Perfectionism, the Art of Losing
Sol Palha & Dr Janice Dorn
I don't like these cold, precise, perfect people who, in order not to speak wrong,
never speak at all, and in order not to do wrong, never do anything.
Henry Ward Beecher 1813-1887, American Preacher, Orator, Writer
According to the low of paradoxes one never gets what one desperately chases or needs; one only gets it by seeking it. Desperation blinds the mind from being able to function optimally and therefore failure is all but guaranteed. Everyone enters the markets thinking they are going to win yet only 10% or so win in the long run; despite knowing these statistics there is never a shortage of new entrants.
Trying to win 100% of the time is another sure fire way to make sure that you lose almost all the time. Perfectionists usually have some deep rooted psychological fear which probably has to deal with some form of rejection earlier on in their lives. They try to compensate for this lacking (usually this is not real but just a false perception) by going overboard and trying to be perfect in every thing they do.
It is a given fact that long term traders by far win more often then short term traders; the reason is simple they are relaxed they have more time to analyse their moves, have patience and generally are much more disciplined then their counter part short term traders.
We are going to list 6 of our 13 investment rules below
Tactical Investor Investment Approach
- Divide your money into 10-15 lots, even if you have just joined. When you add additional funds to your account, divide the new money by 10 or 15 or create a brand new lot. In other words if you currently have 10 lots (lets assume each lot is 500 dollars) and you add an additional 500 dollars to your portfolio; divide the 500 by 10-15 and spread the money equally into each lot or create a brand new lot.
- Each holding should have the same amount of money assigned to it. Never invest more in any one recommendation; this way if anything should go wrong you won't be blown out of the water. Most investors tend to lose not because of bad choices but because of lack of portfolio management skills. The fastest way to lose is to spread your money unevenly over your investments.
- Never dedicate more than 10% of your entire portfolio to options investing. Of this 10% never invest more than 2-3% per position. If you are options professional you could dedicate up to 20% of your portfolio to options (but do not invest more than 2-3% of this 20% per option play)
- Remember that no one can win all the time. The market operates in cycles. Some quarters it is very easy to make money and some quarters are just a struggle just to stay alive. Do not fight these cycles; the market always goes through these phases. What you have to do is recognize them and act more conservatively during these very volatile and nerve racking times.
- Have a goal, 20%, 30% etc; when your entire portfolio has hit your mark, consider taking a break or better yet risk only some of your profits. Just because you are paying for a service or services does not mean you need to try to squeeze the maximum out of it. If you hit your targets earlier consider it as surprise bonus and take time to enjoy the other simple things in life.
- Try not to let your emotions influence the way you trade. There is no room for emotions when it comes to investing. Emotional traders almost always end up getting buried before their time.
Some more random thoughts on becoming a better investor
The Investor looks for a trend and buys early in the trend; he/she then rides the trend till it ends. You can get more information on this topic by clicking here. Let's deal with the topic of Trading vs. investing. Stock market traders look for short term rapid gains, they prefer to extract the maximum profit they can from a stock, option, future etc. At least that's the concept behind trading, unfortunately most traders end up losing more than they win, and even when they do win, they usually end up making less than the long term investor.
A few traders do extremely well, these chaps fall into the 2%-5% category of overall players. Their gains are huge, but for the rest of the players loss is all they can hope to look forward too. The investor on the other hand, looks for a new trend and usually tries to get in right at the beginning of the trend. If he/she is more aggressive they try to get in when that particular market is putting in a bottom and has been trending sideways for sometime, indicating that the worst is behind.
Another error that is often made is to confuse long term investing with the rather falsely promoted policy of buy and hold. Long term investing is getting in early and selling when the trend is over. A classic example was the Internet mania of the 1990's. The time to buy was in 1995 and 1996 and the time to sell was late 1999 and early 2000, when many of the Internet stocks started violating their main up trend lines. Those that bought the buy and hold lie, found them selves even poorer then when they took initial positions in these stocks.
To be clever enough to get all the money, one must be stupid enough to want it.
Gilbert K. Chesterton 1874-1936, British Author
By Dr Janice One of the great evils of trading is false exactness...Trading is a fuzzy process and I mean fuzzy in the best sense of the word. That is, as in fuzzy logic, as in the willingness to accept the idea that things aren't exactly quantifiable and to forge ahead anyway....John Bollinger ( creator of the Bollinger Bands)
Trading is not about perfection. It is about probability and progress. All charts, analyses (fundamental and technical) and trading plans are built on probabilities.
Why then, do so many traders strive for perfection? Why do so many traders miss trades, waiting for exactly the right entry and then beat up on themselves when it doesn't come and the position runs away while they sit there scratching their heads and condemning themselves?
Why are so many traders trying to turn a game of probability into one of 100% certainty?
The answer lies in one of the cardinal sins of trading which is PERFECTIONISM.
Perfectionism can be a great help to people in many professions, but can be fatal to a trader. Perfectionists, always trying to find the Holy Grail of trading go from one service to another, from one system to another, looking for a way that they can be right all the time. YES! Now, I found it. It's this trading room, or this service, or this indicator! Wait... something is wrong here. Not all of these trades are working and I have draw downs! How can it be that this particular method failed and I actually had to take a loss? Must be something wrong. I will try harder and look for an even better system, a more expensive service, a new and improved guru, some absolutely no-fail software so that I can have ONLY WINNING TRADES.
This is perfectionism in action. Not only does this type of irrational behavior and belief undermine and demoralize a trader, but it takes away all the enjoyment and fun of being in the markets. It leads to depression with depletion of psychic and physical energy, and leaves the perfectionist to confront his basic and overriding fear--- fear of failure. In the extreme, it leads to physical and mental illness, including addiction to prescription drugs, alcohol, or illegal substances as well as other addictions. The pain of failure or the haunting fear of failure is simply overwhelming, and one turns to whatever works to medicate the pain.
I want to share something of my personal history with you, as I believe that many of you can identify with and learn from some part of this story (and if you do, please let me hear from you?)
My parents were seriously ill from the time that I was born. I truly believed that if I was absolutely perfect, scored the highest in school, did the best at music and dancing and elocution and debating that I could make them better. So I did that. I had no life outside of study and learning. I was the perfect little daughter and even became the perfect little doctor for my sick parents, even though I was only 13. Shortly after this, while I was still in my teens, both of my parents died. I was not good enough or perfect enough to make them better. So- I tried even harder and studied more and more, to the complete exclusion of any personal or social life whatsoever. This time, I was going to be perfect for my dead parents to show them how wonderful I really was and how much they should be proud of me. This reached absolute culmination when, after receiving two doctorate degrees, I still had to continue with more and more exams and more and more training. Can you imagine anything so ridiculous? Even after my parents died, I was still trying to get their approval by showing them how brilliant and talented I was.
Many years later, I suddenly became critically ill, stopped breathing and lapsed into a lengthy coma. This was the culmination of years and years of unrealistic internal demands that I set on myself and which manifested as addiction to perfection. It was only when I awakened from coma that I started on a new road and a new path. I was not superwoman...never was and never could be. Yes, I would continue to work hard and to achieve, but I could never in a bazillion years be perfect. I am not and you are not. So, when I tell you to "Get over yourself" I mean that I had to get over myself. I had to address the demons of perfectionism and move past them. I accepted that I am a flawed human being and acknowledged that I had certain real and wonderful strengths. I chose to concentrate on the strengths and stop beating myself up for the weaknesses.
Life can be lived forwards, but can only be understood backwards...Soren Kierkegaard
What does this have to do with trading?
This is what happens with perfectionists. Perfectionists are made, not born. We are taught from an early age by demanding (and often well-meaning) parents that we have to be the best in order to win their approval and the approval of others. Unfortunately, this is totally upside down. Perfectionists share a belief that perfection is required in order to be accepted by others. The reality is that acceptance cannot be gained through performance or any other external factors. Self-acceptance is the root of happiness and the true beginning of personal evolution.
If you have a perfectionist mentality when trading, you are setting yourself up for failure, because it is a "given" that you will experience losses along the way. You must begin to think of trading as a game of probability. Your losses ( that you hope will return to breakeven) will kill you. If you cannot take a loss when it is small ( because of the need to be perfect), then you will watch that small loss grow into a larger loss and so on into a vicious cycle of more and more pain for the perfectionist. Trading on hope does not work. The markets can remain irrational for a lot longer than you can remain solvent.
The object should be excellence in trading, not perfection. Moreover, it is essential to strive for excellence over a sustained period, as opposed to judging that each trade must be excellent. This is a marathon...not a sprint.
The greatest traders know how to take cut losses and let winning positions run. Perfectionists often do exactly the opposite. They get in at the wrong time, stay in too long and then get out the wrong time. Perfectionists are always striving and never arriving. The market will find the flaw in a perfectionistic trader and exploit it day after day. The market is your greatest teacher and your most demanding critic, so take this wonderful opportunity every day to learn about yourself and make yourself strong.
If you see in yourself this trait of perfectionism rearing its ugly head, it's OK to get angry at it and even yell or curse at it. Do whatever it takes to acknowledge it and then find a way to fix it.
Here are a few suggestions:
- Try to appreciate and enjoy the process as well as the outcome
- Set more achievable and realistic goals for your trading
- Remember that your self-worth and your worth as a human being to those who love you does not fluctuate from day to day depending on if you win or lose that day
- Focus less on achievement and more on enjoyment. Trading is serious, but it should be fun and not something which one approaches with fear and dread
- Lighten up. Laugh more (especially at yourself).
- Learn from your mistakes, and forgive yourself and make peace with your past. Strive to be better...not perfect...just a amazing human work in progress.
If we were always to wait for the most favorable combination of circumstances, no enterprise would ever be undertaken. There can be no end without a beginning--there was never an enterprise in which everything fitted in perfectly, for chance plays a leading part in the affairs of all men. Obedience to rule does not ensure success, but success, on the other hand, furnishes a canon---a rule of conduct...Napoleon Bonaparte
Janice Dorn, M.D., Ph.D.
Director, Wellness and Longevity Center
© 2005 Sol Palha
26 July 2005
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