The mental part of trading is as important as the systems and indicators you utilize. Today, we’ll touch on some insights from an excellent book for traders, Â Larry Williams’ Â Long-Term Secrets to Short-Term Trading.
Insight #1: “Why do most traders lose most of the time? Markets can spin on a dime and most traders cannot.”
Even the best traders (or the best trading systems) are going to be frequently wrong. That doesn’t negate the trader or the system – that’s just part of trading. The challenge for traders is accepting that the trade signal was errant. In a case such as this, Williams’ correctly points out that we’ve been trained to ‘hang in there’ and ‘have faith in our initial insight’, even if it’s clearly the wrong course of action. That’s just our ego needing to be right so badly that it will often ignore the exit signals that warn the trader of the impending problem. Â
His analogy may help you work through this issue. He compares trading to robbing a bank. A bank robber may successfully break into a bank and start scooping up the money, but when the lookout guy warns the man in the safe that the cops are on the way, the robber drops the money and runs. If the robber were like too many traders, he might stay in the bank and hope the warning about cops being on the way was a false warning. As Williams says, “The instant you learn to trade reality, not wishes, you will break through the wall of fire to become a successful trader.”
Insight #2: It’s not the trade, it’s the battle.
Too many traders believe that their last trade is a reflection of just how good of a trader they are (but they are the only ones who feel that way about themselves). This boils down to one word – expectation. If you expect to win all the time, or even the vast majority of the time, you’re setting yourself up for a lot of heartache. That frustration, though, is the very same force that will truly make your negative perception of yourself a reality. And even a good trade can be damaging if you let it warp your disciplined approach.
