Slump Busting
There are two kinds of traders…those who have had a slump and those who will! Think about this…the most successful traders are the ones who have lost the most money. The majority of great traders have gone through long, flat periods at some point in their career. Winning and losing periods can seem to come in streaks. But just about all extended slumps have a psychological reason behind them.
Why is it that nobody thought it was possible to run a four-minute mile, yet when it was broken, within a few weeks seven other runners also broke this barrier? The human species did not change–a psychological barrier was broken.
How many traders are willing to admit that the battleground is not in the market, but within themselves? There are psychological barriers to successful trading, and traps that even very successful traders fall into from time to time. What distinguishes the one who can ultimately overcome failures? Are there psychological props theses traders have learned to use?
First, learn to put mistakes out of your head quickly. Let them go. There is nothing you can do when a mistake has been made except to correct it immediately and move on. There is nothing you can do to undo the damage. It is like cheating on a diet. Once you have eaten that chocolate cake, all you can do is get back to your diet.
When you make mistakes and take losses, clear your mind and get back to making trades. Do not fret about making up your loss, but stick to the business of trading. Above all, do not panic and abandon your discipline. Stress impairs judgement. Steady as she goes. Before long, you will make up your losses. Once you have pulled back to even, you are ready to make new account highs. That’s an empowering feeling!
Above all, you must have confidence in your method. To succeed, you must have the confidence that you are making the right trade, based on factors in which you have developed confidence. Even if the trade does not work out, having exercised the correct discipline makes the trade OK. No trader can expect perfect results. Even the best laid plans sometimes go awry. But if you stick to your methods, the odds are that you will succeed over time.
The key to long term trading success is having the confidence–the realistic expectation–that you are going to win. Confidence comes when you know your game and stick to it. With the right knowledge and experience, the market model in your head will become second nature and your trading method will become instinctive. Over time, you will become a high probability judgement machine. You will learn to trust your model, your methods and yourself. That trust, in your methods and in yourself, is always going to be your main weapon in pulling yourself out of a slump.
When Things go Wrong
- Acknowledge fear. This is the first step in dealing with it.
- Do not sink into an “investment mentality”. Always approach the market as a trader, ready to trade the market in either direction.
- Go back to basics. Do some research. Review your trading methods.
- Do your homework. Have a plan and follow your plan.
- Jumpstart some other part of your life such as an exercise program or hobby.
- Keep your mind focused on the positive side of trading. Do not dwell on damage done that can’t be undone.
- Involve yourself in your support network. Have a friend or family member in which you can confide. Develop other trader friendships.
- Remind yourself of the good trades you have made in the past.
- Evaluate yourself after a losing spell and see if you can identify the factors which got in the way. How do you get yourself into predicaments? Avoid situations that get you into trouble.
- Continue to trade small until you are back on track.
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