“The greatest teacher you will ever have is a mirror.”
Don't you hate getting little pearls of wisdom like that in your fortune cookie? I mean cracking open a cookie and reading something like that is like getting a crappy sweater for Christmas.
Whatever happened to cool fortunes like “a pleasant surprise is in store for you” or even better “you will step on a $100 bill tomorrow at 7:14 pm”. Now thats something I would enjoy reading after some sweet and sour chicken. What is it exactly about an omen of good luck that appeals to us? We obviously know that whatever machine printed out the fortune isn't magical, yet we still perk up anytime we get a prediction of happiness or success for us all the same.
This is actually a perfectly natural reaction. Humans have visited oracles and fortune tellers for thousands of years with the hope that they would get the slightest hint that the future had something better in store for them than the present. Pyschologically speaking, one of the reasons why good omens make us feel better is because they absolve us of not only our current situation, but also of our future actions because fate will determine the outcome instead of us. In essence, this is an act of self preservation by the human psyche by temporarily relieving the pressure of having to bear the burden of every day responsibility even if only for a fleeting moment. This mechanism is the main culprit responsible for the many superstitions we cling to. Traders that succumb to their psyche's desire to avoid culpability end up doing things like trading on tips, or following the posted trades of other “experts” on twitter. Like their ancestors they trudge up the mountain (or maybe a weird kitchen) hoping that the Oracle can give them the answer they refuse to look for.
On the other side of this psychological coin is the pithy little proverbs we briefly look at when we crack open our fortune cookies and say “gee thanks, thats obvious” as we crumple them up and toss them aside. Although these are actually more helpful than vague predictions, our psyche tends to want to dismiss it because it puts the onus on us to improve our current lot in life. This is an important inner drive to recognize at work and to overcome. While honest self reflection may often feel brutal to our ego, we will benefit from it in the long run as we become self sustaining thinkers instead of blindly hoping for luck. Once we begin to see that our ego doesn't necessarily have the same priorities that we do, we learn to brush it aside and build ourselves into more complete individuals. The traders that are capable of doing this will be the ones that last because they have found what works for them while overcoming the faults that would have held them back if they hadn't seen them.
One way for a trader to study himself is to keep a daily journal documenting all of his trades. While a perfectly acceptable journal can be a simple as creating a spreadsheet that keeps track of the basics like entry, stop loss, exit, and profit/loss, a more detailed journal would also include other variables like setup used, risk/reward, time of day (especially for day traders), and most importantly, the thought processes involved in the trade. Keep in mind that the point of a journal is not only to keep track of our trades, but to also review them and reflect upon them. Traders are doing themselves a huge disservice if they don't analyze their trades. As a matter of fact, even if you don't keep a detailed journal you should still make it a habit to review each of your trades at the end of the day and if possible grade your performance. The amount of money made or lost should be irrelevant to the grade you give yourself, instead focus on whether you stuck to your rules and your decision making process. This review process allows a trader to figure out what they did well and what they can improve on.
On a personal note, one of my biggest faults as a trader is that I tend to jump the gun on both entries and exits.
Luckily, I saw this early in my trading career because of the process of documenting and reviewing my trades. Because I was able to identify this trait, I was able to develop a trading system that incorporated entry and exit rules that helped me combat this tendency. For entries, I force myself to trade two patterns as described in 3d Trading. For exits, I found that the best system for me was to scale out of trades as they reached certain criteria. Locking in profits quickly on a portion of the trade allows me to feel much more comfortable in letting the rest of the trade run longer since I'm “playing with house money”. One other benefit of scaling a portion out of my trade early is that it allows me to reload if it pulls back to support instead of exiting or riding it out if I'm holding a full position with no booked profits. Being able to look at myself honestly and critique my trading allowed me to become a much better trader and hopefully looking at the mirror will help you improve as well.
If you have any questions or comments, feel free to contact me on twitter @stockdarts or in our great chat room if you are a stockguy22 member. If you're not a member, what are you waiting for? Try to weeks free on me.