Suppose you’ve just experienced a huge losing streak. What are you likely to do next? Are you the type of trader that becomes so depressed that you are unable to take clear trading signals, or are you the type of trader that’s able to easily shrug it off?
No matter how long you have been trading, there is always the risk of experiencing performance anxieties. When things do not go your way, there is a chance that you’ll become overly pessimistic and see the situation as a sign that you are a failure. As a result, your trading performance dwindles even more, eventually leading you to quit.
This is obviously a problem. But like all problems, there is also a solution. Instead of focusing your weaknesses, look at it under a new light – a process called positive reevaluation.
For illustrative purposes, let’s take a trader who has a habit of using stops that are way too tight because he’s afraid of losing too much. As of late, he’s getting stopped out a lot and ends up with a long losing streak. This makes him even more terrified of putting trades on and losing more money. He now finds himself stuck in a very vicious cycle that’s freezing him up.
You could say that this trader’s attitude towards trading is negative, but through the process of positive reevaluation, he can actually use this underlying weakness as strength. Rather than focusing on the fear of losing, the trader can use this fear to positively reevaluate his trading and see it as a position-sizing problem. He can cut down on his position sizes so he can take even smaller risks while at the same time widening his stops.
If you can twist a perceived negative thought, tendency, or trait into a positive one, you can get it to work for you rather than against you.
Take a look at how Derrick Rose of the Chicago Bulls uses his small stature to his advantage. In a sport where being tall is a definite plus, Derrick doesn’t let his relatively small 6’3″ frame hold him back.
Rather than seeing it as a drawback, he uses his size (and the speed and agility that comes with it) to blow by defenders and maneuver through traps to get to the hoop. And now look at him–he’s in the running to become the NBA’s most valuable player!
Of course, the same positive approach can apply in trading.
Let’s say that as a trader, you’re easily overcome with emotion when your trade starts to go against you. As a result, you tend to widen your stop when your trade is losing. A bit of positive reevaluation can help you shift focus away from how this tendency holds you back and towards how it can help you.
Since you know deep inside that these emotions sprout when market conditions become unfavorable for your trade, when you find yourself wanting to widen your stops, you can actually use it as a potential signal to cut losses or trim your position. Basically, instead of letting it take over you, you end up using your emotions as a signal to make better trading decisions.
So you see, looking at a problem from a different angle can go a long way in helping you improve your trading. It can offer you new insights on how to approach a problem, and heck, it can even help you turn your perceived weaknesses into strengths!