Janice Dorn, MD, PhD
Neuropsychological Trading Coach
Janice Dorn, M.D., Ph.D., has been a full-time futures trader since 1994. Doctor Janice holds an M.D. in psychiatry and is board-certified by the American Board of Psychiatry and Neurology in general psychiatry and addiction psychiatry. She holds a Ph.D. in brain anatomy. A graduate of Coach University, she is a pioneer market psychiatrist and financial neurobehaviorist. Doctor Janice has written over 500 articles on the financial markets and coached over 600 traders worldwide. She is the Global Risk Strategist for Ingenieux Wealth Management Group, Sydney, Australia.
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Nothing splendid was ever created in cold blood. Heat is required to forge anything. Every great accomplishment is the story of a flaming heart...Arnold H. Glasgow
One of the most common challenges that traders face is how to come back from a string of losses. I know this feeling very well because for the first three years I traded, I was drowning in an ocean of red ink. I subscribed to a number of newsletters and listened to any number of market pundits. In short, I was searching for the Holy Grail. It was only when I realized that the search had to go from the external to the internal that my trading started to turn itself around. There was less red ink (losing trades) and more green ink (winning trades) and blue ink (scratch trades). Although I no longer color-code trades, I have those early journals to remind me that the path to trading success is littered with red ink.
There are so many stories about the ability of the human spirit to overcome adversity. We hear about them, marvel at them for a minute or so, then they fade away quietly in the glare of everything awful that happens to people. As a culture, we seem to be more interested in stories about corruption, outrageously bad behavior and public humiliation. In the backdrop of these “if it bleeds, it leads” media headlines are millions of people who, in small and large ways, have overcome adversity and moved on to enormous success, both for themselves and others.
When traders ask me about the best books to read, I suggest that they read biographies of successful people, both in and out of the markets. In reading biography, traders almost always find some valuable lesson that inspires them to turn their trading around and begin on the path of winning. The best way to come back from a string of losses is to read about how others have done so and the paths they have taken. These are what bring courage and inspiration to the trader because they are hard-learned life lessons. The best traders learn from their own mistakes and the mistakes of others.
Few occasions in trading erode confidence as much as a series of losing trades. For the inexperienced trader, this can be a devastating experience. I know how this feels, because I have been there. The beginning trader likely has not learned to think in probabilities. The novice trader does not understand that a critical part of trading is dealing with drawdowns. I remember the first time I saw the word “drawdown,” I was shocked. I immediately went on to something else because I could not wrap my head around the fact that there would actually be losing trades. After all, I was a winner—a highly educated and successful woman—and drawdown was not in my vocabulary.
It was not until years later that I came to grip with a concept that helped turned the ink green. That concept is this: In trading, losing is winning. Trading is the only skilled profession where losing is winning.
Imagine a doctor who comes home at the end of the day and tells his family that he had a great afternoon because he only killed three people! Imagine a trial attorney who comes to the end of month knowing he is a success because he lost all of his court cases that month.
Now, imagine a trader who ends the day with a loss of $1,000. Is that a success? It certainly could be if he saved himself a loss of $10,000 by cutting a losing position short before it went against him tenfold!
In trading, losing is winning. This means that a trader with a solid, back-tested trading plan must expect to lose between 30% and 40% of the time. There is no such thing as 100% wins. If there is a system that generates 100% wins, I would like to hear about it. Of course, I won’t hear about it, because even if it existed, the person using it would not share it with me or anyone else!
Even though you know that your system is designed to win 60% of the time, you don’t know when that 60% is going to happen. That means you could have your 40% losing trades right in a row before you start winning. (Possibly worse than this is to have some losses and some gains mixed in early on. If you are not grounded in your trading system and if you do not understand the concept that trading is a game of probability, you will be mentally wounded by a series of losses. You will also feel conflicted and begin to doubt your system and tinker with it.
It is at these times of drawdown when traders are most susceptible to rat-brained thinking. Why? Because losing does not feel good; it feels awful. The consequences to a trader not prepared for those inevitable times of drawdown can be enormous. They include, anger, depression, sulking, sarcasm, revenge-trading and the use of chemicals to modulate mood.
How does the trader get through these times without allowing his or her rat brain to take over? If the trader does not have a proven and well-tested plan, he or she is throwing money at the stock market in much the same way that gamblers put coins into slot machines. They could hit or miss—but the house knows the odds, and we all know what happens in these situations. If a trader wants to get to the point of consistency where he or she is winning more than losing, the trader must take the time and do the work to get a solid trading strategy and plan.
Then, the trader must keep trading that plan. The trader has to fight through the loss of confidence and the feelings of depression and low self-worth. These are the times that separate the winners from the losers. Losers quit and blame. Winners keep going, keep fighting, keep trading and keep their eye on their trading plan at all times. A champion trader is able to trade through months of drawdown because he or she knows that eventually his system will put him into the green ink.
Trading through drawdowns requires enormous discipline. It is about doing the right thing at the right time, and this means following your trading plan and not deviating. It means fighting through the pain by facing it and seeing it for what it is—the pain of a game of probability. It is just that simple, but it isn’t easy. If you stay the course and keep going, you will make it.
It takes time, great courage and an impenetrable belief that you can make it as a trader. Anything that erodes your confidence, including all of the negative voices from inside and outside of you, has to be turned away. It is that small, still voice that tells you if you just keep with your plan, get in there and keep going, you are going to start seeing some beautiful shades of green!
It’s not the size of the dog in the fight. It’s the size of the fight in the dog…Mark Twain
Until Next Time,
Good Trading and (Revitalized) Brain On!
Janice Dorn, M.D., Ph.D.
janice@thetradingdoctor.com
P.S. Every week, I send you a Trading Wisdom designed to make you better, smarter, more balanced traders. Today, I want to ask you, “How are you doing?” Please join me and your fellow traders at the message board and tell us which of my Trading Wisdoms have been most helpful in getting you on a path to profitable trading. How have you used my methods and insights to make big money or avoid huge pitfalls? Tell me what you think, and your favorite Trading Wisdom may be featured in my upcoming book! Stop by today!
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