The Starters
Trading is full of paradoxes & contradictions in thinking, hence making it extremely challenging to learn how to be consistently successful.
Financial and emotional disaster is commonplace amongst traders because many of the perspectives, beliefs, attitudes and principles that we have learned and adopted in our daily lives have an opposite effect in the trading environment. Not realizing this, most traders start their careers with a lack of fundamental understanding of what it means to be a trader, the skills that are required & the extent to which those skills need to be honed.
Trading is inherently risky; no trade has a guaranteed/certain outcome.
Most traders would acknowledge this statement. If you engage in an activity that is inherently risky then you must be a risk taker, and as a matter of fact many traders take pride in the fact that they are risk takers.
Of course, any trader is undertaking a risk by entering into a trade but this does not mean that they are correspondingly accepting the risk. All trades are risky since the outcomes are probable not guaranteed.
But do most traders really perceive that they are taking risk while they are entering into a trade?
Have they really accepted that the trade has a non-guaranteed probable outcome, have they completely accepted its consequences?
The answer is no.
Most traders have no cognition of what it means to be a risk-taker in the way successful traders think about risk. The best of traders not only accept the risk but they have learned to embrace it as well. There is an enormous psychological gap between assuming you’re a risk taker because you enter into trades and fully embracing the risks inherent in each trade. When you fully accept the risk, it shall have profound implications on your bottom line performance.
The best traders can enter into a trade without the slightest hesitation/conflict/disarray, and just as freely and without hesitation/conflict/disarray admit that it is not working. They can get out of the trade even if it is at a loss and this doesn’t create even an iota of emotional discomfort.
In other words, the risks inherent in trading do not cause seasoned traders to lose their discipline, focus, or sense of confidence. On the other hand, if you are not able to enter into a trade without the least bit of emotional discomfort (specifically, fear), then you have not yet learned to accept the risks inherent in trading. This creates a major paradox because to whatever extent you have not accepted the risk is the same degree to which you will shun risk. Trying to avoid something that is unavoidable shall have potentially disastrous effects on your ability to trade successfully.
Trading presents a fundamental paradox: How do we as individuals remain focused, disciplined, and confident in the face of perennial uncertainty?
When you shall master the skill of risk acceptance, the market will not be able to generate information that you define or interpret as troublesome. Learning to accept risk is a knack in this field, more precisely put, it is the most important sophistication you can learn.
What trader hasn’t entered into trades sooner than the market has generated a confirmatory signal? Who hasn’t entered a trade too late, or hasn’t convinced themselves not to book losses only to end up with a bigger loss; or exited trades too soon; or found themselves in winning trades but didn’t take the profits on the table and let the trade turn to a loss; or moved stop losses closer only to get stopped out and have the trade move back once again in your direction?
These are a handful of the many blunders that traders perpetuate on themselves over and over. These are not market-generated errors, the markets are neutral in essence. The markets are incessantly in motion providing information and opportunity, that’s all. The markets do not have any power over the distinctive ways in which we perceive and interpret this information. Nor does it control our actions and decisions that we make based on the market information.
The best traders are not nervous. They have developed attitudes that give them maximal mental flexibility to participate in the opportunity flow of the markets, based on what the market is indicating, based on its structure.
Almost all the trading errors you make are likely to stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table a.k.a the four fears.
Fear narrows awareness. You are unable to sense other possibilities or act on them properly even if you did perceive them because fear is immobilizing. Physically, it freezes you. Mentally, it causes you to narrow your focus of attention to the source of your fear. This means that thoughts about your alternatives, as well as most of the information available from the market shall be blocked. You will no longer think of all of the rational things you have assimilated about the market until you are no longer terrified … the event is over. Once you are out of the trade, you often reflect on it. This is the part where the “should have, could have, would have” of the world come in, exacerbating your emotional pain.
It is amply difficult to perceive that the source of these problems is our inappropriate attitudes. A plethora of these thinking patterns that adversely affect our trading are a function of the natural ways in which we have been nurtured to think about the world. These thinking patterns are so deeply ingrained that it seldom occurs to us that the source of our difficulties is internal, derived from our state of mind. It seems much more customary to see the source of our problems as external, in the market, because it feels like the market is causing our pain.
Conceptualizing the relationship between beliefs, attitudes, and perceptions, are as fundamental to trading as learning to serve in tennis.
Of course, most traders believe that the most appropriate way to avoid losses and emotional pain is to learn more about the markets. This piece of logic is a trap and presents another paradox. The more you seek about the markets, the more you realize there are too many variables, often conflicting. In addition, there are virtually no limits to the market’s behavior.
This essentially means that no matter how much you learn about the market’s behavior, no matter how proficient an analyst you become, you will never anticipate every possible way the market can prove you wrong or cause you to lose money. If you are fearful of being wrong or losing money, you will never learn enough to compensate for the negative effects these fears will have on your ability to trade reasonably and without the slightest hesitation.
The hard crude fact of trading is that every trade has an uncertain outcome. Unless you learn to vehemently accept the possibility of an uncertain outcome, you will try consciously or subconsciously to avoid any possibility you define as painful.
Confidence and fear are contradictory states of mind that stem from our beliefs and attitudes. To be confident functioning in an environment of uncertainty requires absolute trust in oneself. To gain this trust you must discipline your mind to override your natural inclination to think in ways that are counterproductive to being a habitually successful trader.
You can try to evict risk by learning about as many market variables as possible, or you can learn how to redefine your trading activities in such a manner that you truly accept the risk and are no longer fearful. When you have truly accepted the risk, you will lack the potential to define and interpret market information in painful ways. When you have accomplished this, you will no longer have an inclination to rationalize, jump the gun, hesitate, or hope that the market will give you money, or save you from your ineptitude to cut your losses.
If you are still skeptical of the kinds of errors resulting from hesitating, rationalizing, justifying, hoping, you will not be able to trust yourself. If you can’t trust yourself to be objective and always act in your own best interests, achieving consistent results will be unattainable.
As you move towards your aim of being a consistent successful trader, be mindful that this is a future projection of yourself that you have to grow into. Growth signifies expansion, learning, and creating a new way of expressing yourself. Many of the ideas presented here shall be in direct conflict with ideas & beliefs you presently hold about trading. This is part of the challenge.
