Every tale of success in trading involves perseverance and resilience in the midst of failure. Here’s a quick guide on how to become a resilient trader.
Here’s a situation that sucks! (I’m sure you would agree)
You initiate a trade and later it ends up being a loss.
No worries… you place another one.
Again it’s a loss.
At this point, you think, “Third time’s the charm.”
Okay… forth time?
So now the annoyance and irritation sets in – your stomach is upset, you become tense, you overthink…
One of the key factors that separate profitable traders from the losing ones is what Mark Douglas referred to in his books as a winning attitude.
Personally, I like to call it resilience. It’s an ability to go through setbacks with stability of mind (and not be dragged down by them).
I’ve found resiliency to be an important factor in my own journey, from struggling through finances and other personal issues to navigating the scary and uncertain waters of the market.
Resilience is such a powerful thing. But how can you develop it? Because make no mistake, it’s certainly a mental skill that can be developed over time.
Below, I offer a set of practices that you can begin to work on if you want to develop resilience.
An important point…
Make sure you are trading a proven edge.
This simply means that you have a system that provides you with a greater chance of one outcome happening over another.
In no way this implies that you won’t go through losses –and yes, sometimes a few ones in a row!
If you think that consistent profitability in trading depends on the absence of losses, then there is something fundamental about this game that you haven’t understood.
Over a series of trades, your winners and losers will be distributed probabilistically.
This means that you will not know when you will catch a win or a loss, but if historically your system has been proven to win 60% of the time with an average win to loss ratio of 3:1 –meaning that if your average winning trade is $300 and your average losing trade is $100, the ratio would be 3.1 — you know how this will even out in the long run.
Successful trading is purely based on probabilities and peace of mind is accessible to the traders who understand that (deeply) and follow their proven plan (that lays down the rules that make up the system) with adherence to every detail.
So, having said that, here are the set of practices I recommend to develop resilience.
1. Notice The Unnoticed
When you’re going through a period of losses, if you’re frustrated, disappointed, scared, doubtful, etc. … it’s because you’re only seeing the “bad” side of things. That means you’re deliberately blinding yourself to the whole picture.
The smiles on your kid’s face, the sunlight around you, the food on your table, the roof over your head, your own aliveness… in each moment, there are amazing things to notice as well. Yet you are deliberately focusing on your feelings of “lack.”
This is a good question to ponder…
You see, when you’re focused only on the parts you don’t like, you’re stuck in tunnel vision, and so you’re missing out on all those amazing little things of life that are also worthy of your time and focus.
2. Practice Self-Compassion
This is not some new age, self-help bullshit. Self-compassion is as important as compassion for others and it creates the condition for lasting happiness to emerge in one’s life.
So, when you’re in pain, wish yourself peace and courage to go through what it is that you’re going through.
Every difficult situation is an opportunity to practice this key skill.
3. Cultivate Unconditional Happiness
Don’t look at happiness as something that will come to you when you have a winning trade, or when you’ve attained a certain accomplishment or a certain amount of wealth.
Don’t look at it as a destination, something that you’ll get later. I’ve been operating that way for years, and I can tell you, it’s made my life miserable as hell. Because my wellbeing was always dependant upon something which most of the time I didn’t have any control over.
Happiness is available to us at every moment. Positive states of the mind are precious skills that can be learned, and for the most part, it’s just a question of habit.
All you need is to get into the habit of seeing the positive in every circumstance.
I promise you, even the worst-case scenario has a silver lining.
4. Release The Gas Pedal
When the going gets tough, you don’t have to keep pushing. Just take some time off.
I don’t know… go fishing.
That’s the perk of being a trader: the markets are not always tradable. And that’s a great thing!
Just imagine how much time this frees up?
Yet, many traders don’t think of it that way. They think they have to trade all the time. It’s a big mistake.
Your goal as a trader is to make as much money as possible when it’s E A S Y to make money so that you can sit on your hands when it’s H A R D to make money.
5. Forget The Money
As said earlier, when you’re in a drawdown, you tend to focus on your feelings of “lack.” Instead, decide that you will focus on building qualities like perspective, vision, trust, patience, and discipline.
In doing so, you will lower your expectations; you will be more open to learning, and you will trade from a more relaxed, impartial, and inquisitive state of mind.
When you learn to let go of the need to make money, losses gradually lose their power to perturb you. On top of that, if you trade a proven system and can create no need to be right, you’ll be surprised by how fast you’ll get to engineer consistent profitability in trading.
Imagine asking someone to walk on one of those yellow or white surface markings on the road, without stepping outside of it.
Now, place that same line over a precipice.
It’s the same damn line…
You see, trading is so hard because we make it hard. We obsess too much about the mountains of wealth it can help us generate and, as a result, we also fear the devastating losses.
But this is not a good strategy to adopt because it makes trading strenuous when it shouldn’t be the case.
So you have to make it a practice to cultivate a sense of detachment from money, your trades, and the outcomes of your trades so that you can become free to focus on what needs to be done, when it needs to be done, without over-thinking.
7. Think ‘Process’, not ‘Goal’
When you’re in a drawdown, it’s not the end of the road … it’s a part of it. No journey worth traveling is free of discomfort and setbacks.
That’s why focusing on the process instead of the goal is so important.
Instead of thinking negatively about the losses you’re going through, you can begin to see the beauty of them being a part of your personal growth.
The future is completely open and you are writing it moment after moment, after moment… realize this.
The only intelligent responses to a bunch of losing trades are curiosity, learning, and patience. Not despair. Not frustration. Not overthinking.
8. Be Flexible in Your Thinking
Here’s a Zen proverb that I like:
“Only when you can be extremely pliable and soft can you be extremely hard and strong.”
I like it because it hits the center of the bull’s eye: Rigidity only brings about frustration and mediocrity.
If you can learn to be flexible while making yourself adaptable to any changing situation, you’ll not only be happier and more peaceful, you’ll be more successful, not just at trading but at whatever you decide to undertake in your life.
So make it a practice to always ask yourself how you can be more flexible.
When you’re going through a string of losses, see it as an opportunity to become more flexible in your thinking, to be ever-adaptable, and never-beatable.
9. Never Stop Learning
The market is a good teacher. Accept its lessons with grace.
Do you want to succumb to your difficulties, or wish they would all evaporate … or do you want to learn from them and be made stronger by them?
In each moment, you have a choice to make. Make the right one.
10. Pick Up a Meditation Practice
I suggest meditation a whole lot on this website, but for good reason. When you meditate, you naturally calm the flow of overthinking and negative thoughts bombarding your consciousness every second of every moment and, instead, you move into a space where qualities like patience and clarity start to take precedence.
So, this is how you become a resilient trader.
This takes time and practice, but, again, virtually every tale of success in trading involves resilience.
So, develop resilience.
Of course, some people are born with a greater tendency towards resiliency, but we can all get better at it (to the extent that we’re capable of).
But as I’ve stated time and again on this blog, reading is not enough, you must practice.
In each moment, you have the opportunity to practice the above steps. It’s not easy. But that’s the path to greater resilience and I hope you’ll walk it.