe that everyone else is turning a profit and you alone are the one failing in your endeavors. It is a normal error to make the losses become all about your own lack of innate abilities but it more a case of forgetting that trading is a skill and like all skills, the intricacies need to be learned and the more you do it the better you become. The good and successful trader is the one who will step back and look at precisely where they went wrong and what they need to learn for next time. Don’t fall into the negativity trap, turn the loss to a learning advantage and move on.

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