Posted on 8/16/2010 in Trading & Technology by Larry Levin
The Downfall
The world where we humans live has always been and will always be a turbulent one. Life progresses smoothly for a while, and then unexpectedly, it can change. Success becomes failure, and sometimes failure can turn into a catastrophic loss.
It happens to the best of us, even to someone as successful as Tiger Woods.
At the height of his career, Tiger was the highest-paid professional athlete in the world, he was only behind Jack Nicklaus in the number of times he had won a major professional golf championship, and he ranked third all time in total number of PGA Tour events. He seemed unstoppable.
Fast forward to this season, and the story changes quite dramatically. He is currently only 85th on the PGA Tour money list, and he is not even in the top 100 in scoring average, driving accuracy, greens in regulation and putts per round. Last week, he had his worst 72-hole professional tournament since his very first one in 1996.
How Do You Cultivate Resilience?
At some point, almost every trader faces catastrophic loss. Although he shouldn't if he uses proper money management strategies. However, lack of experience or arrogance arising from success causes traders to disregard proper money management. Some traders never recover from a catastrophic loss. Instead they give up, withdraw from trading and pursue something else. On the flip side, the resilient traders recover, learn from their mistakes and start again.
Resilience originally was the capacity of a body subject to strain, especially compressive stress, to recover its size and shape after deformation.
Similarly, resilience in a trader is the ability to bounce back from a loss.
How can one cultivate resilience? The lessons of Tiger are instructive here. ?Resilience is best cultivated by building redundancy and depth.
Be Redundant
Redundancy of Skill Set: Tiger Woods has shown resilience by developing a redundant skill set. He has adjusted his swing as needed to compensate for a surgically repaired left knee, a broken leg and torn ligaments. Similarly, a trader needs to develop a variety of trading skills so that he has different means for adapting to changing marketing conditions.
Redundancy of Experience and Expertise: Tiger has shown resilience by developing relationships with other successful individuals. He has sought the assistance of his coaches, Butch Harmon, then Hank Haney, and now possibly Sean Foley, to find a way to return to top form. Similarly, a trader should find a mentor, a seasoned veteran, who can assist him in becoming a better trader.
Redundancy of Play and Practice: After each setback, Tiger returned to the game of golf as soon as he could, first through practice and then through actual tournament play. Similarly, after a catastrophic loss, traders need to determine what went wrong. We need to dissect our loss while continuing to trade, even if it is only on paper.
Redundancy of Mental Support Networks: Until recently, Tiger had a support network that could assist him in working through the mental challenges arising from catastrophic failure. For a larger part of his life, he relied upon his father. When his father died, his family helped him through the grieving process. Similarly in trading, mental challenges will often be the toughest obstacles for a trader to overcome.
Be Redundant, But Not In Your Mistakes
Catastrophic losses can create self-doubt and fear, denial and self-deception. All of these emotions are dangerous. Self-doubt leaves us second guessing ourselves and often leads to the paralysis of analysis. Fear causes us to rush into situation with the same faulty strategies that led to our catastrophic failure in the first place.
A trader needs to develop a support network that can help him weather the storm.
Redundancy of Reserves: Whether Tiger Woods can overcome the mental challenges to success remains to be seen. If he can't, let?s hope he has followed the last rule of resiliency, keeping a financial reserve so he can begin another career.
Many individuals find it difficult to begin again, so they don't. A good example of this is Mike Tyson, who earned over $300 million during his career, and yet he descended into bankruptcy in 2003.
A trader must always maintain a capital reserve so that he has the resources to begin again. A catastrophic loss does not need to end your career as a trader. Instead it can reward you with life lessons that make you stronger and more successful in the future.
Trade well and follow the trend, not the so-called "experts."
Posted by Larry Levin
From The Option Insider published on 8/16/2010
