While seeking the presidency of the U.S. in 1991, H. Ross Perot said you can’t solve a problem until you agree on what it is. Oftentimes to reach such an agreement means we must have humility and sincerity to spare. As traders, what do large losses indicate? These are symptoms of one or more problems that we must solve in order to reach, not the White House, rather trading excellence.
When facing catastrophic loss, recovery can ensue by doing two things. The first is we must isolate the problem. Secondly, we must have expert guidance while first applying the solution. Let’s begin by learning how to isolate our problem then look at three sources of expert guidance.
Isolating the problem begins with reviewing our downfall trade(s). Why did we enter? How did we manage our position? Why did we exit where we did? Do the answers highlight that we did not follow our trade strategy, that it is seriously flawed or that we lack one (hint: a hunch is no strategy)? By taking notes one step at a time, a remarkably clear picture will emerge. To be certain the picture is trustworthy answer forthrightly with honesty. What if after completing the exercise we do not like the picture? Remember, humbly working with what is is the most direct route to progress. A concise understanding of the problem equals a clear path.
An invaluable aid while on such a path is expert guidance. Recently, a struggling trader told me “I just need to be around someone successful at trading”. While that seems assuring, more is needed to recover. Once we and the facts agree on our problem, what is most beneficial is expert guidance as to the application of the solution(s). How is this obtained? Three principal means are books, interactive online screen-sharing with a qualified mentor and face-to-face instruction. What is paramount is that these directly dispense the solution(s) to our problem specifically.
As is the case in most professions, to be competent and then excel at day-trading, there are numerous tools and accompanying skill-sets that we need to master. Beware of the “magic bullet” salespeople teeming in every available medium. While there are relatively few concepts that work to keep you on the right side of the trade, there are too many variables to allow for the famous “set it and forget it” mentality.
It takes strength to persevere after experiencing the pain of a catastrophic loss. That you are demonstrating this strength is good since success in trading regularly calls on our ability to cope with losses and requires we adapt our strategy to market conditions. So, avoid the trap of ignoring the symptoms. Gather the facts by completing the exercise above. Then with an open-mind agree on the problem. Lastly, apply the solution with guidance from an expert. Oh, one other thing we can learn from Mr. Perot is, don’t stop just to start again, since it will likely impede your progress.
© Copyright 2008 by Trading Concepts, Inc.
