Wednesday, November 28, 2007

Turning Setbacks Into Goals

One of the most common mental errors I see traders make is that they equate movement with opportunity. If the market moves and they’re not on board, they berate themselves for “missing opportunity”.

Opportunity, however, is not defined solely by the market and its movement. It is also a function of your trading signals and the ability of those signals to detect a positive expectancy in future returns. If movement were opportunity, there could be no random movement.

The perfectionistic trader looks at market moves and expects to participate in each. This creates a perpetual experience of frustration and failure, because those expectations are never fully met--and *can* never be met.

The proper rejoinder to, “I should have been on board for that move,” is “By what standard?” The only standard that demands participation in all market moves is the standard of omniscience. Perfectionism fails because we will always fall short of omniscience. Perfectionism ensures the mindset of a loser.

A more reasonable set of standards would grade us on outcomes that are in our control: whether we size positions properly, whether we maintain a good risk/reward profile on each trade, whether we follow rules about stops and exits, and whether we trade when and only when there is genuine opportunity.

Steady improvement is a realistic goal that can lead to growing feelings of mastery. Perfectionism dictates unreachable goals that undercut our sense of mastery. No one has ever berated themselves into confidence and competence.

The secret to goal-setting is setting yourself up for success and steadily building the sense of mastery and competence. Every market mistake provides a learning experience when we turn setbacks into goals.


What Works in Goal Setting