Welcome to my Inaugural post. I’ll be using these pages to post my thoughts on the three elements for success in the markets: Winning Psychology, Effective Money Management, and Written Trading Plan with an Edge. I’ll also address the oft-omitted subject in trading literature: the generic element for success.
What do I mean by that?
Peter Steidlmayer, whom I credit with turning my trading around, taught that the principles applicable in life are the same ones that apply to the markets. In life, there is a wealth of literature on what it takes to succeed
- Create a VISION
- Set Goals to attain that Vision
- Set plans and routines to take concrete steps to achieve the goals
- Review the effect of our actions: those that move us towards our goals do more of; those that move us away from our goals discard after seeing what can be retained.
- Recycle to step 2 and/or 3
I have been teaching now for over 19 years and I am amazed still by the refusal of students to move past their comfort zone. Unless we are willing to do that, we are doomed to wallow in failure. Let’s put it this way, if whatever we are doing is producing negative results, throwing more resources without changing our behaviour will only result in the same negative result.
The extreme example of this behaviour: “I’ll keep within my comfort zone no matter what” was exhibited by an Indian man at a presentation I once gave. He told the class that he had lost around S$1.7M over 3 years. When I asked him to change, what he was doing, he said: “No I won’t. It may come good!”
What chance of that happening? As Aussies say: “Buckley’s!” (i.e. no chance). A great definition of insanity is: “Doing the same thing over and over again and expecting different results”.
So if something is not working for you, change your behaviour. So ask yourself: “Is what I am doing producing the results I want? If not what behaviour will I change?”
The change that we need to make will be determined by our VISION. Vision is our compass of where we want to be within a specific period. I see it as a motivational one-page document carefully crafted with word-pictures. For most of us, pictures provide the primary stimulus. To fulfill its function, our VISION statement needs to arouse our emotions.
We all need a VISION statement, no matter how experienced we may be…..
…In the period 1998 to mid-2001, I suffered the most prolonged drawdown to date. Everything I did was wrong. If I bought, the market went down and if I sold, the market went up. The maximum drawdown was around 22% over the period. I credit my VISION statement with providing foundation to continue. The same can be said for the period mid-2002 to mid-2003. My VAMI hit a peak of about 130,000 and dipped to 80,000. Again, the VISION statement proved its worth; the changes I made allowed me to move to a current VAMI high of 246,000.
(VAMI stands for Value Added Measurement Index and tracks the increase or decrease of a theoretical $1000.00 over the life our trading. The initial capital of $1000.00 in 1990 is now worth $246,000.00).
VISION without action remains a dream. Action presupposes a plan i.e. Goals. I’ll deal with this subject in future posts but for the moment know there is a wealth of material on the nature of goals and how to set goals, much of it free. Google “goal setting” and you’ll see what I mean.
I have found that while Goals remain more or less fixed, the way to achieve them is fluid. Sure, we’ll set our plans but like our trades, we need to constantly scan and assess the horizon for stimuli that will favourably (or adversely) affect our actions. Consequently, the REVIEW process is critical.
This process of VISION, Goals, etc finds its counter-part in our trading. I’ll deal with this in tomorrow’s post.