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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Not following his rules was making him more money for nowSkills You Dont Need THE WORST MISTAKE YOU CAN MAKE Ive lost count on how many traders Ive seen this happen to. To be honest, its probably happened to almost every trader out there at some time or another. Unfortunately, for many it could be the beginning of the end. As we all know, to be successful at trading we need to come up with a certain set of rules we will follow each and everyday. These rules are extremely important as they give our trading structure and help us to decide what to do and, just as importantly, what not to do. If you have good solid trading rules and you follow them consistently, then making profits and avoiding large losses should be an attainable goal. But, on the other hand, if you dont follow your rules, you will receive many more losses than you would otherwise. And, heres where the big mistake comes in. Ive seen it happen to many traders. If you dont follow your rules and the trade ends up being a winner, you will most likely breathe a sigh of relief when its over. But in reality, you shouldnt be relieved. You may have just made an error that will cause you to fail faster than any other trading mistake you couldve made. You see, if this trade (where you didnt follow your rules) works out, then you will be more likely not to follow your rules the next time. Again, this is the worst mistake you can make. This will cause more damage to your trading account than any other error you can make. And the worst thing is its so tempting not to follow your rules just this one time. But you must learn that there cant be a just this one time. You must follow your rules every time, without exception. Like I said before, Ive seen this happen to many traders. For example, I remember one trader who usually averaged about $500-$1,000 a day in the S&P Futures. He was going along fine just trying to make his goal each and everyday, but he got greedy and said there had to be a way he could make more profits. (Im not sure what was wrong with $500-$1,000 a day.) He decided his rules were too restricting and he was missing many opportunities. So he decided that since he was doing so well, he would relax his rules somewhat so he could get into more trades and hopefully make more profits. Well, he ignored his rules for a couple of days. Because of that, he ended up taking a lot more risk than he was used to. But he thought it was no big deal because he was now averaging about $2,000 a day for a week. Not following his rules was making him more money for now. But Im sure you realize what happened. Within the next month, he lost everything hed made for the last four months (almost $60,000), and was now down money for the year when he was on a pace to make about $200,000. This happened not because he didnt follow his rules. No, it happened because he didnt follow his rules and it worked out. So it gave him a false confidence that he didnt have to follow his rules. Im sure you will go through a time in your trading career (if you havent already) where you will be tempted to not follow your rules just this one time. I cant caution you enough how big of a mistake this can be, especially if it works out and you make a profit. Making money on this rule-breaking trade could very well be the most expensive profit you ever make. It then can easily reinforce you to not follow your rules the next time. It will always be tempting, but avoiding the temptation and resisting making the worst mistake you can make will be much more profitable. Following your rules consistently is the only way to be a successful trader. If you decide to not follow your rules just this one time, it wont be long before you are part of the 80-90% of traders who lose money. Dont let yourself become a statistic. Always follow your rules. Dont let there be a just this one time. REVENUE TRADING Revenge trading comes from one thing and one thing only, blaming the market for your loss. But lets think about this realistically. Who is to blame when you have a loss? Actually I think blame is the wrong word. The question should be who is responsible when you have a loss? Of course, the correct answer is you. The market didnt cause you to have a loss. So getting mad at the market and trying to seek revenge really doesnt make a whole lot of sense. And if you are responsible for your actions, then when you seek revenge for the loss you received, you are actually trying to get revenge against yourself. And that definitely doesnt make any sense. Why would you want to seek revenge against yourself? But that is exactly what you are doing when you get mad at the market and try to get your losses back in almost a vengeful way. If you are frustrated and angry, you are just going to make trading mistakes that will most likely even cost you more money. Many people are confused at why revenge even comes into play during trading. But its really very simple. Think about gambling, for example. You can only lose what you decide to bet. When you bet the money, its easy to take responsibility for your losses because most likely you had to actually physically place the bet on the table, and you can only lose what you decided to risk. But obviously, in trading, its much different. If you dont or cant get out of a losing trade, you can lose much more than what you originally planned to lose. Even with stop orders in the futures markets, there can be slippage involved that will cause you to lose more than what you planned. Then its easy to blame the market for those losses. The markets took your money. This is definitely where the revenge factor comes into play. Lets look an example: Lets say you lose 300 points in the last trade. Will 100 points profit be enough in the next trade? The market may be clearly telling an objective observer thats all there is in this trade (100 points). But to the person who just lost 300 points (especially if they intended to risk less than 300 points), many times 100 points wont be enough because youre not getting back everything you lost. You will need a lot closer to 300 points to feel right again. But lets think about this realistically. Does one trade really have anything to do with the other? The market doesnt know or care how much you made or lost in the previous trade. It has no bearing whatsoever on your next trade or your next fifty trades. That is one thing you always need to keep in mind at all times. One trade has nothing to do with the next trade. They are not related in any way. So attempting to get back in one trade what you lost in the last trade doesnt make any sense. You can only profit from what is available in the current trade. And again, it has nothing to do with the trade you were just in. When you feel compelled to get back what you just lost, you try and take on the market, almost as if to challenge it to a fight. That is certainly the wrong attitude. You want to flow with the market, not fight it. You cant fight it, because you cant win that way. You cant change what the market will do. You can only change yourself. Mark Douglas states it very clearly. The market cant take anything away from you that you dont allow; if you lost money or lost more than you intended to risk, you gave your money to other traders. Ultimately, however, revenge creates an adversary relationship with yourself. If youre the one who gives your money to the market, you are also the one who gives yourself money out of the market. If you are angry with yourself for letting the last trade get so out of hand, whatever the market is offering you now in terms of an opportunity, wont be enough. From a psychological perspective, you wont take the opportunity for a profit or otherwise because you havent accepted the last trade as being all right. In effect, you will be denying yourself the current or next opportunity to punish yourself for the past mistake. In reality, you cant get back at the market, and a belief in revenge only allows you to get back at yourself. I think its probably obvious to most people that trying to take revenge on the market is bad. But I hope you now realize that when you are trying to get revenge on the market, you are really only taking revenge on yourself. |
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