Recovery from Failure

We immediately know when we’ve failed, made a mistake or broken the rules of our trade plan. Our internal dialogue is usually “Idiot, I know better than that,” or “Not again – what the hell is wrong with me?” or the famous “I promise I’ll never do that again!” During the course of figuring this out, we will have many failures. If we work diligently and purposefully, we can make the necessary corrections. This takes time and we have to be willing to forgive ourselves. But, we need to ask ourselves several questions to pinpoint and then repair our mistakes. Here are a few to consider:

Did you really follow your rules and trade system? Winners may lose, but they always follow their trade system to the absolute. They let their trade system do its job and understand that statistically they can expect losses. However, those stats are meaningless unless followed to the letter. Make sure you are following you rules and valid signals per your trade plan and trade system. If not, the odds are going to be stacked against you.

What should you have done differently? Do a thorough post-mortem. What was it that caused you to digress? Was it your trading mindset, outside distractions, platform execution errors or perhaps a lack of preparation? Record every trade and notice tendencies that lead to failures or mistakes. Make a conscious effort to target and correct these elements/behaviors one at a time.

To what extent did your perceived strengths become liabilities? What did you take for granted and how did it affect your performance? Did you have a series of winners and get over-confident? Did you have a series of losers and place a trade for revenge or because you were angry? You need to identify any emotions you are investing in your trading and revert back to practicing in a demo account until you can become consistently profitable. Getting this under control is critical for successful future results.

What is your estimated recovery/correction time? The difference between winners and losers is that winners don’t dwell on the past. Recognize the issues/challenges and move forward. Know that mistakes are part of learning and becoming proficient at any skill. The sooner you can get over your frustrations and regroup, the sooner you can be positive and productive to overcome them.

Can you quantify and assess the failure? Have you over-leveraged your account equity? Is the loss/mistake recoverable and if so, how long and how much will it take? Is your risk aligned with you trading personality and trade plan? Failure is an iteration in your overall trading journey, so try to make the next iterations ones of progress and success. Don’t over-think or over-compensate. Do an honest assessment of where the gaps exist and then fill them one at a time. Don’t be in a hurry to fix everything at once. Prioritize your issues and formulate a plan with a realistic time line to correct them.

Remember that failure is temporary if you are willing to invest the time and energy to become an expert. Always reflect on what you do well – especially with unconscious competence – things that are automatic and effortless. Recognize how you got there and use the same template in your approach to trading. Forgive yourself, but get focused. The goal is to admit and accept we will make mistakes, but the key to success is understanding we can only fix them if we know what they are and why we are making them. Create a list and work it. When you’ve checked off the last item, I promise you’ll be in a better frame of mind and your account will reflect your progress.

Slow, steady and diligent always wins the race in the markets.

Rick

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