This past weekend I watched the movie “The Rock” with Sean Connery and Nicholas Cage. In it, Sean Connery’s character has a great line where he says, “Losers like to whine about their past.” This one liner reminded me about so many conversations I have had with traders over the years and what I think it boils down to is that losers focus on results and winners focus on the process of execution. Losers think in terms of how much I can win whereas winner focus on how much I can lose.
A good example of this principle, “It’s not what you think, it’s how you think,” can be seen at casinos. Slot machines are built with lots of flashing lights and loud noises to get players attention. Each machine proudly boasts how much money you can win. Look for the slot machine that says, “I’ve taken in $1.5 million this year.” You won’t find it. Losers want to win but their thinking is reversed. They must learn to think in term of risk per trade and the probability of a win. This is where a trading plan can reverse the whining about past trades and convert the trader to having a positive expectation of trading. Two things that are always true in speculation. What do we know with certainty in trading? 1. The market is chaos. No one knows with 100% certainty what is going to happen and 2. Traders never know how much profit potential is in the trade.
If the trader will focus on the risk in the trade and not the profit they will increase their probability of success exponentially. This concept eluded me personally for years. It wasn’t until my wife was helping me with my charts one night earlier in my career (she knows very little about technicals and charting) and I asked her where this stock was going as a joke. She looked at me straight faced and said, “It’s going higher!” As funny as I thought this simple answer was from a non trader, I learned a lot from it. I didn’t need to know where a market was going, what was going on in the economy or who the next President was going to be; I just needed to concentrate on making a clean entry and exit for the trade. Focusing on the process, and not the results, will make things not only more profitable over time, but simpler as well.
