I received an email today from a frustrated trader who after a year of dedicated study and practice he hasn’t made a consistent profit and has pondered quitting. His email struck me on a personal level as he questioned himself by saying “…sometimes I really wonder why I am so stupid.”
I felt for this trader because I’ve been in his shoes. I know how it feels to doubt your trading ability and I suspect many of you reading my blog do as well.
I’ve met people who are extremely smart and confident in business or their corporate world but when it comes to trading they just can’t seem to thrive.
What is it about trading that deflates otherwise confident people to seriously consider whether or not they are stupid?
Trading exposes emotions you’ll probably never deal with at a day job where your salary arrives every two weeks and performance reviews are predicable affairs. You’ll need to learn how to deal with those emotions or at least check them at the door if you’re going to survive long term.
Trading is Unforgiving
Trading is not like other businesses. You can’t buy inventory, develop a product and advertise your way to a predictable sales rate. If you show up to work every day the market doesn’t care and you won’t be rewarded for daily effort just because you’re there trying to trade. In fact there are many days you probably ought not to do anything at all which for a “driver” personality type could be very hard to cope with and lead to “over trading”.
In a day job it probably won’t matter if you spend the entire day talking at the water cooler. The earth won’t explode, the company doesn’t go bankrupt and you’re paid as usual. On a team if one person is failing the others can circle the wagons and help that person succeed (or at least cover the work).
I don’t think some people are prepared to deal with the reality that success in trading is 100% dependant on their actions. If you mess up you lose, period. It is very black and white with no negotiation and since mistakes result in a financial loss I think it breeds a fear of losses for some new traders. Consistent losses can be the root of their self doubt.
Trading is also a lonely business which many in your family probably don’t even understand. They probably told you it is too risky or to stick with what you know. A lack of support can breed self doubt while you struggle to learn and take losses through the neophyte phase.
Losses Today Don’t Predict Your Success as a Trader Tomorrow
When I started trading, losses frustrated me more than any other aspect of the business. I’d get very angry when I lost money, even demo money which is totally irrational but it happened. My day would be shot while I investigated how I could have optimized my system, made a better entry or managed my stop better because in my head I connected proficiency as a trader with how many good trades I made, which of course is total bunk. In fact when I went back and analyzed my trading log, I realized I had averaged 100 points a month during the time I felt like a total failure as a trader.
The truth is taking losses is part of trading and doesn’t make you a bad trader. In fact, managing risk appropriately is the mark of a great trader.
I think it boils down to personality types. Some people thrive in a chaotic environment and can toss losses aside as no big deal. I’m an analytical guy who prefers logic and predictable results. When I create a trading plan I expect it to work. Consciously I knew every trade wouldn’t work out but subconsciously I think I expected my work to be rewarded every time or else I must have done something wrong. I think this is where self doubt can creep in for a lot of new traders.
If you’re the type of person that seeks accuracy and order in their work learning to trade may be tough for you since the reality of trading live money is unpredictable and emotional (at least for me).
Over the years I’ve built up a sufficient callus to losses and you will also it just takes time. I still get mad when I get stopped out but it isn’t because I think I’m a terrible trader, I just hate giving my money to somebody else.
I realize you can’t sustain a living if your loosing pips every month, eventually you’ll have to make some better trades but that will come with practice, testing and time. Taking losses while you learn does not mean your not going to make it, even if your a year into it.
Bob Parsons, CEO and founder of GoDaddy.com has a great blog which includes “Bob’s 16 Rules” My favorite is this one:
When you’re ready to quit, you’re closer than you think.
There’s an old Chinese saying that I just love, and I believe it is so true. It goes like this: “The temptation to quit will be greatest just before you are about to succeed.”
-Bob Parsons
http://bp.bobparsons.com/gdshop/bp/gear.asp?ci=8283
If you think you’re stupid, if you feel like you’ll never be a successful trader and you’re ready to quit I want you to take next week off and then post Bob’s 3rd rule near your computer.
When you return to trading I want you to try the following:
- If you’re trading live money, stop and trade a demo.
- Trade only one trading system; learn it inside and out until you can trade in your sleep.
- Trade only one pair, that’s right, just one.
- Trade only one time frame, whatever time frame works best for you. I like the Daily chart.
- Start keeping a trading journal.
- Share your trading journal with someone you trust monthly. Explain your trades to them and expect feedback. If you don’t have anyone, send it to me and I’ll work with you.
- Set a monthly pip goal, say 100 pips. Don’t limit yourself but if you get 350 pips on a trade your done for the month.
- Commit to doing this, and only this, for six months.
At the end of six months let me know how it went, I suspect you’ll be a lot more confident in your ability to produce a consistent profit.
Have a great weekend!
Ryan
Last week I talked about the big AUD/USD channel I’m watching for range trades over on my FX Street blog. Tonight the pair is hanging out near the bottom of this channel but I’m not convinced a turn to the long side is in the works yet. I’d like to see a convincing test of this lower trend line before considering a long. Frankly I think this pair could probe lower before a turn comes.
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