How Pain Can Make You A Better Trader.

[Note: This is the analog post to my recent "How To Master Trading Discomfort To Improve Your Results."  Traders will relate differently to each post, but the goal is to use the one that fits your personality best in order to improve your trading.]

I have to say that I really enjoy reading the comments on my blog.  Instead of the usual trolls that tend to inhabit most public blogs, I seem to get a pretty cool mix of people who have something nice or useful to say.  And sometimes a comment provides the inspiration for a new blog topic, like the one I got from “Alex” the other day on my “5 Rules For Trading A Reversal Hammer” post.

This is a good setup, I’ve seen it happen a lot. Usually I am on the side selling at the point when all the sellers are exhausted though.

I feel your pain Alex, cause I have been there a number of times myself.

I always remember the trades I lost big on or the poker hands where I got a bad beat because the pain of loss is more acute than the joy of winning.  Pain makes more of an impact on me, which I think is just human nature.

Think about it.  If you walk down the street tomorrow and ninety-nine people smile and say “hello” as they pass you, but one A-hole sneers and says, “what are you looking at jerk?” who will you remember at the end of the day?  The ones who made you feel warm and fuzzy, or the one who made you say “ouch”?

Many of life’s lesson, both big and small, never really seemed to “stick” when I was younger until there was some pain associated with them.  For example, pushing in a half opened tab on a beer can with your thumb is perhaps not the wisest move; yet I did it all the time in my younger days.  That was until once while on vacation in Australia I tried to do it with a frosty cold can of delicious Victoria Bitter lager.

Pro Tip: Blood and beer don’t taste good together.

I often look at the small crescent shaped scar this incident left me with and remember what an idiot I could be (…okay, still can be) at times.

It was hard to make this photo not look phallic...!

I know a lot of great traders who have a “zen-like” way of approaching the markets, and are able to trade pain free, but for the rest of us, pain can be used to make you a better trader.

The hammer reversal setup that Alex was commenting on was one I had read about and had been explained to me too many times to remember, but that is not what finally got me to understand it and how to trade it.  It was being on the opposite side of that trade and experiencing the pain of getting in too early that finally rang my bell.

It seemed that just when I got to the point of max pain and finally closed my position out for a loss was when price reversed, which was just like dumping a ton of kosher salt into an already gaping wound.  But that pain focused me, and each time it happened I figured out a little bit more about what I was doing wrong.

Even to this day, in a fast moving market where I am looking to play a bounce,  I will sometimes take a very small position, as small as 25 shares, in order cause me a little pain.  In this scenario, stop loss and risk/return concepts are irrelevant because the $ loss is so insignificant.

But it’s not the $ loss that causes me pain, it’s being wrong.  A small position going against me, causing some pain, will once again focus me and makes me better able to find the correct setup to add to the tester position and make it a full position.

Pain is very powerful if you know how to use it.

If you are trading bad, racking up losses, causing yourself pain, don’t thrash back into the markets trying to make it go away, or throw your keyboard, or yell at your wife. Instead, don’t do anything;  just hold that pain.  Imprint it into your head so you remember what it feels like.  And think of how nice it would be to avoid that pain in the future.

Now use that as motivation.  Go through your trades tick by tick.  Remember what your mindset was contemporaneously and identify flaws in your thinking and execution.  Take each of your losing trade charts, drive your ass down to Kinko’s, and get them blown up and printed out.  Mark these charts up and hang them right over your trading screen as a reminder of the pain they caused you and what you can do to avoid that pain going forward.

And of course the ultimate goal is just that; to get to the point where you don’t need the pain in order to trade successfully.  But until that time, The key is not to fight pain, but to harness it and use it to your advantage.

And if you don’t want to see me in pain, why not subscribe to bclund.com for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

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

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.

19 Responses

  1. Great article. I can clearly understand what you mean by making the mistake of getting into a trade a little too early. How painful. I’ve done the same thing. I waited a bit and it finally turned around a couple of weeks later. I don’t plan on making that same mistake again any time soon.

    Hawaii Trader

  2. Pingback: 5 Mistakes I Made In Trading Yesterday | | bclundbclund

  3. This is the second post in the last week that has reminded me of work by Brett Steenbarger. There’s a great video on YouTube. Also there are tons of free articles, mostly psychology based.

  4. Pingback: Wednesday links: locked markets

  5. It can’t be over-emphasized enough – go through your losing trades tick by tick and understand what you did wrong. sometimes they’re good ideas and just don’t work out… but more often than not, there is a nugget of something you could have done better in there. just do it…every night after the bell when things are still fresh.

  6. Great post. I was doing your exact motivational process and printing the charts myself at home in 11″ x 17″ (2-pages taped together) and posting them on a bathroom wall. That way, I could contemplate them each morning and evening while I brushed my teeth. As an equities day trader this process was worth the time, but I caution that this method will fail if the bathroom is shared with your spouse.

    Then I came up with an even better (and psychologically less devastating) idea that I picked up from Corey Rosenbloom (www.AfraidToTrade.com). At the end of each trading day, I now review the symbol that I’ve been trading and identify each of the ‘ideal’ trades that I COULD have made using my established trading methods.

    I then mark each ideal buy, sell, short, and cover on the chart, using a different set of symbols than my platform uses. I calculate the PnL of each of these ideal trades (easy program to create in Excel), and again, print the chart — with my actual trades, ideal trades, actual Pnl and ideal PnL statements.

    Just like before, the charts get posted in the bathroom. The big difference is that I can easily see the REAL opportunities that were awaiting me if I had just followed my entry and exit rules, and I can compare them with the losses that always occur when I accidently slip into ‘intuitive trading’.

    This whole process takes about an hour per symbol, but because I only trade a maximum of 2 symbols per day, it’s been worth it to me. I’ve also noticed that during market hours, I pause for a brief moment prior to each trading action to envision how good or bad the results are going to look when I see them hanging on the wall.

    My performance has improved more rapidly since I started doing this and I think it’s because I can quickly see the dollars left on the table for each minor deviation from my plan. An added benefit is that now I seldom curse with a toothbrush in my mouth (potentially messy depending on the chosen words).

  7. Great post … as usual but I think your “Crescent shaped tatoo” masks your real enlistment into the taliban. Stop blogging from Kandahar and get back to the States!

    Kidding of course

  8. If you walk by 100 people and 99 sneer at you and call you an asshole, you will remember the one who smiles at you at the end of the day.

  9. Excellent post (been reading your blog since a while)
    Amazing how close to other people you can feel , while being on the same (sinking) boat .

    One question i keep asking myself though . Market conditions , and patterns are never perfectly working from a risk reward perspective , or they do , until they don’t .

    In your opinion , is it better practice to have steel-solid rules for you setups and *never* break them, or being more “flexible” on your expectations ? Temptation is high to “give it a break” or making up excuses , (for all the time you got stopped by HFT’s sh***)

    Keep up the good work.

    • Thanks for reading Brucy. The ideal way is too be able to exercise some discretion in your stop rules, but very, very few traders have the experience and the objectivity to pull that off. Kinda a where the good traders separated from the great traders.

      Thanks for reading.

  10. Pingback: Wednesday links: locked markets | Abnormal Returns

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