Using Your Experience Optimally
In this post I want to discuss how to optimally use your Trading Experiences.
The key thing to remember is that everything that you have experienced can be used in some way for your benefit and movement forward to your goals.
One of the most dangerous things people indulge in is using hindsight biases.
This is where the individual looks at what has happened in the past and how they reacted to it and then burn into their mindset that they "should've done this or that" or "it was so obvious" that they should have done the opposite of what they did.
This is NOT productive thinking.
This typically pushes you into the mindset of beating yourself up.
Hey, it's easy to look at a chart after the fact...
or after something has happened...
and say that it should've been prevented or you should've acted different, etc.
The past is the past and you are not changing it.
This sort of thinking lends itself to 'wishful thinking' and a lot of time and energy is wasted in wallowing in personal embarrassment and regret and overall self-flagellation.
The only way to get better is to learn from your mistakes.
If you don't learn from your mistakes, then you are most likely going to repeat them and preventing this is of utmost importance in the world of Trading and Investing.
The key thing to realize is that for you to learn from your mistakes, you need to look at the past from the standpoint of not knowing what would happen (because that is the truth) and how, in that moment of not knowing, you can make adjustments and take actions to help you make better decisions in similar future situations.
When you are analyzing your past utilizing the benefit of knowing 'what really did happen' and how you should've 'known better', then you will be hurting yourself more than helping yourself.
Many of us are much harder on ourselves than we would be on other people in our situation.
So when you look at your mistakes and errors, do it with a LOVING pair of glasses on - not the HATE AND CONDEMNATION so many use.
There are many reasons why we do this; one of the main ones being a general unwillingness for most people to accept a defeat or mistake or error as OK.
In trading, what you will be doing to improve is analyzing all of your past trades.
What did you do right? What did you do wrong? What do you need to change? Here's an example I've used in the past - imagine now you are a trader named "Jack" and we have pulled out our charts from the last week's trading and let's put on our HATE AND CONDEMNATION shades..
..
..
"Jack, you idiot, why do keep making the same trading mistakes? This stock was obviously a long idea and you tried to short it.
You keep this crap up and you won't be doing this long! On the 5 min chart it sure did look like a short but if you saw the 15 you would've known it was a long! Stupid! And look, you got short right at the absolute low! What is wrong with you! It's so obvious that this was going up!! You are such a loser!!" Now - take a deep breath, and let's put on our LOVING shades..
..
"Jack, you did not have a profitable week.
Let's look at this one short trade you took.
Wow, I can see what you were thinking here, as the 5 min chart did look great as a short.
But the 15 wasn't in alignment with it.
Wait, but the 60 and Daily looked lower and the market was weak and internals were neutral/red...
I can see why you took the trade.
On the bright side, you executed your stop exactly to plan.
I think you may have share sized a little large because I don't think you've been honest with yourself in regards to what you are comfortable with losing.
It shows because right after this loss you went on a 'revenge' mission and doubled down on your losses taking a complete gamble.
That's OK.
So learn from this and: 1) Make sure that all trades taken have the 5, 15, 60, and daily charts in alignment, or don't take the trade and 2) Reduce share size so that your max loss per trade is now just 2/3 of what it was, so that you are more comfortable if you get stopped out, which you realize is a part of trading.
" See the difference? The first ASSESSMENT was negative - and also - and this is HUGE and the main reason I'm writing this because I've seen it in so many students I've worked with - when you see the whole chart after the entire move it's easy to see that it was 'obvious' that the stock was going that way.
This is one of the BIGGEST reasons why it can take some traders so long to "GET" it or why they fail miserably at this craft! Anybody can go back and look at the entire day's chart and say something like "Well it's obvious this stock was going higher, I mean it's competitor posted weak numbers and the oil report at 10:30 was bullish for their shipping department and you can see on the 15 minute chart this was a clear uptrend..
..
blah blah blah..
..
..
" Don't get sucked into assumed reasons - because they are all assumed.
No one knows for sure WHY something went up (or down) - the only sure thing is that there were more buyers (sellers) of shares than sellers (buyers) of shares for that time period.
You need to make sure you LEARN from your trades and mistakes.
Realize that GOOD TRADES to your SYSTEM will FAIL at times! But you need to be wise enough to know what is a GOOD trade to your SYSTEM and what is NOT.
KEY POINT - Just because a trade failed does NOT mean it was a POOR trade.
Do not make the grave mistake of tying the quality of the trade to it's outcome for THAT PARTICULAR INSTANCE.
And ultimately the ONLY way you will learn from your trades is by honest and objective assessments without succumbing to Hindsight Bias and being overly hard on yourself.
The key thing to remember is that everything that you have experienced can be used in some way for your benefit and movement forward to your goals.
One of the most dangerous things people indulge in is using hindsight biases.
This is where the individual looks at what has happened in the past and how they reacted to it and then burn into their mindset that they "should've done this or that" or "it was so obvious" that they should have done the opposite of what they did.
This is NOT productive thinking.
This typically pushes you into the mindset of beating yourself up.
Hey, it's easy to look at a chart after the fact...
or after something has happened...
and say that it should've been prevented or you should've acted different, etc.
The past is the past and you are not changing it.
This sort of thinking lends itself to 'wishful thinking' and a lot of time and energy is wasted in wallowing in personal embarrassment and regret and overall self-flagellation.
The only way to get better is to learn from your mistakes.
If you don't learn from your mistakes, then you are most likely going to repeat them and preventing this is of utmost importance in the world of Trading and Investing.
The key thing to realize is that for you to learn from your mistakes, you need to look at the past from the standpoint of not knowing what would happen (because that is the truth) and how, in that moment of not knowing, you can make adjustments and take actions to help you make better decisions in similar future situations.
When you are analyzing your past utilizing the benefit of knowing 'what really did happen' and how you should've 'known better', then you will be hurting yourself more than helping yourself.
Many of us are much harder on ourselves than we would be on other people in our situation.
So when you look at your mistakes and errors, do it with a LOVING pair of glasses on - not the HATE AND CONDEMNATION so many use.
There are many reasons why we do this; one of the main ones being a general unwillingness for most people to accept a defeat or mistake or error as OK.
In trading, what you will be doing to improve is analyzing all of your past trades.
What did you do right? What did you do wrong? What do you need to change? Here's an example I've used in the past - imagine now you are a trader named "Jack" and we have pulled out our charts from the last week's trading and let's put on our HATE AND CONDEMNATION shades..
..
..
"Jack, you idiot, why do keep making the same trading mistakes? This stock was obviously a long idea and you tried to short it.
You keep this crap up and you won't be doing this long! On the 5 min chart it sure did look like a short but if you saw the 15 you would've known it was a long! Stupid! And look, you got short right at the absolute low! What is wrong with you! It's so obvious that this was going up!! You are such a loser!!" Now - take a deep breath, and let's put on our LOVING shades..
..
"Jack, you did not have a profitable week.
Let's look at this one short trade you took.
Wow, I can see what you were thinking here, as the 5 min chart did look great as a short.
But the 15 wasn't in alignment with it.
Wait, but the 60 and Daily looked lower and the market was weak and internals were neutral/red...
I can see why you took the trade.
On the bright side, you executed your stop exactly to plan.
I think you may have share sized a little large because I don't think you've been honest with yourself in regards to what you are comfortable with losing.
It shows because right after this loss you went on a 'revenge' mission and doubled down on your losses taking a complete gamble.
That's OK.
So learn from this and: 1) Make sure that all trades taken have the 5, 15, 60, and daily charts in alignment, or don't take the trade and 2) Reduce share size so that your max loss per trade is now just 2/3 of what it was, so that you are more comfortable if you get stopped out, which you realize is a part of trading.
" See the difference? The first ASSESSMENT was negative - and also - and this is HUGE and the main reason I'm writing this because I've seen it in so many students I've worked with - when you see the whole chart after the entire move it's easy to see that it was 'obvious' that the stock was going that way.
This is one of the BIGGEST reasons why it can take some traders so long to "GET" it or why they fail miserably at this craft! Anybody can go back and look at the entire day's chart and say something like "Well it's obvious this stock was going higher, I mean it's competitor posted weak numbers and the oil report at 10:30 was bullish for their shipping department and you can see on the 15 minute chart this was a clear uptrend..
..
blah blah blah..
..
..
" Don't get sucked into assumed reasons - because they are all assumed.
No one knows for sure WHY something went up (or down) - the only sure thing is that there were more buyers (sellers) of shares than sellers (buyers) of shares for that time period.
You need to make sure you LEARN from your trades and mistakes.
Realize that GOOD TRADES to your SYSTEM will FAIL at times! But you need to be wise enough to know what is a GOOD trade to your SYSTEM and what is NOT.
KEY POINT - Just because a trade failed does NOT mean it was a POOR trade.
Do not make the grave mistake of tying the quality of the trade to it's outcome for THAT PARTICULAR INSTANCE.
And ultimately the ONLY way you will learn from your trades is by honest and objective assessments without succumbing to Hindsight Bias and being overly hard on yourself.
Source...