Dr. Ari Kiev, author of “Trading to Win”, says that “winning days are often followed by plateaus and losing streaks.” Dr. Terrance Odean, a behavioural economist, has pointed out that beginner online investors who have multiple successful trades often wind up over-trading. It seems that as novices, we think that because we have had a few winning trades and made more of a profit then we thought we would, we can afford to take more risks and even lose some of our profits. Of course, being a successful investor requires that we hold on to our profits, not throw them right back into the markets.
So, why do we often see successful days lead to plateaus and losing streaks? According to Dr. Kiev, one significant reason is that we lose our focus. As traders, we are always seeking an opportunity to make money. Eventually, we find it, carry out the trade and then begin to relax. It’s nice to be able to relax, but when it comes to trading, relaxing often leads to taking risks we can’t afford to take. Our overconfidence will work against us.
Winning is exciting, but just because we have had a good streak, it isn’t an excuse to become careless and lose our concentration. We should always maintain and stick to our trading plan.
Another reason is that winning requires significant emotional energy. Yes, we feel great when we win, but winning causes our adrenalin to rush and that can be exhausting. It is when we are depleted that we make mistakes. What do we do when we are simply worn out? According to Dr. Kiev, we should renew our energy and then face the markets head on. For most of us, this isn’t an easy task. When we run long distances the muscles in our legs become sore and we have to rest before we can continue. When we are using mental energy, we also need to rest our minds before getting back out on the trading floor. We need to know when we are losing our focus so that we can rest and then move forward with renewed energy. It is important to wait until we feel completely rested so that we can perform at our peak. Remember, winning is amazing, but it does take a lot out of us and we don’t want it to result in sloppy trading.
There are some traders that unconsciously feel they are undeserving of winning and therefore, sabotage their success. However, the larger majority of us fall into the mindset that we have to have a big win and reward after finding our newest opportunity. We need to be careful that this doesn’t lead to our losing focus and concentration. Being aware of this tendency is the best way to avoid letting our guard down so that we can keep the profits we have earned and not hand them over to the markets.