How To Master Trading Discomfort To Improve Your Results.

Ministry of Silly Walks.  Cheese Shop.  Self-Defense Against Fresh Fruit.  Dead Parrot.  My Friend Earwax.  These are the names of four of the funniest and most irreverent sketches by Monthy Python, and one really bad idea I once had for a short film.

I have long posited the theory that there are only two types of people in this world; those that “get” Monty Python, and those that don’t.  Personally I love Monty Python, and although my favorite player is Michael Palin, John Cleese has traditionally been thought of as the “leader” of the troupe.

Recently I came across a video of Cleese giving a talk on the subject of how to be creative. It’s fascinating and a must watch for anyone who wants to learn how to get their creative juices flowing.

In the video Cleese tells a story from back in the day when the Pythons were trying to write sketches.  One of the other members of the group, who remains unnamed but whom Cleese felt was more talented than himself, always seemed to come up with less original and creative material than he did.

This puzzled Cleese, however after observing his colleague for a while,  it became apparent to him why this condition existed.  When the other member was faced with a problem in writing a sketch, as soon as he saw a solution he was inclined to take it, even though he knew it wasn’t perhaps the best or most original answer.

Cleese himself realized that the reason he was able to write better material than his more talented colleague was that when he came to a problem, instead of taking the “easy” route, he was able to stick with the problem longer and ultimately would find a better solution.

Simply put, Cleese was more comfortable with discomfort that his fellow Python.

It makes perfect sense of course.  The normal human reaction when faced with discomfort, no matter what kind, is to seek relief and do so as soon as possible.  This behavior is very common in trading, and the ability to make a friend of discomfort may help improve your bottom line results.

Causes of Trading Discomfort

Discomfort in trading usually comes in two forms and both have micro and macro causes.

Monetary Discomfort – Just like it sounds, this is where you are uncomfortable because you are losing money.

This can happen simply because you have a position with an open loss that is beyond your comfort level, or it can have more a more complex genesis.

Are you down big for the year in your trading account?  Are you in financial trouble in your regular life?  Is the mortgage payment coming due and your trading profits are the funds you have to use to pay it?

Control Discomfort – This where you feel discomfort not because of the monetary loss, but because the trade is “not doing what it is supposed to.”

This could be the result of a choppy day where every trade you attempt, no matter long or short, reverses against you.

Or once again it could be a related to larger issue.  Are you the type of person that always needs to be in control in your life?  Do you have an obsession with always being “right?”  Is the world a place that would  be better off if it listened to your opinions DAMMIT?

Whatever the cause of the discomfort, in an attempt to end it as fast as possible, traders often make bad decisions that affect performance.

Effects Of Trading Discomfort

The list of things traders do because of discomfort is endless, but here are some of the more common ones;

Getting back into a trade too fast after a loss – Your pristine trading day is blemished by a loss after your first trade, but instead of waiting to find another suitable setup, you find yourself rushing back into a trade, because that is the only way to “get it back” and end the discomfort.

Closing a losing trade too soon –  A trade has gone against you, and you can’t stand that you are in the red.  Even though your stop has not been hit yet, you know it will be and you just want to cut your losses and end the pain, so you close the trade early.  Your pain is only increased when price reverses before your original stop and proceeds higher, into what would have been a profit.

Closing a winning trade too soon –  You have a profit.  You need a profit.  You want to bank that profit, even though price has not hit your target.  Every minute that profit is open there is a chance it can go away, and so you take it right where it is, only to see price continue higher, and higher, and higher throughout the rest of the trading day.

Holding a winning trade too long –  Price has hit your target, but you want more, because you need more.  You let it go, until it reverses and comes back down below your target. With every tick down you continue to hold the position because you wanted to close it out one tick higher.  Eventually it goes back to even, or worse, into a loss.

And the list goes on.  One thing that is important to remember about discomfort is that it can cause you to make bad decisions, but it can also cause you to make no decision by paralyzing your thought process.

How To Deal With Micro Discomfort

In order to master trading discomfort you have to reverse engineer the process of what causes it, and this starts with being brutally honest with yourself.  You have to know what makes you uncomfortable in trading.  It is a certain dollar size loss threshold?  It is holding a position past a certain amount of time?  It is an “ego” battle where you need to impose your will on a trade?

Once you can sincerely answer these types of questions, then you can start the process to solve or minimize the impact.

The issue of micro monetary discomfort is the “easiest” to work on, and it begins by taking some steps to remove yourself from the trade, distancing yourself from the discomfort.

That’s starts with making sure you have a trading methodology.  A methodology gives you an objective framework for your trading.  An objective framework gives your confidence. Confidence allows trust and trust brings comfort.

Another thing that can help is if you know that before you take a trade you will never lose more money than you are comfortable with.  That can be accomplished by using the “R” method to size your positions, one of the most important concepts in successful trading.

Micro control discomfort is also a relatively easier issue to deal with, but involves changing your perception a bit.

The first thing you have to drill into your head is that your will lose on more trades than you will win on.  It’s the nature of the game, and you have to learn it or you will fail at trading.

The next thing you need to do is get some context on your individual trades. Understand that you are just trading.  Sure it’s complex and mentally challenging, but you are sitting at a desk in front of a computer.  You can take a break, listen to music, drink a Coke; it’s not like you are tarring roofs in the hot sun or working in a coal mine. Getting some perspective can do wonders towards alleviating your trading discomfort.

Dealing With Macro Discomfort

Macro trading discomfort, both the monetary and the control type is much tougher to deal with.

From the monetary side, you once again have to ask yourself some tough questions. For example, are you well capitalized enough to be trading?  If paying your bills is solely dependent on your trading profits you must have enough of a bankroll to weather the inevitable losing streaks.  If you don’t have enough, perhaps it is time to rethink things.

One way to alleviate the stress of paying you bills with your profits is to create another revenue stream.  Are you a good stock picker?  Could you turn that into a paid subscription service that would help to smooth out your equity curve with trading? Maybe you should take a steady job and concentrate on swing trades that you can manage without being in front of your screen during the day?

Point is, whatever the reason for the macro monetary discomfort, you have to make real and serious changes, because the alternative is that your account will in all likelihood eventually implode.

Macro control issue are the absolute most difficult to deal with because they extend way beyond trading and can be as complex as your mommy not giving your enough love when you were a kid.

Although I have a reputation of being a bit of a smartass a times, I am totally serious and totally sincere in saying that if you have macro control issues, you really owe it to yourself to seek the services of a psychologist or psychiatrist.  Doing that can also provide the extra bonus of improving your life in general in addition to improving your trading.

Conclusion

The process of mastering your trading discomfort, no matter what kind, and no matter what scope, all starts with first acknowledging that discomfort.  Then from there you must identify what the causes are of the discomfort are by asking yourself some probing questions, and ultimately take concrete actions towards minimizing or eliminating it so as to not adversely effect your trading.

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What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).

John Cleese – A Lecture On Creativity via YouTube

Brilliant stuff like this rains down like..well, rain, on my stream during the week. If you want to get wet, follow me on Twitter and StockTwits. You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.

5 Responses

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  3. Hi Brian,

    Excellent post, thank you! I am a new trader who has struggled a lot. I have learned so much, but keep making bad mistakes that prevent me from really taking off. You nailed my issues on the head – a combo of ego in thinking every trade I pick must be right, and also holding a winner too long because I want more. Your post just lit off a light bulb in my head even though it is common sense. Thanks man, keep up the great posts.

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