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Personal Change Plan

“Insanity is doing the same thing over and over again but expecting different results.”

You must unlearn what you have learned.

In my previous post, I described whyPassion is Not Enough in Trading. It is not enough to simply rely on your internal drive or emotions to get you to be a better trader; rather it is important to recognize that emotion should be left under the covers in your comfy bed before you get up and go to work.

Maybe you’re just as passionate as the next trader — that’s great, but that won’t get you to the next level. You must continuously challenge yourself to take steps towards getting better. For some, that means reading up on technical analysis, for others it means finding a mentor, and for many others it means learning through actual trade experience and the pain of learning to accept losses as part of the business.

Just like in other solo competitive games, one must know when to squeeze the throttle, play good defense and protect the queen, or when to stop throwing good stones after bad. For myself, it has helped to both find a mentor and to review trade execution before, during and after a trade. I’m getting better at handling reality checks from more experienced traders, and also getting more disciplined with stops. Months ago, things were easier. Half a year ago, one could throw darts at the market and pick up some profits the next day. The market has changed, and to get better you must change with it. If you are a less experienced trader, you must also make a concerted effort to change.

It is easy to say “make a change”. It’s another to actually work towards that change.
So how can change be made? People have it within themselves to change their personal behavior. Sometimes that involves changing diet, paying down debt, becoming more physically active, or quitting smoking. While many people attempt to make changes, the majority of people fail again and again. It helps your chances of success to become consciously aware of the states of change by building a Personal Change Plan.

Unaware Stage
In a strong market, especially like the bull market we’ve been in since March ’09, it’s easy for inexperienced traders to attribute their success to their skills more than to the surrounding envelope of the bull market itself. At this point of the game, the trader has no idea that they may have a problem until the first correction comes and wipes out most, if not all, of their accidental gains. In fact, the trader doesn’t see that a problem is brewing, and is most likely not even considering the possibility that change is needed at all.

Raising of Concern Stage
At some point, the trader may have suffered some small losses in trades that they were sure should have worked — but because they stuck to their old methods (maybe didn’t use stop losses, for example) — the loss comes as a complete surprise. How could the market do this to me? I did nothing wrong. Maybe the losses start to grow in size or become more frequent, turning weeks of gains into flat or straight losses. At this point the trader may begin to see their personal behavior as a problem, and only now opens their mind to the idea that change is possible. Still, it won’t become a real priority until the big loss occurs, or the trader’s mentality becomes so distraught that nearly every decision made is emotional or paired with poor psychology. Hopefully you reach the next stage before too long.

Exploring Options Stage
So at this point, the trader probably has a laundry list of regrets. Why did I not buy more shares at the open? I could have been up big if I just bought the dip. Why didn’t I stick to my stops? I just knew XYZ stock was going to fall 5% after it fell through major support. Why do I keep doing this? I study every single night, I do charts and I feel like I have a great read on the market. What am I doing wrong? Why did I leverage up so much and get my face ripped off? Even with these regrets, it is of the utmost importance to SHIFT FOCUS from past problems to future plans and possibilities. It’s time to focus on the present, not the past, and what can be done to truly change. It’s done.

Action Stage
This is the stage I find myself in now. At this point, the person who seeks change deems is 100% necessary to seek change. It has become the number one priority. Here, the individual commits to a plan of action and puts it into practice. The individual should seek support from a mentor, surround themselves with people who are better or more experienced in the field than them. The trader should try alternatives to the same old thing they’ve been doing that’s getting them into trouble. THIS STAGE IS KEY. There cannot be a reaction to the change without the ACTION taking place first.

Stay With It Change
Trying too much at once can be hard for a person to bear over a prolonged period of time. The mind can become stressed, too much might be out of the ordinary, and it is often very difficult to step out of one’s comfort zone or add another tool to their trading tool chest. What’s important at this stage is for the individual to consistently review their change goals and plan in order to stay focused and committed. The trader should ask questions, learn from mistakes, and keep an open mind to stay agile. If necessary, the individual should change directions again and adjust their plan if it isn’t the right path for them.

My personal change plan currently includes purchasing @stevenplace’s OptionFu course to sharpen my skills in options trading so that I can learn and execute risk managed options trades. It also includes having @gtotoy as my personal mentor in #DTBC and SURROUND myself with top notch, real deal traders. They call it boot camp for a reason. You will get slapped back into reality when you’re about to put on a trade that doesn’t make sense for the given market environment, in real time. You will be humbled by the group when you are shown why it’s a bad idea. You might have an entire fundamental thesis shot down hard by several traders at once — but it is for your own good. They remind you to not take offense when your trade idea is bad. Hell, it might even be a good trade idea that they shoot down simply because it’s just not a good idea for the current market conditions. That type of advice is invaluable. Some people might get offended or feel ganged up on with that sort of in-your-face straight forward tell-it-like-it-is feedback, but I welcome it with open arms. It’s the only way to learn. Learn to not love a trade idea. Learn to live and fight another day without getting burned in the process.

I’m also learning to paper trade with real discipline. Some people argue that paper trading is not the real deal, that it’s too unemotional or you don’t treat it the same because it’s not real. I was once a member of the naysayers camp myself. My feelings on that have completely changed. Just like a scrimmage football game isn’t the real season, you still have to practice like you play in the real game or you will be unprepared, out of practice, or undisciplined.

Let go of everything you fear to lose. Especially if you fear losing your ego. Learn to fail. Learn to get back up again. That is how you can succeed.

Quite literally, be the change you want to see in the world.

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Categories: psychology, stocks
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  1. November 16, 2011 at 9:13 am

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