The Brutality of Trading

Trading can be brutal to your self-confidence and your self-image. Self-monitoring and self-examination are the keys to success.

To monitor myself, I developed a tool called the Life Index (which you can read about in my book Trading Is a Business.) One of the greatest struggles beginning traders face is carefully keeping track of their progress. Aspiring traders have not yet developed the skills to trade profitably in a variety of market conditions.

As might be expected, it is hard to develop a real sense of self-confidence when you aren’t sure just how well you can actually trade. It’s natural to wonder if you are doing well simply because of a particular set of market conditions, or whether you are truly building up some legitimate trading skills.

The bottom line is that you have to sharpen your trading skills to the point that you have complete confidence, and really know that you can trade well under a variety of market conditions.

The key to building up the needed skills comes from monitoring your performance. In the final analysis, you must face the cold, hard facts regarding your ability to trade. You must objectively evaluate how well you are trading and make mid-course corrections if you are going to trade profitably.

Although this applies to many, I have in mind a particular kind of individual, an aspiring trader who thinks he can reduce trading to a specific formula so that by doing everything according to the rules, he will be guaranteed success.

It can be emotionally difficult to check how well we are doing. We are usually afraid that if we look at our performance too closely, we’ll discover that we are inadequate. Often we tend to think that matters are worse than they really are. Paradoxically, we may spend more time and energy trying to ignore how poorly we are doing than in looking at our actual performance to take active, decisive steps to change matters.

The Life Index is now available on our website in an easy-to-use form we call LIFT (Life Index for Traders). Because it is also very important to track your account equity in a graphic format, LIFT includes software that enables you to track your equity in chart format.

It is also useful to keep a trade diary, or trading log. Record the market conditions for the trade, your trading strategy, your mood, the rationale for the trade, and its outcome. Also record what you learned from the trade.

Looking at your performance can be brutal. It is useful to set up a time and place to study your performance objectively. Make sure you are rested and relaxed and free of stress. If you look at your performance when you are emotionally volatile or tired, you’ll tend to get easily upset and have difficulty studying your performance records objectively. Pick a quiet place to review your records, a place where you feel safe and secure. Also, set up some time after you study your performance to recover emotionally. You may need some time to regain your emotional composure should your performance record upset you.

Make sure that you have some time to digest the feedback and accept it. For example, you don’t want to trade if you are emotionally upset about your performance. If you try to trade while you are still a little upset, you may take low probability setups or make trading errors. There may be an unconscious need to recoup losses even though you don’t have a plan for doing so. It’s better to regain a sense of confidence, and develop a well-devised long-term plan for improving your performance.

There’s no need to avoid facing the cold, hard facts regarding your trading performance. As with any challenge, trading requires that you objectively look at your performance and make necessary adjustments. It can be difficult at times, but the more you can objectively analyze your trading performance, the more profitably you will trade.