Saturday, November 07, 2009

Overcoming Slumps in Life and Trading

You know, there are those periods in life where nothing is clicking. Even the fortune cookies at the local takeout mock you. One trade after another goes south. Why bother?

We all get to that point: the same statistical laws that ensure occasional strings of losing trades also guarantee runs of negative life events. And that doesn't start to factor in the various ways in which we can contribute to those runs through the self-amplification of negative thinking.

So many slumps begin as ordinary runs of misfortune. Once they get inside our heads and affect our next actions, they become slumps.

A key skill is recognizing when strings of losing trades or life events represent mere bad luck and when they reflect deeper problems that need to be addressed. Anyone can have one bad relationship, two, some point the common denominator in the misery becomes oneself. Similarly, a losing week at trading, a second, a third...all can fall within normal expectations. At some point, however, the pattern diverges so much with expectations that changes need to be made.

Too often, however, traders will become impatient with even normal periods of flat performance and modest drawdown and begin tinkering with their methods. They abandon what they do best in search of answers outside themselves. They don't realize that trading, like life, rarely offers a smooth, upward curve of successful outcomes. There are long, flat periods at times, and there are periods of setback.

It is often worth learning from periods of underperformance and tweaking what one is doing. That is different from abandoning core strengths. Always, always identify what you do best and what works for you. Then build on that, make it more consistent. The way out of a slump can often be found in those things that you are doing that are not in decline.