You Don't Need To Be Perfect To Win

If you're driven to succeed, in all likelihood, you are an overachiever. And as an overachiever, you strive for perfection. The need for perfection can go too far, however. I'm all for striving for success, but the need for perfection seems to hinder many traders. Some traders spend most of the day neurotically searching for the ultimate setups or the ideal market conditions. Other traders compulsively look at redundant indicators as if seeing the same signal over and over provides new information and solace. Still other traders feel they need to hit upon a winning streak to feel in tune with the markets, and if they don't, they feel as if they are missing the mark, and that they might as well just give up on the trading profession altogether. Ironically, the traders who seek out perfection may never get anywhere in the long run. Had they just lowered their standards and executed trades that weren't so "perfect," or had only a moderate probability of success, they would have ended up more profitable.

Life would be wonderful if we were on a continual winning streak. Perhaps you traded during the bull market of the late 1990s and rode a steady wave of success, or you've had a hot streak that seemed like it would never end. It felt great, didn't it? When you have a Midas touch as a trader, striving for perfection can seem like a realistic objective. But most of the time, striving for perfection just leads to feelings of disappointment. You don't live up to your standards and you feel frustrated. Trying to live up to such high standards often sets you up for failure. It's better to strive for more modest goals.

You don't have to win all the time. Indeed, from a purely statistical vantage point, an extremely profitable trader can be more wrong than right as long as proper risk management is used. But many traders have difficulty taking losses in stride. From a purely psychological viewpoint, it's hard to accept losses. First, people imbue losses with personal significance. As youngsters, many people were taught that losing money was wrong, and so even in the trading realm, where losses are commonplace, many traders feel guilty when they lose, as if they broke a parental rule. Although natural and understandable, these feelings of guilt get in the way of thinking freely. If you beat yourself up for making a losing trade, it is vital that you forgive yourself. In the trading world, you need to lose money to make money, so don't feel bad about it.

A second issue many traders face is "all or none" thinking. They believe that unless they are on a winning streak, they are failing. It's nice to be on a winning streak, but just because you are not on one does not mean that you are doing poorly. Imperfection should be expected. Every successful person faces setbacks, and in the trading world, a winning trader faces many more setbacks than successes. Setbacks are not a problem, but fear of setbacks is a barrier for most traders. If you are afraid to make trade after trade because you believe that you must experience win after win to be successful, you'll avoid making trades. And if you avoid making trades, the law of averages will never work in your favor. You'll end up in the red. It may be difficult, but you have to take some risks. You have to put on trades to make profits in the markets. Sometimes you'll win, and many times you will lose, but your overall profit is all that matters.

Trading is a tough business. Few make it, and this fact can be daunting. If you give in to pessimism, however, you'll never make profits. Don't imbue losses with personal significance. Don't think that you must be absolutely perfect. Every trade will not be a win. You'll be wrong and you will lose. Losing isn't your fault, but letting it get to you is. If you take losses in stride, and radically accept and appreciate any profits the markets give you, you will end up profitable in the end. And that's the whole point, right?

All In Perspective

As a novice trader, Jack has just put on his tenth trade. He's still new to trading, but he is optimistic that he will be successful. He wants to succeed. He thinks, "I want to prove that I'm a good trader. I hope I do well on this trade. The outcome is critical to the rest of my trading career."

Jack's thoughts and feelings are understandable. Whenever we start a major endeavor - starting college, a new job, or whatever - we want to succeed. And it's nice to have early success. The first few moments of a major life turning point seem especially significant. When we aren't successful immediately, the initial letdown often haunts us for a long time, interrupting our train of thought, and shaking our self-confidence. Despite the reasonable hope of an early triumph, however, it's vital to keep the proper perspective when approaching trading: one must always think of the big picture, the long run.

Any single trade is of little importance. Experienced traders know this fact, and live by it as if it were doctrine. Even though they may focus all their energy on the current trade, they know it is of little real significance in the long run. It is wise to put each trade in proper perspective. It is essential that you consider, at least in the back of your mind, that a single trade is just one among a series of trades, and that the bottom line is the overall outcome across the series, not any single outcome.

There are psychological advantages to taking this perspective. When you downplay the outcome of any single trade, it is less critical to your ego. When viewed as just one in a long line of trades, it's easier to tell yourself, "It doesn't matter. There will be many more trades and opportunities to come." If there isn't much riding on the outcome of a trade, it will free up precious psychological energy. You won't waste your limited psychological resources needlessly worrying about the outcome. You will feel free and creative, ready for whatever happens next. All your attention will be focused on trading your plan, objectively analyzing how market moves fit into your plan, and taking decisive action for a clean exit.

Putting a trade in proper perspective is not only psychological, however; it also involves proper risk management. To survive the learning curve, or a severe drawdown, you must limit your risk on any single trade. By limiting your stake to a small percentage of your trading capital, the trade will have minimal financial significance. In reality, it will be of little consequence compared to your overall account balance. Merely believing that a trade is insignificant doesn't work very well unless in reality it is not significant. For example, it's hard to fool yourself into thinking that a trade is insignificant if you have a month's salary on the line on a single trade, and you can't afford to lose it. The stress will be unbearable. It's important for your psychological and financial security that you limit the risk on any single trade. Again, think in terms of the big picture. You don't need to make money on a single trade; the overall results across a series of trades are all that really matter.

When starting a new endeavor, it's natural to want to do well on every single attempt. All of one's hopes and dreams may be placed on a few key trades, for example. But trading is much too difficult to think you can quickly make a few trades and be set for life, with all your aspirations met. The successful trader is in the game for the long haul. The trading lore is replete with stories of traders who made huge profits only to lose it all later. You may see some big trades in your career, which will provide numerous war stories that you can use to entertain your friends for hours, but when going into a trade, it's vital to keep the trade in proper perspective. It's still just one trade of the many you will make in your career

This article is a full reprint from www.Innerworth.com that no longer is operational. I can be contacted at brian@educatedwealthsolutions.com and my website is www.EducatedWealthSolutions.com

Trading with Discipline

Disciplined trading is vital for lasting success. Profitable trading requires a combination of skill and odds. The winning trader implements proven trading strategies over and over, so that across a series of trades, the law of averages works in his or her favor. Unless you make trades, you have no chance of winning. It's just like in sports. Unless you step up to the plate, you cannot hit a home run. The more times you try, the more likely you will succeed.

An important part of discipline is consistency. When a trader uses one approach one time, and a different approach at another time, performance is haphazard. It is essential to use a strategy consistently, following a specific trading plan on each and every single trade, so that across the series of trades, you will make an overall profit. If you follow the plan sometimes and abandon it at other times, you throw off the probabilities, but many traders can't seem to stick with their plan.

What precipitates a lapse in discipline? Many times, traders forget the consequences of not following a plan. They may suddenly see an opportunity to make a quick profit and decide to abandon risk limits. In another scenario, a trader may question his or her plan, and out of fear, abandon it. How can you make sure you stick with your trading plan? Many times, we forget why we need to follow a well-defined trading plan. A simple way to remember is to pull out an index card with the reasons and read it over and over again. You might write, "If I abandon my plan, I will lose in the long run." You may also list a few trades where you abandoned your plan and you regretted it. The images of the trade, along with the feelings of regret, will encourage you to stick with your plan.

By putting the consequences of abandoning your plan right in front of you so that it is clearly in your awareness, you will be more likely to stick with your plan. There are other reasons that trading plans are abandoned. One of the main reasons trading plans are abandoned is that they are not specified clearly enough. By specifying every aspect of a trading plan from how much you will risk to when you will enter and exit, you will have an easier time following your plan. Another reason plans are abandoned concerns fear. When your money is on the line, it's natural to feel afraid. As much as you try to forget, it's hard not to worry about losing money.

There are times when you may feel so panicked by the chaotic moves of the markets that you can't think clearly. You may feel agitated and on edge. A detailed trading plan, however, can help you stay calm during the storm of market action. The more clearly the plan is laid out, the easier it is to follow, especially when you are agitated and upset. And when the plan is easy to follow, it's likely that you'll stick with it. You'll be disciplined and in control of your emotions and thinking. The difference between winning traders and unprofitable ones is the ability to muster unwavering self-control in response to chaotic, ever-changing markets.

Trading is serious business. It's not a hobby, but many traders approach the endeavor as if it were recreational gambling. They don't develop a trading plan, and if they do, they tend to abandon it prematurely. Winning traders, however, are methodical. They carefully develop a trading plan, execute it, and stick with their plan. If you want to trade profitably, develop well-defined trading plans and follow them.

This article is a direct reprint from www.Innerworth.com and will also be found at www.EducatedWealthSolutions.com. I can be contacted at brian@educatedwealthsolutions.com

Finding the Right Mindset

Jack woke up later than usual this morning. He didn't sleep very well, worrying all night about two big losing trades he made yesterday and kicking himself for trading too impulsively. Today, he is worried about how he will make back the money he has lost. He really doesn't want to trade today, and wishes he could just take the day off. Maybe he should stand aside until his outlook improves. In order to trade profitably, it is vital to trade with the proper mindset.


Ideally, all traders want to trade in the zone. While in the zone, trading is effortless. Setups are easy to spot. And when a trader sees them, he or she is confident that a profitable trade can be executed with relative ease. But you can't be in the proper mindset all the time. What do you do when you're feeling off the mark? Some seasoned traders gauge their mindset at the start of the trading day and if it isn't quite right, they stand aside, take the day off, and wait until they return to a peak performance mindset.

If you rarely have a day when your mindset isn't up to par, taking a day off occasionally can't hurt. But if you are chronically in the wrong state of mind, you'll see very few profits if you constantly take the day off. You may want to try to improve your mindset. There are a few goods ways of getting back your mental edge.

First, set modest goals. If you are in a poor mindset, it's dangerous to start making big trades. You might want to start out slow and small. Try making a few practice trades and don't expect too much. Once you start the ball rolling, you may suddenly find the grove and start feeling better. People usually feel in a rut when they are trying to achieve goals that seem impossible at the time. By lowering your standards, you will increase your odds of success, and when you encounter some initial success, you'll start to feel better.

Second, review a past winning trade. It will remind you of your potential. When you're in a rut, you tend to think, "I can't trade. I can't imagine making a profitable trade today." The mind can play tricks on you when you are in a bad mood. Suddenly, you forget all the profitable trades you've made and erroneously think that you can't trade profitably in the future. If you carefully run through a winning trade that you've made in the past, though, you'll start remembering how talented you could be. It will distract you from the negative thoughts that incessantly run through your mind. You'll stop thinking about how down you feel and you'll start to pick yourself up.

Third, tell yourself empowering thoughts. By themselves, empowering thoughts may not work very well to get psyched up. For example, if you really don't have a sound trading strategy or if market conditions are terrible, an optimistic outlook won't do much to set an enduring peak performance mindset in motion. You'll feel optimistic for a few minutes, but a few losing trades will merely get you disappointed again. However, if you start off slow, come up with a realistic trading plan that is consistent with current market conditions, and execute it with realistic expectations of success, you'll feel a sense of accomplishment even if you don't reach your goals. You'll think, "That's pretty good considering I didn't expect much from this trade." Once you start building a little momentum, a few optimistic beliefs can put you on a roll. You will start thinking, "I'll take each setback in stride. I'll see how far I can go. If I gradually expand my vision, I'll make more and more profits, and end up profitable in the end." It may seem a little naïve to think that positive thinking can do wonders, but if you have reliable trading skills and are merely in a bad mood, positive thinking can set you on the right track and get you moving forward again. So when you're in a rut or a bad mood, don't let it keep you down. By taking specific psychological steps, you can move from self-doubt and stagnation to confidence and profitability.

This article is a full reprint from www.Innerworth.com that no longer is operational. I can be contacted at brian@educatedwealthsolutions.com and my website is www.EducatedWealthSolutions.com

The Trader's Fable

Did your parents read you fables as a child? Fables are often fanciful and improbable tales that have a lesson to teach. Here's a thought provoking trading fable.

Once upon a time, there was a novice trader named Bert who tried to aggressively trade a $30,000 account in order to make big returns each week. In one of his biggest trades, he meticulously followed the stock price of a company called Secure, Inc. He diligently studied the price movement in an attempt to discern its unique price cycle. For the past six months, the stock traded at around $30 with a 52-week low of $29.50. Bert noticed that new product announcements usually produced a $1 bump. He purchased 1,000 shares at $30 in an attempt to take advantage of a product announcement at the end of the week. He figured that he could quickly cash out for a nice $1,000 profit. "What is the most I could lose?" he thought. Assuming that the price were to fall to $29.50, the most Bert could lose in theory was $500. Unfortunately, disaster struck. He thought he had accounted for everything, but he had a run of bad luck. He thought he had put in a protective stop, but due to a software glitch, he wasn't actually protected. Next, the CEO of the Secure, Inc. was indicted for embezzlement, and the product announcement was postponed due to a shortage of essential raw materials. In addition, an interest rate hike deterred many investors. Unexpectedly, the price fell hard to $25. Bert lost $5,000.

So what's the moral of the story? First, it's hard to predict every possible adverse event. As much as we want to anticipate and account for everything that can go wrong, we can't. What may seem like a good idea when we execute a trade may seem like a bad idea in hindsight. But the wise trader doesn't get overly upset when this happens. He or she tries to control as much as he or she can, but at the same time, he or she accepts the things that cannot be controlled. Second, it's useful to be skeptical. You can't become overly obsessed with every possible adverse event, no matter how unlikely, but you must be ready for the worst. You should be psychologically prepared for big setbacks and be ready to take them in stride should they occur. Disasters do happen, but they are only truly awful if you interpret them as such. If you go into trading expecting unpleasant things to happen occasionally, you'll be able to snap back quickly and be ready to take advantage of the next market opportunity. Bert has two options. He could either beat himself up for not accounting for every possible adverse event, or he could chalk up the losing trade to experience and immediately figure out how he can make up the loss. In this case, the ideal tack for Bert to take is to stay calm, and to actively figure out ways to make new, more profitable trades. Third, he might want to be a little more realistic in his goals. Considering the size of his account, he may have been taking a little too much risk for a novice trader.

Chaos and uncertainty are commonplace in trading. No matter how much we want to account for every possibility, we can't. Winning traders accept what happens and actively and enthusiastically forge ahead.

This article is a full reprint from www.Innerworth.com that no longer is operational. I can be contacted at brian@educatedwealthsolutions.com and my website is www.EducatedWealthSolutions.com