Trading is entirely counter-intuitive, and to be successful we need to be able to recognise our natural inclinations and actively work to rewire them, or at the very least recognise them so their impact is reduced. Then, over time and with plenty of practice they can eventually be conquered.
So what have our teachers, and education system done to us, to ensure that we fail at trading?
As odd as it sounds, they taught us to be right. Which is understandable because that is their job, after all.
They taught us that 1+1=2, and that 1+1 never equals three. If you get three for your answer you are wrong, and if you get 2 for your answer you are right.
We got rewarded by our teachers for being right, and the righter were, the ‘better’ we were, and the more successful we had the potential to become.
We’re used to ‘being right’ equalling success, and ‘being wrong’ equalling failure.
The market doesn’t play by these rules. You can be right 9 times out of ten in the market, and lose money, while on the other hand you can be wrong 9 times out of ten and still come out on top.
That’s why people who have a history of success often come to the market thinking it’ll be a piece of cake, and can’t understand it when things turn pear-shaped for them. They aren’t used to being wrong, and cannot handle being proven wrong time and time again because their identity is very much tied up in being consistently right.
Do you want to be right, or do you want to make money?
For new traders (and many not-so-new ones too) taking a loss feels like getting it wrong. You’ve lost money, you got the trade wrong and that feels like crap. There is nothing good about a loser, so you’ve clearly got it wrong and totally suck.
Our natural inclination from here is to try harder to be right. Next time when a trade goes against us, we decide not to hit out. We figure we’ll give it time to go back up, and prove us right. Except it doesn’t. It keeps proving us more and more wrong until we exit in disgust minus 40% of our account.
Or, it can manifest itself into a search for the perfect system that never loses. Traders waste so much time and energy searching for this Holy Grail system when they’d be better off working on their psychology, and learning how to accept being wrong.
Sadly, there is no perfect, no-lose system. It doesn’t exist. There are, however, plenty of systems that frequently lose that are enormously profitable over time.
The thing is, until we let go of our need to be right we won’t have the sticking power to persist through a patch of losses. If we can’t develop the acceptance of losses, we’ll continue to believe the system is flawed, useless, and crap when in reality it is our thinking that is flawed, useless (in a trading context) and crap.
If you’re trading to prove how clever you are, you’ll very likely have a difficult time making a go of it. So rather than looking at your short-term results as a gauge of success, you need to look at your process.
In trading, 1+1 can equal any number at all, the answer varies every time you do the sum. There are no known outcomes when we trade. What’s important is that we keep the sum the same, or in other words keep our method constant.
Rather than looking for our ‘rightness’ in the answer to the sum – or the result – we need to consider ourselves ‘right’ in our application. This means repeating a firm process time and time again. The results of each trade will vary, so we need to make sure that the method stays exact, tight and pure.
That’s how traders can satisfy their need to be right – by getting the process right. Forget looking at the outcomes of individual trades as mini reflectors of your success, and start giving yourself grades according to the execution of your plan.
And if that doesn’t work for you and you need the satisfaction of correct answers to make you feel smart, quit trading and go buy a book of Sudoku.
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