Hitting Singles

The recent discussion on the psychological aspect of trading saw me write these words:

The Sultan quite rightly mentioned in his lengthy post on this debate that I myself have admitted to acting in a less than optimal manner on occasion, when a poor run has seen profits taken a little sooner than they might have been had I been on a good run. Confidence can be fragile for us humans.

A phrase used to describe my approach in this instance was found in The Stock Bandit, one of the blogs on my blog roll, where Jeff White wrote on the subject of trading after a setback:

1.) Take it down a notch. And you know exactly what I mean. When you’re starting out or starting over, you have to start small. Small enough that it’s all about the process and not the result. By doing this, you’re setting the tone for growth again, you’re respecting the market, and each trade takes on minimal significance while you’re getting back into the right habits.

2.) Get specific. By narrowing your focus to that which you should be doing, by default you can eliminate much of the fear you may be facing, as well as a lot of the trouble which comes with a fly-by-the-seat-of-your-pants style of trading. Without a game plan, you’re playing the guessing game. Understand which conditions you’re facing, and go with the strategy best-suited for those conditions.

3.) Set realistic expectations. As much as you might like to, don’t expect to make it back right away. Big expectations may be what got you in trouble to begin with, so curb your enthusiasm a bit and aim to just get the bat on the ball first. The idea is to start a foundation which can support bigger and better results, but right now it’s first things first, so look to start small.

4.) Keep risk in check. As noted in the point above, you can’t just go swinging for the fences. To avoid that, have a risk per trade amount that’s appropriate for the fresh start you’re making. And be careful with how many positions you’ll carry at once, at least until you’re back in the flow.

5.) Hit singles. Early on, the aim is to get on base and establish a rhythm of success that can be built on. By selecting high-probability setups with defined risk, you’ll increase your odds of getting into that rhythm and start marking some results in the black – just what you need the most.

'Hitting singles' is a good phrase to describe my approach. After a setback, the importance of rebuilding confidence is not to be underestimated, and to continue the baseball analogy, runs scored playing small-ball count the same as solo home-runs.

One commenter on that post wrote: "I think I have discovered that optimism doesn’t work." My opinion on this is that while positive thinking / optimism is very important, it's only the start. Awareness of a problem is not the same as managing a problem, as I pointed out a few days ago.

Mark Iverson's latest post mentions an old book from 1937 - Think And Grow Rich which is available free on the Internet, which is fortunate because, as the old joke goes:

Want to get rich?

Don't waste your hard earned money on "Get Rich Quick" books.

I read this book about 20 years ago, and while it shows its age and is clumsily written, and the author LIKES HIS CAPITALS which gets ANNOYING, it's overall worth a read, but I wouldn't say it was life changing by any stretch of the imagination. 

Most, if not all, of the ideas in it that have merit have long since made it into the mainstream. The author, Napoleon Hill, does seem obsessed with SEX -

 "Sex energy is the creative energy of all genii. There never has been, and never will be a great leader, builder, or artist lacking in this driving force of sex."

He also opines that: The average man reaches the period of his greatest capacity to create between forty and sixty." A great comfort to me, but with these types of books, it's always good to remember, as the great George Carlin said,  "If you’re reading it in a book, folks, it ain’t self-help. It’s help."