Money is an imperfect feedback mechanism.

My first day of trading, I made about $670 gross. $450 net.  I had been placing trades through my mentor and making some money.  When I finally had the opportunity to place a trade for myself, I went crazy.  I somehow made $450.  I did not think about how I made the money.  I knew everything, this was easy.  I made money, loss the lesson.  I did the spreadsheet math after the first day, at the end of the week I would have netted at least $2250, end of the month I would be up at least $8K.

The next day I came in I lost, I think $650.  I had done basically the same thing both days but different results. Now I do the spreadsheet math again.  Now I am down like $250.  By the end of the week, I will be down $650.  End of the month half of my account is gone.  I freaked out, I took the rest of the week off.

I am replaying everything anyone has ever said to me.  It goes by in a blur.  I didn’t listen, I did not have to.  I knew everything.

The lesson.

If you get one thing out of that story and this post always evaluate your winners and losers the same.  Because I made money the first day, I thought I did everything right.  Money was a poor feedback mechanism. I continued to do it the next day and I lost.

When I finally had the courage to trade again.  I continued to lose, but it was much slower and I learned along the way.  The environment at the time, saw many people come and go.  No one wanted to help anyone.  After they saw I was going to be around for awhile and became much more humble I got the opportunity to not only see what they did but they talked to me.

Getting bailed out. 

Some of the traders I look up to the most are the ones that have lasted.  I cannot tell you how many times I have ridden in the elevator, had drinks at Rivers or Ceres, seen them at the CME shops for a year, two years, 3 years and then they just disappear.  That part of the business is hard but it is a great reminder to always learn and evolve.  They survived on market conditions not their ability to learn thus evolve.

They were bailed out by a rally or a break or whatever.  I know I have sat there in a position, hoping and praying for it to go my direction so I am not limit down for the day. Sometimes it works, but you always pay double.  Making money in those cases re-enforces that you can just hope and pray.  It is a moment when there is a tendency to relax and continue that same behavior.  Not the near trading death experience it really is.

Not relying on the bailout.

There are times when I make money because of forces I cannot control and those times in spite of it.  At my best, I am always aware of the difference.  This is made possible by evaluating the winners and losers the same.  The process seems tedious but it become second nature.  If your ego gets in the way, it is impossible.  There is a tendency to privatize (you are totally responsible for the outcome) wins and socialize (anyone but you is responsible for the outcome)  losses. One forces you to improve, the other is chalked up to luck.

Weathering the storm.

Once again, just because you lose money does not mean that you are doing anything wrong or vice versa.  Every “system” has a return. There are periods when they take and periods when they give. The best days, especially when I am in my building phase, are when I lose the least.  You should be aware of it and adjust your execution in those times.

We are conditioned to make rapid change after a loss, when we are forced to.  In a perfect feedback mechanism this is probably correct.  I have been on teams where there was a problem, but when you are winning no one wants to talk about it.  Eventually they surfaced.  In this case we were attributing the win to our greatness and not our opponents weakness.  Knowing the difference is key.

The market takes and gives but your actions have the ability to change how much.

Conclusion.

Money is an imperfect feedback mechanism.  Understand why you are making and losing money. Know what is working and what isn’t.  If you lose or win, do not lose the lesson.  Your next trade is always more important, unless it is your last.  You have little control over wins or losses but complete control over the amounts.  If you believe in legacy, the best way to leave trading is on your terms not because you didn’t know why you were winning or losing.

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2 Responses to Money is an imperfect feedback mechanism.

  1. […] There are subtle but important difference. Yes there are no clients or employees but that means that you have to rely on your own feedback mechanisms. Money is not as effective as one would think. […]

  2. […] profits are not a perfect feedback mechanism but the goal is to make money and if you are really doing “everything” right you should […]

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