A couple months ago I asked readers of my blog to submit questions/situations for me to review – providing us with a different style of content from my usual writing which I’m calling “Your Pitfall, I Spitball.” I got a lot of great responses and have selected two that share a similar theme.

My intent is not just to provide advice, I want to use real problems as a way to also help you understand how I dissect them so you can further develop this skill. 

Before we dive in, two bits of context. The first question that always goes through my mind is: Why does this person feel that way, or why are they struggling in this situation? There’s no randomness when it comes to performance, or performance problems. Sure our results can be random – but not our performance. Many of you often don’t know what’s causing the variation that exists in your performance, but that info is essential, and that’s why it’s the first thing I consider.

Second, we’re also going to examine both what’s included in the question/problem and hypothesize what’s missing…often what’s missing is the most relevant. During my client sessions, I ask a lot of follow up questions to help tease the details out. Here I brainstorm a few possibilities that often appear around these problems, such as balancing emotional stress, family pressure, and real-world chaos.

Let’s dive into two scenarios that are both about wanting to make something happen quickly. When you “have” to make money, you often trade worse.

Q1: “I struggle greatly with sizing correctly. I feel like the amount of money I am ready to risk is not sufficient enough to make any significant amount of money, and keep sizing bigger than I am mentally ready to, which keeps adding more emotions to my trades and makes proper execution extremely difficult.”

 

Q2: “Most of the time I run into trouble now is due to wanting to be rich within my “window “. Oversizing, not honoring stops, etc. is usually because I want to pass my evaluation TODAY or get to payout NOW. But the market doesn’t care about MY (arbitrary) deadlines. I’ve done better with my perspective recently but think you can really hammer it home.”

 

I’ll start with Q1, which is less severe. In the recent Ask Better Questions blog I talked about the importance of asking the right question to elicit information that helps get to the bottom of an issue so you can start addressing it more quickly. My first questions are: 

How long have they been trading?Why is this person adding so much emotional intensity to their trading that they are steamrolling any ability to trade their system the way they are supposed to?Why is money such a huge driver for them at this point in their trader career? 

The reason it’s important to understand how long this person has been trading is because my advice for this issue would be very different for a veteran trader who has been at it for more than 10 years vs. a relative newcomer who has been trading for 6 -18 months.

With a seasoned trader, this issue indicates there may be some scar tissue and an inability to handle losses. My suspicion would be that they have been treading water recently, and have scaled down with the intent of lowering emotions, only to produce different emotions because the situation is so distasteful. They likely have a lot of accumulated emotion around losses and being forced to limit the size of trades.

For newer traders, however, it’s very common to want to scale up faster. The challenge is that you do so at the risk of not developing your skill set more deeply. Being able to apply your strategy/system on a regular basis and make small, discretionary adjustments is vital to your long-term success and scaling up quickly prohibits you from working towards unconscious competence.

Traders often don’t appreciate how vital it is to have a majority of the basic elements of their strategy or system reach the level of Unconscious Competence, where it’s mastered and requires no thinking. Mastering elements of trading doesn’t mean you’ve mastered trading – but in order to become a highly skilled and successful trader you must master the foundational parts. Those building blocks must be strong in order to free up your mind to tackle the nuances of trading that often make a huge difference in profitability.

Wanting to speed through the learning process is a classic error. Rather than racing upwards without a foundation to support your ascent, take time to apply your current skills consistently and effectively. Focus more on skill acquisition than profit.

My suspicion is that this trader is new-ish (probably more in the 18 – 24 month category), is trading on the side, and looking to make trading either a significant secondary income or a full-time profession. They likely also believe that the amount of money they are making is the primary determinant of their long-term viability as a trader vs. the integrity of their skill set. 

I would argue, however, that skill set is far more important for longer viability. You can’t copy/paste your results from one month to the next. PnL doesn’t carry over, but skills do. That’s what determines your capability in the future, but you can’t force skill to develop, just like you can’t force muscle to develop faster. Sure you could take steroids, but you do so at the risk of long-term consequences. If you force PnL, it can produce significant out-sized gains that don’t reflect skill and crumble in the future.

This trader likely believes money is more important than skill and that’s the primary flaw to correct. My advice here is to take a step back to refocus your energy on skill and execution. Make a dedicated chunk of trades (50 or 100) where you don’t care about the size, only caring about skill development and the quality of execution. Grade the quality of the trades and journal about what you learned during the trading day.

Remove the pressure impairing your ability to develop skill. Embrace the fact that money should be the carriage, not the horse. The real driver of long-term success is your skills, knowledge, and experience. PnL/Results should follow from that.

Mind you, it will take some time to develop the skill and reorient your mind to that approach. I would suggest dedicating about three months. From there, map out a schedule/pacing of what it would look like to increase size. Consider consulting other traders on how to do that effectively.  Err on the side of caution in this phase. Once you scale up without impairing execution, consolidate that expansion of skill before increasing size again. Carve out this highly concentrated period of time to incubate and develop skills and perspective and you’ll create a higher base to launch your next move.

Now let’s move on to Q2, here it is again:

“Most of the time I run into trouble now is due to wanting to be rich within my “window “. Oversizing, not honoring stops, etc. is usually because I want to pass my evaluation TODAY or get to payout NOW. But the market doesn’t care about MY (arbitrary) deadlines. I’ve done better with my perspective recently but think you can really hammer it home.”

 

For this second scenario, my questions to begin digging further would start the same way. The difference here is the issues go beyond sizing and center on aspects of their trading execution being compromised. 

Here it’s clear they’re a relatively newer trader and in my head I’m wondering what additional flaws may be present that would distinguish this person’s issues. I immediately think about wishes, such as a wish for trading to be easy and thus easy to become rich. Or, perhaps there’s a flawed view that the “window will close,” and you only have a small window of time to be successful as a trader. While it may seem that way, I’ve worked with many traders who are successful in second careers in their 50s and older. It’s not like being a professional athlete where the necessary attributes, like speed and strength, automatically decline.

Of course, some traders worry that they have a smaller window due to family pressures. They aren’t sure how long trading is viable if their income is not sufficient. At the same time, however, they want to provide a certain lifestyle and if their main career is stuck at a certain level, trading seems like a way to accelerate that, which can play into fantasies of what they could provide. 

When I consider the difference between the trader in Q1 and the trader in Q2, I wonder what the accelerant is that’s intensifying the emotions to a higher level. What’s the gasoline, so to speak? It might be situational, but situations still expose underlying beliefs, flaws, or wishes that make the situation a bigger issue. In other words, the situation magnifies an existing problem to a large enough extent to be noticeable and get you to work on it. But the situation is not the cause. The cause in this case is the wish driving you to make trading work NOW.

While this trader has evidence of a wish, they do seem to have some logic present. Were they only to follow the advice from Q1, they could make some progress but would not truly crack through. They have to figure out the underlying wish using the Mental Hand History (MHH) and ultimately kill it. That doesn’t mean killing the dream – it means freeing you up to see the road ahead of you in a realistic manner so you can pace yourself and realize the dream in a pragmatic way, that keeps an eye towards being successful long term.

If I were to guess, I’d bet the underlying wish is to become rich quickly and easily. That’s the crux of the problem.

The truth is, however, that you don’t want to get rich without the skill of being able to handle it. Approximately 80% of lottery winners are broke, or back to their prior net worth, within 3-5 years. If you hit it big in trading tomorrow without the skills to back it up, odds are that the money would disappear quickly.

You can’t allow the urgency to make things happen now override the real driver of success.

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Obviously I’m making some leaps here because I am not talking to the traders directly. But whether I’m right or wrong, hopefully seeing the way I think about the problem is helpful. I’d love to hear if you liked this blog format. If you have feedback, or a question you’d like to have reviewed, please submit it here.

 

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