Trading is not all fun and games. Traders do not make money on every trade, most don’t even make money on half their trades. It is not like other careers, jobs, or hobbies where you work and then get paid automatically for your time regardless of performance. A trader’s pursuit is more like the life of an entrepreneur. Our trade entry or idea may work or it may not. The equity, option, or futures contract we just bought may go up in value or it may fall lower. 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 five years of hard work with nothing to show for it. A trader’s path is dependent on the market’s price action that we have no control over. We control the amount of pain we experience in our trading through our position sizing and discipline for following our quantified trading system.
Here are 10 painful aspects of trading and what to do about them.
- The pain of losing money. (Trade smaller so it is much less painful, and just one outcome of the next 100.)
- The pain of being wrong about a trade you were sure about. (You lost simply because the market wasn’t conducive to your particular trade, trend followers lose money in choppy markets, swing traders lose money in trending markets, the market picks the particular winning trade 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 to $15,000 to $25,000 to $20,000 to $30,000 and then the climb into six figures and beyond).
- 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 proof of back-testing, or paper trading of your method’s profitably.)
- The embarrassment of public losses. You told everyone who would listen about a great trade entry, and you were wrong. (Never be overconfident in any trade, but always be sure of your stop loss. Always be uncertain in your trade winning or losing, just follow your plan).
- The pain of admitting you were wrong. (Cut your loss and move on to the next trade, trade reality not your ego).
- Losing paper profits, you are up $1,000 on a trade then a massive whip saw takes back those profits in one move. (Take your trailing stop and move on to the next trade, there is truly no reason to cry over spilt milk).
- You are following a guru and come to realize he can’t predict the future or make you easy money, you are going to have to build your own system and write your own plan. (You stop following gurus and look to learn how to trade all by yourself).
- You take a position that meets all your entry guidelines and then it hits your stop loss. (Follow your plan, exit the trade, and say “next”).
- You start trading a system that did amazing in back-testing and promptly lose 10% of your account in a draw down. (You have to double check to see if you made any mistakes in your research, if the method is valid then 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 are great potential rewards to be found in trading a quantified and profitable system over the long term.