Friday, 27 April 2012

Cracking Trading

This time last year, I was experiencing my best period of trading up to that point. I'd just come out of my worst period (where I almost gave up following 2 shocking months) and had made a few changes to my money management which were immediately paying dividends. But as the profit started rolling in, I became horribly over-confident. Looking back over some of my posts from April 2011 makes me cringe. The stuff I was writing is an embarrassment now. I thought I'd genuinely cracked trading and that I didn't need to put in any more hard work. I even decided to stop blogging regularly because I felt there was no more I could add of interest - I was THAT cocky. It's this kind of mentality that I am positive ends the trading lives of many, many people.

We convince ourselves that we have a 'gift' and are now invincible. This is the worst mistake that any trader can make, to think that the hard work is over and it will all be plain sailing from now on. We end up becoming too complacent, which in turn causes us to stop learning or trying so hard, which makes us stop analysing our trades, which can lead to us not spotting when we make mistakes or when the system is not working anymore. As soon as you take the foot off the gas, your focus will not be as sharp and you may even find it hard to concentrate because you no longer feel challenged. Once boredom sets in, you are done for, in my opinion. Once you get the idea in your head that you've cracked it and don't need to do anything but repeat ad infinitum, it's surely only a matter of time before your mind wanders, mistakes creep in and you are back to square one. If you trade with the attitude that you always want to do better, to achieve more, to keep an eye on changes in the market, to find new ideas and to remain challenged and entertained, then you have  a much better chance of sustaining your performance levels.

Last summer, I found myself unable to get my focus for weeks. Every time I sat at the PC for a session, my mind would wander to anything but the match I was supposed to be trading. No matter how hard I tried to force myself to concentrate, I couldn't manage it for long. I now realise that there were two reasons for this - burn-out and over-confidence. I eventually fixed the burn-out by having a few days off but I was too late with the over-confidence and I started to lose all the money I'd won during Spring without even realising. I took my eye off the ball so much that I stopped taking notes, stopped analysing my P&L in depth and stopped working on improving my trading completely. When I eventually got back to analysing my trades, I found that over a 3 month spell, I'd lost over £3000 purely because I'd let trades run, without using my stop-loss point. A pretty simple thing to prevent, especially considering how good a trader I thought I was, yet I hadn't realised how often I'd been doing it because I'd become so lazy. I assumed I was doing well because the greens were rolling in and I was in profit but had no idea just how much I could've been making, if only I'd been as sharp and motivated as I had been when I was doing badly.

I am now in the exact same position, a year later. The difference being that this time, I know not to make the same mistake twice. I am taking more notes than ever before and they are more detailed than I used to do, almost like a diary in fact. So I have a record of exactly when I start to feel even slightly over-confident (and it does still happen!) and so can nip it in the bud much quicker. One of the keys to trading is to find stable confidence - a middle ground between over-confidence and under-confidence. This is something I wrote about last year:

Under & Over-Confidence

It also features heavily in the brilliant 'The Mental Game of Poker', which I posted about recently. It's a tough balancing act but I'm just starting to get the hang of it. One thing is for sure though - I'll never think that I've cracked trading ever again!

OFF-COURT BEAUTY World Number 130, Yaroslava Shvedova of Kazakhstan:

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