Trading is not all fun and games. We do not make money on every trade. It is not like other careers or jobs where you work and then get paid. Our pursuit is more like the life of an entrepreneur. Our idea may work or it may not. The stock we just bought may take off or it may fall. We may be up $3,000 on Wednesday then down $2,000 by Friday, profits can be given back. After many years of hard work we may have enough capital to pay off our house or lose $50,000 of our hard earned money. We may become a millionaire in a runaway bull market or waste two years of hard work with nothing to show for it. The ultimate determinant of our success is perseverance, faith in our self and our process, a robust system, risk management, and a never ending passion for trading.
The main thing is getting through the pain in trading, of losing hard earned money, of giving back profits, of feeling like a failure. Once you can get through that you will be able to wrestle with the market and win. You will just be waiting for the right opportunities.
The more emotions we can get out of trading and the more it can be transformed into a business endeavor the better our odds are for success.
Here are 10 painful aspects of trading and what to do about them.
- The pain of losing money. (Trade smaller so it is not painful, each loss just one of many outcomes.)
- The pain of being wrong about a trade you were sure about. (You lost simply because the market was not conducive to your trade, trend followers lose money in choppy markets, swing traders lose money in trending markets, it’s the market not you.)
- The pain of a draw down in capital.(Even the world’s best money managers do not continually hit all time equity highs. Your path may look like this $10,000 to $20,000 back to $15,000 then cleanly up to $25,000 with minimum draw down then a trip back to $20,000 and up to $30,000. My trading was like this during the learning curb, I made enough to pay off my house during the internet bubble, then gave back half, then had a strong run to a nice six figures with minimal draw downs then had some slow years. It is a long process.
- Consecutive trading losses hurt. They make you doubt yourself, your method, and your system. (You need to remember your winning trades, your winning years, or your back-testing, or paper trading of the method.)
- The embarrassment of public losses. You told everyone who would listen about a great trade, and you were wrong. Keep your trades a private matter if you can not handle the consequences of others knowing. (Never be overconfident in any trade, but always be sure of your stop loss.)
- The pain of of admitting you were wrong. (Cut your loss and move on to the next trade, trade reality not your ego.)
- Losing paper profits, a massive whip saw takes back a big chunk of profits suddenly. (Take your trailing stop and move on to the next trade, there is truly no reason to cry over spilled milk.)
- You are following a guru and come to realize he truly is a salesman not a teacher or a trader. You become very disillusioned. (You stop following gurus and look to learn how to trade for yourself.)
- You buy a super hot stock that you have researched for many weeks then it goes down due to a bear market. (Learn how the dynamics of the overall market affects individual stocks).
- You start trading a system that did amazing in back-testing and promptly lose 10% of your account. (You have to stick with it so it can win in the long term, you may need to make slight adjustments in position sizing or stops to account for volatility that you may have missed.)
Whatever the pain, just don’t quit, there is gold to be found in trading the markets over the long term.