WHY FOLLOWING TRADING RULES GETS TOUGHER (ESPECIALLY WHEN YOU SUCCEED)

One time I read  a book about rich people and their habits and mindsets. Among a lot of interesting ideas, one stuck with me: while having the mindset leads to success, success itself also leads to having successful  mindset. It means you are a different person when you have $1,000 in your account from when you have $1,000,000. It sounds obvious, but I personally felt the changes in my mindset when I had 300% in profit from trading for three months out of college.   

The story does not end well, however.  Just like making free throws gets a lot tougher when it’s the seventh game of NBA championship, when each trade size became larger, I crumbled under pressure and started ignoring rules. 

What is the first rule of the trading? 

Cut your losses. 

The idea itself is very easily executable. You just close the position and start over. While I had no problem closing a position when 10% of the position meant $100 or $500, when the account grew, I started to hold onto these positions when 10% of the position meant $1,000 or $5,000.

 I became gun shy.

 I started hoping instead of executing. 

Once you ignore one rule, it gets easier to ignore another. I started ignoring the triggers and trading ‘qualitatively’.  I am sure there are people who can make money by analyzing the companies. However, that was not what I was doing. My trading was based on my own quantitative analysis.

I was basically throwing three point shots when I was supposed to play a center. 

I wish I could tell you once you follow my rules, it will get easier. It won’t. Success will challenge your ability to stay disciplined. It will get more difficult to execute what used to be a simple click of a button. You will lose more sleep over your current position and somehow wake up earlier than 6:30 PST everyday

Including the weekends!

There is a good side to success in trading, besides obviously money. Once you become good at or immune to cutting cut your losses, not just when you are trading but in everyday situations as well. You become more rational and less emotional. It will be surprising how things get solved when you view sunk cost as sunk cost and eliminate it.