The list of enemies is probably the most important thing for all new traders. In other posts I’ve referred to ‘the enemies’ within. The fact of the matter is that the obstacles and failures in trading are due to the hidden enemies. These are enemies in the mind. Sometimes they’re not ‘so hidden’. Traders may be aware of them but unable to do anything about them.
I don’t propose to give instructions on how to deal with them. Why? Because I don’t know you and your enemies or how bad each of them may be. All I can do here is to describe them, and encourage you to find ways of dealing with them – if you want to become a profitable trader.
This is enemy number one on my list because if you don’t have time or can’t create time to devote to learning, you’re out of it. This is not something to ‘try’ and see if it makes you a few quid. You’ll lose money – even demo money on demo accounts – and that’s expected.
Long period? Yes! If you come to this thinking, “I can learn faster than most people.. I can do this in record time” – then I’m afraid arrogance is also your enemy. It’s a losers game. I will repeat that ad nauseum. Why? Because even seasoned well trained traders can expect to lose about 60% of the time – what do you expect for novices? ‘Much higher’ should be your answer. Repeatedly losing at anything is demotivating and the bigger your losses the worse the damage. Your motivation will be assaulted when you’re learning and you’ll be often left psychologically black and blue. How motivating is that? Like not! If you’re the sort of person who is easily demotivated, then you should not waste your time trying to trade.You will just prove that it ‘doesn’t work for you’ – those famous well worn words. Nothing is here to work for you.
This may be seen as similar to motivation and determination but it is a bit different. This is about setting a programme of activities for yourself to learn how it works – not just having a go and being motivated to keep on, hoping you’ll ‘get it’.
Determination is of course linked to motivation and dedication etc. However, determination is about setting goals and not wavering when the going gets tough. It is about pushing yourself, well beyond the current limits of your mind. The mind is the ultimate battleground in all this – not the markets or the charts.
Withstanding failure is about not being injured psychologically so badly that you cannot pick up yourself, dust yourself off and get on with it. If you’re injured by failure too much then your motivation and determination will plummet. Commitment will also fail. All this is about emotional self-management. I can’t teach people how to do that. Well, my fee would be well out of the range of most people, and then I’m so brutal it wouldn’t be an enjoyable experience! I’m a bad teacher. I use the cane a lot – similar to the markets! LOL.
I see skill as the rapid sequencing of thoughts and ideas, focusing them in a coherent pattern so as to achieve advantageous outcomes. Skill depends on knowledge and experience. But it also depends on deep insights and understanding, pulling together concepts and applying them in a structured way. The people who just wanna have a go, are fooling themselves. See: Self-deception below.
People often think that learning what their mistakes were means that they’ll not repeat them. Actually people tend to repeat their mistakes many times. They may know what a mistake was and what led to it. However, putting in place a strategy for avoiding the same mistake/s is not easy. Mistakes are often the result of bad habits of thinking and acting. Even cognitive mistakes – those in the mind – are often the result of deeply etched patterns of operation. These are patterns of errors that minds tend to make. At times you may say to yourself, “I knew this was going to go wrong.. so why did I do it again?”. So learning from mistakes is about developing routines for re-mapping or ‘re-wiring’ the brain/or mind and erasing certain patterns of thinking or behaviour that don’t work. That’s not easy to do for a sizeable majority of people.
This includes ideas that it’s all done by ‘intuition’, hope or luck. To me intuition suggests some sort of mystical insight that comes naturally from experience – and it can’t just be pinned down, I expect to be told. To novices in any field, intuition is the under-appreciation of well organised skill, structured thinking and knowledge. I wouldn’t be putting my faith in a neurosurgeon who intuitively knows where to cut or what to cut – if I was to need brain surgery. Would you? Sure you would, if you’re a diehard believer in intuition – and that’s fine for you but not for me. Come with intuition into the live markets and they’ll bite out a good chunk of your ass (arse) for a painful reality check.
The average human being has a capacity for self-deception – and I don’t propose to go into the psychological research foundations of that fact. In general people tell themselves stories that do not match reality. The boundary between subjective reality and what’s outside of their heads tends to become blurred. Ideas become mixed with facts, or ideas become facts. Delusion then sets in, rather imperceptibly.
Some traders go, “I hope it goes right for me – that trade”. The markets are there to kill hope – and they do so very quickly and mercilessly. If hope would win the day, then everybody would do this and be millionaires. If you’re hoping before, during and after a trade, you’re doing it wrong – and deceiving yourself that hope has some slight influence – or that because you hope, you may get lucky. Luck is not in this equation.
This is the enemy that makes traders over-step their risk management strategies, by saying, “But if I bet that much more, I’ll kill the markets and make big dosh!” All such people are simply being driven to take on risk beyond their reasonable capacity. And then hope joins forces with greed and you’re a goner. Greed and hope also lead to traders staying in on badly losing trades, thereby increasing losses. That 60% of losing trades (which could be more for novices) then becomes huge and significantly more than their aggregate of profits on their 40% (or so of winning trades).
Both greed and hope also work against traders in winning positions. They may hold on too long. Holding on too long in a winning or losing position, is a bad idea. Right?
There are people on demo accounts, crippled by fear or anxiety. Why? It’s demo money – what’s there to lose? Nothing but time. But investment of time has to be taken against the benefits of that investment. Why do people spend loads of time and money going to universities to get degrees?
It’s fear alone that prevents people from experimentation and learning. Fear of confirming you’re a failure? Fear of losing? Fear of anxiety itself? On taking up a demo account you dare to lose. If you don’t lose you can’t see or learn what went wrong, or even what you did right. You can’t then re-examine your thoughts, feelings and actions. You can’t learn from that. You can’t modify much to make it better. Does losing demo money mean you’d do that with your own money? It doesn’t mean that – at all. What is worse than not learning on demos, is having a go on a live trading account and throwing away your first £500. Fear will then kick you in the chest big time. You’ll probably never go near this again!
Deal with the enemies. Kill them off as quickly as possible. This is also high priority for all new traders. It’s even a priority for seasoned traders as ‘half-dead’ enemies have a habit of reviving themselves.