Concentrating on Profits Will Lead to Losses
Have you ever wondered why you can paper trade successfully, but fail miserably when real money is at stake? The reason is simple: the trader who concentrates on profits will have difficulty winning, as will the investor who concentrates on losses.
When investors concentrate on the rewards of what they are doing, their behavior becomes rigid and less accurate. They become results oriented rather than solution oriented, which means they are more active and more careless.
In fact, many traders, when reflecting on their previous trading activity, realize they would have become better traders sooner without the hindrance of early success. Early profits teach bad habits that are extremely difficult to unlearn.
The solution? Concentrate on doing your best, not on your immediate profit and loss. Have a set of rules to guide you in the market and concentrate on following those rules.
Comments
Amen... although I'm not failing miserably with real money, I definately have learned (and sometimes re-learn) where and how to focus my attention in trading.
Posted by: TradeR:R | September 21, 2006 12:41 AM
I come to trading from a background playing poker. It is quite obvious in poker that playing for no or low stakes is not at all like playing for significant money. There are some differences when trading, certainly with paper trading your "opponents" don't "play" differently as they do in poker. But your own actions will also be different (unless, perhaps, running a mechanical or automated system) and can certainly lead to unanticipated reactions and choices and unpleasant results.
Posted by: Damien | September 21, 2006 04:52 PM
Van- I agree completly that traders must focus on the trading process, and not profits. One expression that I have heard (and agree with) is that beginners focus on profits, while professionals focus on managing risk.
That said, do you have any suggestions as how to help this focussing process occur? How to best stay focused on the trading process, on mastery, and not on the money?
Thanks....Kevin
Posted by: Kevin Thomsen | October 1, 2006 10:21 PM
Dr. Van Tharp
I am very interested in the comparison of "result-oriented" and "solution-oriented".
Often said by Japanese mass-media recently, cause-and-result are "glued" by logic, so it is important to think logically. But, IMO, many Japanese are result-oriented these days, because young business-persons such as "Horiemon" have succeeded in their IT business and got rich very quickly.
I don't deny young and quick success, but these words such as "result-oriented" and "solution-oriented" have given me some hints for thinking about early success in one's personal life-span.
Thank you.
Posted by: JE | October 14, 2006 03:36 PM