Janice Dorn, MD, PhD
Neuropsychological Trading Coach
Janice Dorn, M.D., Ph.D., has been a full-time futures trader since 1994. Doctor Janice holds an M.D. in psychiatry and is board-certified by the American Board of Psychiatry and Neurology in general psychiatry and addiction psychiatry. She holds a Ph.D. in brain anatomy. A graduate of Coach University, she is a pioneer market psychiatrist and financial neurobehaviorist. Doctor Janice has written over 500 articles on the financial markets and coached over 600 traders worldwide. She is the Global Risk Strategist for Ingenieux Wealth Management Group, Sydney, Australia.
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We're not two peas in a pod.
We're two fingers in Chinese handcuffs.
The more we pull we stay,
The more we stay we pull
Apart this wicker toy…"Chinese Handcuffs" by Matt Kadane
As the 2008 Olympics in Beijing draw nearer, more stories and images of elite athletes will emerge. These men and women are the brightest and best in the world, and each is competing for glory in front of millions of people on the greatest of world stages. These people have one purpose and one purpose only -- to win an Olympic medal.
Most of us are taught from a young age that "winning is everything." We grow up in an atmosphere that teaches us it is bad to lose. When we lose, we feel ashamed and humiliated– which is why we do everything possible to prove to our families and the world that we are winners.
Coaches always tell their teams to "Go out there and win, win, win!" That is how we keep score in athletics. Winners win, losers lose and numbers don't lie. This type of thinking manifests every area of our lives, including our jobs, relationships and trading.
The bottom line is this: We all want to win and succeed because it is ingrained in our collective psyches.
If we are winning, we are "on a roll" and give ourselves positive messages to keep winning. If we are losing, we try harder and harder, but something has changed. The notion shifts from trying to win to - trying not to lose. Ironically, the more we try not to lose and tell ourselves that we must stop losing, the more we lose.
This happens to traders all the time. When they are winning, they feel happy, confident and good about themselves. As a general rule, these traders know what it means to win and are able to trade successfully for many years. This directly contrasts with the losing trader who is constantly trying not to lose. These traders have a tendency to dig themselves deeper into losses because they do not yet understand a fundamental tenet of trading success.
In order to succeed as a trader, there is a single concept that must be grasped: It is both necessary and OK to lose. When I tell this to people, they look at me like I have lost my mind.
This is because they are either unwilling or unable to accept that knowing when and how to take losses is essential for trading. What happens time after time is that the trader believes every trade must be a winner. The trader goes from newsletter to newsletter looking for the Holy Grail of trading that promises the highest number of winning trades. In trading, the highest number of winners tells you nothing unless you know the percentage gained on the winning trades relative to the drawdown percentage on the losing trades.
Trading is a game of probabilities. As such, it is paramount to understand that is it perfectly natural to lose. It is never about losing per se, rather by how much. Successful traders always make more money than they lose. One major reason for this is that they understand the game they are playing. They also do one critical thing that losing traders do not do -- they embrace and manage risk. In other words, they identify the risk involved in every trade and they quickly cut losses when the ratio of risk to reward is no longer favorable. At the same time, they hold on to profits and may even increase position size if the risk/reward remains favorable. They do less of what is not working and more of what is working.
Simply stated, they are trying to win, rather than trying not to lose.
I use the example of the Chinese handcuffs because I see it so often in traders. The Chinese handcuff is a woven wicker cylinder with an opening at each end the size of a finger. Once you put a finger into each end of the straw, you are in a losing position. The reason for this is because when you try to pull your fingers out of the straw, it tightens around them. The more you try to pull out, the tighter the straw becomes. The rat brain wants out at any cost and so it orders you to pull and pull, causing more constriction around the already trapped fingers.
After struggling a while, the rational brain takes over and tells you that the way to get your fingers out of the straw is to relax and stop pulling.
The same applies to trading. The more you resist taking a loss, the larger the loss becomes and more desperate you become not to lose. Once you totally relax into the trade, let your rational brain take over from the grasping, clutching rat brain, you see that the best way to win is to let go.
The takeaway from this Trading Wisdom is simple. Winning is not the same as trying not to lose. Great traders may struggle, but not to the point where they are in the vise of the Chinese handcuffs. They know and understand completely that losing is often the only way to win. They have learned to surrender, accept and move on. Once you practice doing this with your own trading, you will find a new sense of freedom and a new happiness. Moreover, you will preserve your capital to play the game another day.
Perhaps my number one rule is: Don't try to make a profit on a bad trade. Just find the best way to get out…Linda Bradford Raschke
Until Next Time,
Good Trading and Brain On!
Janice Dorn, M.D., Ph.D.
janice@thetradingdoctor.com
P.S.—Take a sneak peek at my new book, Personal Responsibility: The Power of You, published in January, 2008, at www.personalresponsibilitybook.com.
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