Why do I make the easy things difficult and in turn let my head believe that the difficult things are easy?
What the hell am I talking about?
I have noticed this phenomenon in my trading and the trading of those I work with:
Traders don’t do what’s easy. We do the hard thing thinking it’s easy, at least until we actually want to make money and not prove that we know more than the market.
Let me try and put it in another form and maybe it will make sense before I give the trading example.
I am living in a house right now that is in the middle of a construction zone. Houses being built everywhere! And I sit and watch them out my window while I run my up and coming trading empire (me and a computer, so maybe “empire” is a little heavy). While they work, I realize things about business, life, and trading that I never knew before. Like how simple business is. How hard people work when they would rather use their body than their mind (I used to be one of those guys out there) and how if we just follow a simple plan, we can do wildly amazing things.
The framers on these houses are seriously fast. A team of 3-4 guys can do an entire house in 2-3 days. Maybe less. I love to watch their efficiency. Measure. Cut. Nail. Repeat. That’s it. The plan they have gives them the road map, the wood and nails and saw allow them to put the plan into action.
Pretty simple right?
What would happen if they didn’t follow the plan? Every think about that?
The efficiency of these workers would be replaced by absolute chaos, no matter how good they are at measuring and cutting. I would venture to say that the house would come out loosely resembling what the builder had envisioned.
The framers do what’s easy. Every day. They follow a plan and know how to perform the task. There is never a question on this. And if for some reason they don’t, they are fired. Another framer is chomping at the bit to get some work.
For some reason in trading we decide to not follow the plans, mostly because we don’t know the plans but I will get into that in a minute.
Traders think that unlimited opportunity equals unlimited gain, when in reality unlimited opportunity equals unlimited risk. We treat the markets like there are no consequences for not following the plan and we just… take trades. Or we take trades based on a strategy someone else has said works… sometimes. But we don’t have a clue really. How does your strategy fit in with the business model of your market? Do you even know how your market works?
Ya we think we know but usually we don’t. It’s like a framer showing up and being like “you know what, today, I don’t want to look at the plans every 5 minutes. I’m sick of walking down the ladder to check what the next step is. I am just going to wing it because that will be easier.” That would be the framers way of thinking he is taking the easy way when it’s actually the most difficult thing to do. Rework, job loss, money loss. All consequences of taking the perceived easy way. And who thought that was the easy way? Only him.
I have noticed this same attitude in my trading. And I have to deal with it.
How does it happen to me? Simple. The use of stop losses.
I have had a transformers style battle in my trading career with stop losses. I hate them and I know I need them and by the time it’s all said and done buildings are wrecked, optimus prime is leaking hydraulic fluid everywhere and the guys with the tiny guns shooting at the huge metal machines finally realized “ummm what the hell is this going to accomplish??”
I have traded most of my successful days without stop losses. I have managed my own risk and rarely let a trade go beyond 2% loss before I just shut it down. Cool right? Not sure. I had two weeks to think about it while I was moving and watching the election and I had to gut check myself and ask myself some questions:
- is this the hard way disguised as the easy way? Is a great system with a manged stop actually the easy way? Is being wrong sometimes the easy way actually??
- what happens when you end up taking “that hit”?
- Do I know a better way and am I just choosing not to use it because of the need for stops? Do I need to be right??
What is my mental hang up with stops? I see opportunity in the limitless form still. I know that every trade I take has the opportunity to work if I play it right. OR put another way, I am smarter than the market and can always win. Yikes…
That is the hard way. It’s based on thinking too much. About the performance of the money I manage. The performance of my own money. The performance of my equity curve that people watch. Winning is more important than doing the right thing, and it skews my perspective. I choose to do the hard thing because it looks easy because “I don’t have to lose”. It’s taxing and stupid. Too many minds will kill me.
Learning to lose, to stop out, is the single most important part of trading. But don’t learn to stop out unnecessarily. I have spent a ton of time, I would say it’s the culmination of 8 years of learning, getting to my one good trade (Bellafiore).
So now it’s time to take the easy way. Place my amazing trade, place the stop, and go away. For some reason, that way seems so hard to me. I have developed bad habits that need to be retrained.
The easy way that seems hard. The hard way that I have thought was easy.
Create an amazing plan. Spend 8 years creating that plan if you have to because the plan is by far and away the most important thing you can develop. I would say that spending 10k dollars on the plan is not out of the question and will pay for itself easily. Don’t cut corners on the plan.
Then do the easy thing and just go put the hammer and nails to use and build the house.
I am just learning this myself, right now. I would love to hear your thoughts.
Have an amazing week.