In life, and in trading stocks, we sometimes think we have it all figured out.
We just know that the stock we have our eye on will drop in price and when it does we will buy it, wait for it to increase in value and quickly sell it leaving us with a lot more than we had earlier that day. Except, when we implement that plan, we find out that it wasn’t that simple.
The price of that stock actually went up and instead of waiting for it to increase even more than it already has, we go ahead and buy it. After all, we are flexible and able to modify our plan even if it wasn’t what we had laid out in our heads, right?
Things Don’t Always Turn Out The Way You Hope
Well, what if we were then to find out that while we were banking on the fact that the stock to go up after we purchased it, it plummeted?
Most of us would be upset with ourselves. We may be angry that we made such a costly mistake and lost our capital. We also may be experiencing a strong feeling of guilt; guilt for straying from our original strategy, for losing a significant amount of money and the things we could have used that money to buy.
Even worse, this may not be the first time this has happened and we can’t believe we could repeat our mistake. We might even begin to worry that if we keep making this mistake we will lose everything in our portfolio.
Firstly, I want to tell you that guilt is a normal reaction to a situation such as this. It can be an adaptive reaction that acts as a red flag, telling us to take a step back and figure out how we can do it differently next time. Of course, in reality, guilt can become all-consuming and distract us from figuring it out. All is not lost though, if we can begin to understand our guilt and start to push through it, it is possible to come out the other side and regain our equilibrium.
How To Integrate Mistakes Into Your Process
Now, what works for me may not work for everyone.
For example, traders just starting out that are making many mistakes could benefit from guilt as it protects us from continuing on a path to ruin. What it tells us is that we need to make smaller and safer trades. That could mean practising on small trades to build up our skills before focusing on making huge profits.
By doing this, even if we lose some money, it won’t be more than we can afford to lose and, as a result, we will feel less guilty.
On the other end of the spectrum, we have the traders who are not quite beginners, but would not be considered masters. If we are at this level, we have a tendency to set expectations for ourselves that are too lofty.
Depending upon how many trades we generally make, straying from our plan a handful of times over a period of two months may not be terrible. While we could lose money doing it 5 times, if we were to make over 100 trades, straying from our plan really isn’t that much in the scheme of things.
Don’t Become Paralysed By Your Guilt
The key is to not become paralysed by our guilt.
As I said, guilt is a normal reaction to this type of situation, but we need to gain control of it and move forward. People make mistakes and when we are used to doing something in one way, changing takes time and discipline. It may not happen immediately, but that is why we should practice until we finally get it right. Patience really is a virtue.
We also need to reframe the guilt and start looking at our mistakes from a new perspective.
For example, instead of keeping a count of how many times we abandoned our strategy, turn it around and keep a count of how many times we stuck to the plan. If the number of times we stuck to our plan exceeds the number of times we didn’t, we know we can maintain our discipline and strive to do it more often.
Thinking of it from this angle will foster a more disciplined approach and build our confidence. We should also learn how to forgive ourselves. We have all made mistakes. We just have to learn to understand our feelings and propel ourselves forward.