A Simple, 3-Step Approach To Turning A Streak Of Bad Trades Around

• October 4, 2004
• Robin Dayne

The A-P-E to M-A-N Metamorphosis

 

Background:
Over the past 12 years I’ve had the opportunity and privilege to meet and coach
all sorts of traders in all markets and situations.  With 85%-90% of the trading
population being male, some very clear and distinct patterns emerged hence the
concept A-P-E to M-A-N Metamorphous was born. While females experience some of
the same problems this article is primarily geared to men. Men are just
different.

 

Men are
socially conditioned to succeed from the time they enter the world and can
understand the nighttime reading of “the little train that could”.  Parenting
guides them towards, the respected professions of doctors and attorneys, which
demand perfection. In the years of schooling, athletic goals are set to
reinforce being the best, and number one becomes the mantra for many. Their
environment reinforces the condition with constant phrase for achieving, being
right, not accepting loss and having the primary desire to win.

 

When trading is chosen as a career many
are unaware that they will be faced with the conflicts from their environmental
upbringing.  Beliefs, behaviors, experiences and hidden sub-conscious triggers
that are programmed into the body’s “auto-pilot” mode now surface unexpectedly
making a direct attack on the “ego”.  Some traders, work through this with time,
many don’t survive, and just add to the dropout statistics. Non- mastery of
emotions is the major reason so many fail in the business.  This article
explains the WHY that is and presents some of the possible solutions. 

 

A-P-E stands for the traders’ challenges
and the M-A-N are the solutions.  If you are an experienced trader I know you
will relate and have an appreciation for the concept and if you are new to
trading take heed!

 

Acceptance
of Loss.
Most new traders are ill prepared when experiencing the emotional hit the
ego takes when the first trading losses occur. There are few professions that
come with the inherent unavoidable challenge and possibility of losing, each
day. There is not one trader that has succeeded, lasted in the business and is
profitable that doesn’t have a “war story” of losses.  In fact, many will tell
you of enormously large losses.  Should they be able to overcome this hurdle and
stick it out, they have a great chance at prosperity .….… and the loss becomes
the right of passage, to wealth. No other profession demands the constant day to
day management of losses.  Many who fall pray to the emotional impact of losses,
experience blows to the ego, low self esteem, insecurity and even fear.

 

Patterns
of Behavior.
We all have built within us, an automatic sub-conscience
addiction to patterns. Patterns are all around us. In all forms of nature, right
down to cellular structure, and in all markets we trade.

 

Our bodies
have a passion for patterns and install them whether we want them or not. 
Patterns provide us with some wonderful benefits like security, certainty,
stability and the bottom line is they make us feel good.  The problem is our
internal unconscious desire for patterns, has a small “glitch”…..it can’t
distinguish between a good pattern and a bad one it just likes the pattern.

 

Think of
your favorite restaurant and the last time you went. You were handed the menu,
you even asked for the specials, but you ordered the same thing you did on your
last visit!  Patterns! Think of the way you drive home, your favorite shirt,
pants, shoes, drink, all patterns.

 

Well,
patterns are great for our normal lives, but they stink for trading. When we
trade over and over and we begin to lose over and over our bodies “lock in” to
the pattern and it says: “Whoopee I feel good here comes a pattern, I can do
this again.”  It just doesn’t care you have lost money or even that you have
lost 3-4 times in a row. It just LOVES the pattern and hooks onto it.

 

I can’t
tell you how many times a trader will call and say “I can’t take a winning
trade, the last 4 I have lost, doing the same thing.” I reply: “Do you know
specifically what you did wrong?”  They say: “Sure” and my standard reply is
“Than stop doing that.” They say, with all the intelligence they have “I
can’t.”  WHY? Because their body craves the pattern, even if intellectually they
know it’s wrong. This is the premise detectives go on when catching criminals,
they work to identify their patterns, and because they know eventually the
criminal will repeat the same things time and time again.        

 

Emotions,
men don’t have them.
Let me be the first women to go on record, and testify,
that men DO have emotions and if there is any profession that will reveal this
completely it’s trading.  Trading of any kind will bring out the emotions in the
best of traders until they become the masters.  And why would they have
emotions?  They have been so very conditioned to succeed that having to be wrong
and take a losing trade shatters the ego, confidence, certainty and more.

 

Now that you know these three challenges
facing the trader lets go through some solutions.

 

Manage
and learn to accept loses.
The reality is, traders lose. It
is part of the game. The way to manage this is developing very specific rules
around how much you are willing to lose and establishing good money management
habits and disciplines. This is where the ancient and infamous trader phrase
comes from: “Minimize the loses and maximize the profits.”

 

You can
also take an NLP (Neuro-linguistic) approach and re-frame (change)
your thinking or definition of loss.  Write down all the things that you can
think of, related to: “Why losing is a good thing.”  Then, re-read this each
day. This will send some new messages to the brain and losing will not have the
same emotional impact.

 

Set some clear rules and approaches for
recovery when your trading goes off within the day. Set parameters for the
amount you are willing to lose within the day, or week. STOP trading when you
are off and re-group with a new strategy. Set your lose number to one that you
can easily let go of…..and not lose sleep over or bring to tomorrows
trading.

 

Awareness
of good and bad patterns.
Since we now know patterns will
be there if we want them or not, it’s important to identify those that are not
working for us. 

 

There is a
simple (3) step approach to turning a streak of bad trades around.

 

First, know
yourself well enough to say: “OOPS, I’m in a bad trading pattern. I have to stop
so I don’t repeat it for the 4^th time.” Do the three strikes your out
technique.  If you repeat a losing trade three times in a row, make it a BIG
RULE to stop, and change the approach BEFORE you place the next trade.

 

Second, ask
the question: “What is the pattern I’m in?” What other approaches can I take on
the next trade to be profitable?” Come up with a few approaches.

 

Third,
reduce your size and try them out till you find the one that works and gets you
back on track.

 

No
emotions. 
The key is to learn to trade unemotionally and really become the
master.  As soon as you go into ANY emotion you will run the risk of cloudy
judgement.  One way to center your thinking and move from emotion to
intelligence is to ask a question. A good question is “What’s REALLY happening? 
while you’re in the trade.  If you are in a long position, your technicals are
going in the dumpster the Dow and S&P are crashing, and oil has just run up to
$100 a barrel you are most likely in the wrong direction.  Change your approach.
Great traders don’t get hung up on their original trader turned……they are
focused on NOT giving back profits to minimize the loss if need be and be
flexible enough to grab the next opportunity.  Remember; trade from your
intelligence not the emotions.

 

Should you
need additional assistance get help, don’t think some of these emotional
triggers will go away on their own…many need a bit of help.  My goal is to pass
on those techniques.  To all, great trading!

Robin Dayne   

www.robindayne.com