How accepting responsibility and taking the ‘blame’ for your trading losses can lead to enlightenment…
UK winter will be officially recognised as the clocks ‘move forward’ by an hour at the end of October. This cultural relic ensures that it’ll go darker in the UK an hour earlier; instead of the UK skies darkening at approx. 5:30 p.m. they’ll darken at approx. 4:30 p.m. The original idea behind the concept was to assist children in the morning getting to school safely, mornings wouldn’t be as dark. However, using various stats it’s a bit tricky to determine if there are more accidents in the morning relating to better vision in the morning, or if folk are more tired in the evening leading to a greater percentage of accidents?
One thing for certain is that the UK will probably experience a cold snap in winter which could involve snow. We could also experience high winds before the trees have naturally shed their leaves. Both phenomena could lead to the UK rail network cancelling trains with the announcements that the “wrong leaves are on the tracks” and that the “wrong type of snow and ice are on the rail-tracks” thereby delaying the smooth running of the network. If you’re reading this article from perhaps Canada you must be shaking your head at the incompetence; a rail network blaming its failure to run on time due to snow, ice and the “wrong leaves on the track” and UK temperatures only dip down to ‘extremes’ of -3/4, not the -20 experienced in some parts of Canada? Yes, sadly that’s the situation.
To blame the failure of the trains to run on time due to poor planning has become a peculiar British trait. For it to happen year after year, without individuals accepting responsibility and taking some positive action, defies belief. You’d expect those in positions of authority to look towards replacing the tracks, the locomotives, or the wheels, to study weather patterns, in short you’d expect them to get ahead of the curve of the problem and take some remedial action to head off the possibility of the issues arising again, year after year. But taking responsibility, identifying a problem and admitting you’re wrong and making changes can be as difficult in commerce as it can be with trading the markets…
Accepting that you can be wrong, accepting blame and identifying your mistakes
Very few of us like to admit that we’re wrong, we’re just not ‘hard-wired’ to accepting responsibility without it feeling like a personal insult. Even fewer of us will accept that we’re wrong and then immediately set about discovering if there are ways we can put right our wrongs. These traits are common in trading and can lead to a victim mentality, potentially damaging our potential to thrive in the market place. So let’s highlight some typical ‘blame’ scenarios and look towards simple methods to recognise the symptoms, alleviate the hurt and therefore ward of the potential for that pain to continually re-occur.
A typical scenario; you enter the FX day trade taken off your five minute chart according to your perfect set up. This is a new set up that you’ve watched work on your charts for a week or so and it looks as if it works nine times out of ten. All four indicators you’ve decided as your cast iron reason to enter come into perfect alignment. The trade goes you way for 10 pips, it begins to edge down, then up to 15 pips, you feel good, then suddenly bam! The trade begins to fail and before you know it you’re twenty pips underwater. You blame the broker, the market, the cat, the security, the USA Fed. That victim mentality of yours rears its ugly head, your quiet rage seethes as you watch the trade fail and you eventually close out for 30 pips loss. You’re now left confused and unsure over whether or not to take the next perfect set up when it occurs, “it’s failed once so what’s the chance it’ll fail again? Think I’ll pass and look for a new strategy that has a higher win rate..”
In this brief description we’ve identified many of the actions and emotions new traders will encounter, many experienced traders will also recognise this situation from their past. Let’s take a look at the scenario with suggestions as to how to remedy many of the issues highlighted and how accepting responsibility, and blaming no one but yourself for your losses, can lead to a form of trader satisfaction and enlightenment.
Can you blame yourself if the trade simply didn’t go your way but you’ve followed your plan?
Firstly you can remove any thoughts of ‘blame’ by setting out your absolute risk per trade at the outset, not just at the outset of each trading day, but outlined in your business plan as a constant through the trading period you’ve identified as a reasonable length of time to gauge your new trading method. You’re never wrong or right in trading, you receive the gains or losses the market serves up. Through probability you’ll find yourself on the right or wrong side of the trade, but as an individual you’re not wrong or right.
New traders should (at all costs) avoid complicated ‘scaling in’ types of trading strategies. The method outlined, a ‘fire and forget’ strategy looking for a 1:1 reward rate, is ideal for day trading. Your set up occurs, your chart alerts you by way of an alarm, you take the trade, having already outlined as part of your trading plan that you’ll risk 20 pips to gain 20 pips.
However, in the scenario outlined above traders can cut losses even further by using a trailing stop. For example, if you were aiming for a twenty pip profit by way of a take profit limit order, and the trade advances by 15 pips, then quickly reverses, you could limit your loss to perhaps 5 pips by way of using a 20 pip dynamic trailing stop that would trail price once your order was executed and the trade moved into profit. Whilst witnessing a winning trade turn into a losing one is a nuisance, if that potential winning trade’s loss is cut down to an absolute minimum, you’ll experience a sense of satisfaction. Your pip loss will be tiny in relation to your overall trading plan and the full risk you’ve identified as acceptable in your plan.
Experienced and successful retail traders find it difficult to pinpoint the exact time and moment where a light went on and they stopped blaming others for their losses and began to accept full responsibility for their actions and the results. The victim mentality can remain strong if not addressed. Adhering to a trading plan will inevitably reduce the blame reflex, as will taking an objective viewpoint of the market mechanics; the market and the broker is not out to get traders individual trades, the market is what it is, an emotionless construct that does not intentionally hurt traders.
Once traders move past blame, to accepting responsibility, they will have conquered another critical barrier to their success. This self imposed barrier can be removed immediately, if traders simply take a step back and consider all aspects their trading in an emotionally detached manner.