May 19, 2011 at 9:52 am | | Comments 8

Choose Your Discomfort

trader-discomfortTrading is not easy.

There…I said it. As if you didn’t already know.

It can be simple, but that’s different.  When you’re trading well, it might feel easy, but when the tough stretches arrive again (and they will), you’ll be reminded that it’s hard.  As they say, “if it were easy…”

Contrary to what most traders think, the hard part of trading isn’t being right or wrong.  Each of us will find ourselves in winning trades and losing trades at times – even random entries can produce (at least temporary) profits.  Discomfort is the hard part.

Discomfort in trading can be tied to either profits or losses.

For example…

Our minds seem hardwired to shun (perceived) failure, so some traders struggle in a big way to close out a losing position and instead spend waste time hoping for a turnaround which may or may not ever happen.  It’s uncomfortable for them to admit defeat and accept a small loss, so they usually pay big to try and avoid that.

Our minds can also have recency bias, so after a string of losses, it’s tempting to book a winner – no matter how small – just to stop the bleeding and have a taste of success again. It can be uncomfortable to let open profits ride when you’re clearly on the correct side of a trade – what if you give them back?!  You need this winner, right?  That often leads to booking smaller gains as compared to what you were on track to get paid, and that adds up big over the course of your month, or your year, or your career.

Discomfort can also be tied to our preferred trading timeframe.

Some can’t stand the erratic price action found on the intraday charts, and they tend to respond with late or forced entries when day trading.  They get spooked out of good trades, opting instead to focus on the most recent 5-minute bar rather than the overall direction that’s taking place.

Others can’t stand to give a stock an appropriate amount of wiggle room when swing trading, so they choke off what would be a good trade in favor of a stop that’s too tight.  Instead of positioning themselves smaller in order to weather the short-term shake-outs, they essentially overtrade by reacting to insignificant moves within the context of a bigger trend.  Profits aren’t allowed to pile up, and their skittish approach keeps them frustrated by the big moves they were once a part of but missed out on.

Here’s my point:

Risk involves discomfort, so if you’re constantly avoiding discomfort, you’re avoiding risk – and by definition, risk must be taken in order to profit in the markets.  The key is to manage that risk appropriately, which also means managing your discomfort appropriately.

There’s no getting around discomfort in trading.  Everyone has it, regardless of directional bias or timeframe preference or the market being traded.

Either you’re uncomfortable with the results you’re getting (e.g. overtrading, not sticking with good trades, staying too long in poor trades), or you’re going to face some discomfort while denying yourself as you stay with a good position.  That’s going to include enduring pullbacks, watching some profits evaporate, and being patient while waiting for an acceleration move to occur.

In an instant-gratification society like ours, it’s no wonder most traders fail.  Have the courage to choose your discomfort ahead of time, so that by expecting it and mentally rehearsing what you’ll likely face, you’ll in turn be able to respond with good decisions.

Trade Like a Bandit!

Jeff White
Producer of The Bandit Broadcast

Are you following me on Twitter yet?

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  1. Jeff–I read a ton of free info regarding trading, and most is worth what I pay for it. That may be a little harsh. A better judgement might be that most of it is a re-hash of info that is already out there and doesn’t add much to my toolbox or black book of ‘a-ha-s’. This article is different, and I really enjoyed it. I need to bookmark it, or print it and read it weekly if not daily prior to and after trading. I think this article hits the nail on the head addressing why (choose your percentage) of traders fail, and proves your worth as an educator and trader. Thanks for the reminder and the reframe of what it takes to be successful. Eric

  2. Hey Eric,

    Thank you for stopping by and for your kind words – they are truly appreciated. As I’ve mentioned here before, whenever I’m posting to the blog, I am writing to help the reader, yet I’m reminding myself of these same things while I’m at it – win/win!

    Now that you’ve commented here, hope you won’t be a stranger and we’ll watch for you soon. Enjoy your weekend!


  3. Love love love this post Jeff! It’s great way to view trading/risk

  4. Much appreciated!

Trackbacks: 4  |  Trackback URL

  1. From Taking the Bait | Derek Hernquist on Jun 2, 2011
  2. From Are You Willing to Lose, Part 2 | on Jun 2, 2011
  3. From How to Think About a Loss | SMB Capital - Day Trading Blog on Oct 27, 2011
  4. From How to Think About a Loss « Day Trading Online « Day Trading Online on Oct 27, 2011

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