Have You Learned From This?

I think that's the fundamental question every trader should ask when their trade is done. 

"Have I learned a lesson from this trade and will I be better equipped on the next round?"

The reality of trading is that you should be taking something away every day. On the most basic and fundamental level, this should be income. If you're not making money, there's really no reason to keep trading. The stress is far too intense and the toll extracted is too great to do this for zero or negative dollars. Ever professional trader I know understands that losers provide great teaching opportunities, but only the mature veterans understand that winners actually create the lessons we should crave for. 

As a parent there is an easy correlation. My kids are phenomenal but occasionally they need a bit of correction. If I only taught them what not to do, that list would grow daily. For a 6 year old boy that just wants to be all boy, there are a bunch of moments where band-aids will be required if there isn't a behavioral change. If my paradigm for correction is always in the negative, he will most likely keep on with his trial and error methods, looking for the best possible outcome. However, given a bit of guidance on what he should do, one would imagine that he'd use that positive reinforced lesson to minimize negative results. His list of "To-Do's" will be kept tidy and succinct. While the actions outside of that list stay vastly umcategorized and ignored.

If I go back and scrape out all the winning factors of my successful trades the list is actually quite small. Occasionally there is something extraordinary, a factor that lands outside of three standard deviations, but the reality is most fall here.

• Genesis: Was this trade crafted from my soul? Did it come from a place of learned experience or is it just a fleeting thought that I overheard at the bar?
• Risk: Were all the pros and cons correctly annotated?
• Execution: When it was there did I pull the trigger? Not early, not late, but when it was there.
• Anticipation: Was I blind to the market or did I see the changes coming. The trade needs to be proactive, anticipating the market's next move.
• The Payout: When I felt the upside no longer justified the risk, did I pull the plug?

Looking at some of my biggest winners, its very easy to pick out a "Yes" on all of those questions. My biggest losers have a couple "Yeses" but a laundry list of bad decisions is often coupled with them. Its much easier to identify the right things I did versus listing the multitude of mistakes I made. Focus on the short list of positive attributes and simply be conscious of the lengthy list of horrible moves you're not doing. Like raising a kid, tell him how to do it right and maybe he'll follow the instructions and win the game too.

~LH