ability of foresight, therefore losses are an unavoidable part of
trading. When we enter a trade we will either be right, or wrong, and
even if we broke-even we'd still be classed as being wrong - as nobody
enters into a trade just to break-even! When unsuccessful traders
encounter a string of losses they begin to engage in self-destructive
patterns that help them escape the pain they are experiencing.
In
this article we bring to light these self-destructive actions that can
help you realize what you are doing before it takes hold of your
physical health. If you find yourself already engaged in these patterns
hopefully this article can help you to get you back on track as quickly
as possible.
The Destructive Patterns
If you find yourself
caught in a string of losses or a bad performing week/month be sure to
monitor your behavior. It is during this time that you will be at your
most vulnerable. You will begin to indulge in activities that at first
seem harmless, but upon excessive use (or in time), begin to cause
physical damage to your health.
Ask yourself the following question: during during drawdown periods do I
find myself over-indulging in these activities:
> Food (especially junk food - eg. chocolate, ice-cream, chips)?
> Sex (includes viewing pornography)?
> Alcohol?
> Drugs (includes excessive smoking)?
> Laziness (find it difficult to wake up in the morning)?
> Entertainment?
All of the above taken in excessive doses can be detrimental to your own
physical health (some even in small doses!).
These
activities above during your losing period are only covering up the
pain of confronting the true issue, and your body tries to rid the
emotional pain by trying to "fix" it with physical pleasures.
Unfortunately it is going about it in the wrong way, so what should you
do?
Firstly... REALIZE WHAT YOU ARE DOING AND STOP IT!
You
need to realize what you're doing and you need to STOP doing it
immediately! You can either decide to stop, or you'll be forced to stop
when your body eventually
breaks down and prevents you from any form of movement. It will be much
more beneficial to you in the long-term if you can decide to stop *NOW*.
Once
you have stopped you now need to figure out a way to solve the pain -
not by cutting out or neglecting it, but by staring it in the face.
Bring your problems out into the light, be honest with yourself. There
can be no growth without pain, you are experiencing the emotional pain,
now it is time to find the error and therefore your growth.
Begin Your Review
The
review process begins in two separate areas: You & Your System.
Here are some checklists for you to go through to find out where the
problem could lie:
"YOUR SYSTEM" CHECKLIST
> Was your
system thoroughly tested prior to trading it (or paper traded if you do
not have the capacity to programme your system into backtesting
software)?
> Did you test with out-of-sample data?
> Do you even have a system???? If you do not, how do you even know if the
> method that you are trading is even profitable??
> Is your system's code correct?
> Did you over-optimize your system? (what have we discussed about
> over-indulging?)
> Did you paper trade your system prior to placing capital on it?
> Did you trade with a small amount of capital prior to placing the rest
> of your funds on it?
> Do you know the system's limitations?
> Did you properly drill your system? (see our blog article on why I am
> the system designer from hell)
"YOU" CHECKLIST
> Is the current drawdown you are exhibiting with your system normal?
> Are you comfortable with your system's historical drawdown performance?
> Are you fully aware of the risks involved with your system and the
> instrument(s) you are trading?
> Are you trading with funds that you are comfortable risking?
> Are you relying too heavily on your performance?
> Have you set realistic goals?
As
you can see there are generally two areas that you need to explore: the
mechanical aspect - your system - and the emotional aspect - you. Both
can be responsible for making the way you feel the way you do. It will
either be an error on the system's side with how the system was tested
and/or programmed, or it can be your own psychological profile not
being comfortable with the system's performance.
Your Answers = Change = Your Growth
What
steps should we now take? Now that we have begun a corrective process
where we have stopped the evil nature of our over-indulging ways to
take control we should continue our "corrective nature" by invoking our
findings and taking ACTION in correcting our errors.
If the
problem was mechanical - fix it, if the problem was emotional either go
about setting up new thought patterns, or change your current system.
The answers lie in whether you need to expand your knowledge in system
development, or whether you need to grow emotionally as a person.
Unfortunately
there is no easy road, and even if there was everybody would be doing
it. Hopefully this article has made you ponder over some of your
behaviors during drawdown periods, be sure to keep an eye on yourself
and as always take care of your body, because there's no use in making
all the money in the world when you don't have the physical capacity to
enjoy it.
Ryan Sheehy is the author of http://www.currencysecrets.com
where you will find more free articles and resources on forex trading.
You can also subscribe for free to their monthly newsletter.
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