Self-Discovery On The Self-Auditing Process
I convinced a dear trading friend of mine to conduct a self-audit on his trading activity throughout the year of 2005. After much discussion about the benefits such an activity has had on my trading results he was still a little reluctant to do it.
Initially I couldn’t understand why, until yesterday when I received a call from him.
He was depressed.
“Ryan I feel so depressed,” he sobbed.
“Why?” I asked, “Did you end up doing the self-audit on last year’s trades?”
He heaved a sigh and said that he did.
“Well how did it go?” I asked eager to see that a friend had taken me up on such valuable advice.
“I’m crap,” he responded.
“What??” I was a little bewildered by his response, and equally more so by the long pause after my reaction.
“What do you mean you’re crap?”
“When I took you up on doing your self-audit thing I found out just how BAD I am as a trader!” he then timidly laughed.
No one likes to admit they’re crap, or that they’re incompetent, my friend was obviously telling me this with great internal pains.
“Well that’s good!” I said elated that he had now made the discovery I did when I first started on this process many years ago.
“What do you mean it’s good? I don’t even want to trade anymore!”
I could definitely empathise with my dear friend. He had done an analysis on himself and found himself lacking. I continued on…
“It’s good because now you know why you were crap. What were some of the underlying factors with your losses, or winners that were cut short?”
He sighed again, obviously I was opening a recently dressed deep cut.
“I guess to put it simply: I didn’t follow any system at all!”
He had just made a VERY important discovery: a big reason for why traders lose money is that they don’t follow A system – even if their system is staring at them in the face on the wall mounted above their computer!
They just don’t have the disciplinary fortitude to stick to a system ESPECIALLY when it’s in a drawdown.
I know when I started trading whenever I lost money on a method I utilised to get into that trade I threw the method out the window and created a completely different system.
I didn’t refine my method.
I didn’t take into account that losses are a part of trading.
I wanted perfection… and before I knew it chasing perfection saw my account wiped out!
“So what did you learn from this?” I asked, knowing all too well that I had been there and done that and knew the answer.
Immediately his demeanour changed…
“I suppose I’ve got to learn to stick to my system.”
“EXACTLY,” I emphasised. If my friend had of been standing near me I would have slapped him – just to make sure that he remembered that point.
I brought the issue home, “There’s no use creating the best system in the world if you aren’t going to follow it’s signals, right?”
“Yeah,” he sheepishly responded.
“So what are you going to do now?” I asked again knowing the best course of action for him to take.
“I dunno. I’m thinking of giving up trading now.”
It was the best rational response to give, in essence he was saying that as trading was losing him money and nobody likes to lose money he was going to stop trading.
This action is more than acceptable to take, but was there another?
Of course!
“Have you considered creating a trading system?” I asked.
“No,” he responded sounding defeated, spirit broken.
“Well what common element did you see amongst those trades that made money?”
Oddly enough my friend hadn’t considered this!?
“What? You traded that bad???? Well I think I’ve found a perfect system for you… do the exact opposite of whatever it is you’re doing,” I jested, we both laughed.
Sometimes we can get so caught up in the negative things that we fail to see the silver lining and even if we do trade a method and it loses big guess what? You’ve just found a GREAT system: simply reverse the signals of your current system!
Our conversation was nearing an end so I quickly set up an action plan for him to do by the next time we talked…
“Why don’t you go back over the winning trades and formulate a trading plan? You’ve spent hundreds of dollars on a trading education through books and seminars and you’ve now spent thousands in the school of hard knocks, now it’s time to put that hard knock education to use.”
Stay tuned for more valuable insights you’re likely to discover if you too decide to undertake a self-audit… heck, I might have to start selling this info because I believe it’s extremely valuable and yet it’s grossly overlooked.
More soon.
Tags: Forex Trading