Trading To Win

One of the biggest challenges that I face within my own trading now versus in years past is that I have a great deal more to lose. It has taken me some time and quite a lot of hard work to accumulate the assets and raw firepower that I have at my disposal and I don't want to lose that advantage. Admittedly, it has become quite easy for me to let my cash sit, accrue interest on the sidelines, while I cherry pick opportunities I see from time to time.

Yet, as any experienced trader will tell you, fear of failure can be a trader's worst enemy and something we all deal with at different levels. Experience and skill in this game doesn't eliminate this issue. Doug Hirschhorn recently wrote an excellent article at TraderDaily that certainly makes this point quite clear:

"Not long ago, I went to the Seminole Hard Rock Casino in Florida to watch Michael Moorer, two-time heavyweight champion, possessor of a devastating left hook and a former client of mine, launch a comeback. His opponent: a monster journeyman named Cliff Couser. Moorer, nearly 40, looked out of shape and vulnerable; Couser looked like a taller version of Mike Tyson in his prime.

Sitting ringside, I struck up a conversation with the guy behind me, who, as it turned out, was Couser's manager. Though our chat was brief, it became clear to me that Couser’s camp was more concerned about surviving the fight — simply not losing — rather than winning it. Mental advantage, Moorer. And I doubt he even knew it.

One minute and twenty-six seconds into the first round, Couser was lying flat on the mat. I couldn't help but wonder: Did he lose because he lacked talent? Or was it because he was more afraid of losing than he was focused on winning?

When athletes are consumed by not losing rather than by winning, the game is over, often before it has even started. The same precept applies to trading. As crazy as it sounds, most traders aren't making the money they could be — and the reason, I'd argue, is the fear of losing it. Traders are far too worried about giving money back. This paralyzing phobia can transform talented, elite professionals into disappointing underperformers.

How many times have you been up in a trade and started to think about the money? Your head tells you to bank it quickly and then play it safe. After all, you made your mark for the day, or even the week, so your job is complete. That's not the mark of a trader; that's the mark of an accountant.

Trading is an occupation based on fleeting moments of opportunity. They're here one second, gone the next and entirely out of anyone's control. The best traders love this, and even crave it. When the action is on, they're prepared and trained to strike hard, as they have no idea when the next great trade will appear.

It's akin to fishing: You can be out on the water all day and not get a bite, but when you hit a school of tuna, you better have your rods ready and baited to maximize the opportunity. All that matters, ultimately, is how many pounds of fish you caught, not how long it took to reel them in.

"Sean" is a client of mine, a trader who generally does the right thing on the job. He sets goals, takes losses and makes only high-quality trades — but he fails to get big when he really needs to. After years of sitting idly and watching less-talented traders make vastly more money than he did, he finally concluded that he wanted more — not because of greed but because he knew he was capable of taking his game up a notch.

After working with Sean to isolate both the issue (his fear of losing money) and his core motivation for seeking a change, I was able to implement a structured behavior-modification program for him. The key was forcing him to step outside his comfort zones. We developed guidelines that would require him to increase his position size. We also agreed, should he fail to follow the rules, to impose severe consequences. The purpose was to make him more leery of fecklessly staying in his comfort zone than of giving money back.

It took a few months, but Sean was able to achieve a 250% profitability increase. The goal of our work together was not to change his personality or eliminate his fear. After all, we are who we are, and Sean is Sean. He will always be conservative, seeking comfort and favoring stability. But now he trades to win rather than not to lose."