Why is personal responsibility so important? Well, one of my beliefs is that YOU are the most important factor in your trading. It's not you system because YOU both produce and execute your system. It's not your money management, because YOU must execute your money management in order to produce results to meet YOUR objectives. And it's not the market, because you don't really trade the market, YOU trade YOUR BELIEFS about the market.
The net result is that YOU PRODUCE THE RESULTS YOU GET AS A TRADER. And when you understand that, you then realize that you must make changes if you want more effective results. YOU must produce the changes.
At some of my workshops I play a simulated trading game. In that game everyone gets the same trades, and their only real decision is how much to bet (so it's really a game about position sizing). In fact, since everyone gets the same trades, the only two factors really operating in the game are position sizing and personal psychology. Yet in a game with a positive expectancy, with 100 people playing the game, I'll typically see 1/3 of the room go bankrupt, another third of the room lose money, and the remaining third will make very nice profits.
Typically I ask people in the audience to pull out marbles, representing the trades, and I will ask the same person to keep pulling trades (i.e., marbles) until he/she gets a winner. That means that if there is a long losing streak (and there usually is) that it will be associated with the person who pulled the marbles out of the bag for that streak. I can then ask the audience, "How many of you think you went bankrupt because of Bill?" – while pointing to the person who pulled out the losing streak. And amazingly, quite a few of the bankrupt people will raise their hands. The problem with that assumption is that nearly every simulated trading game will have a long losing streak (i.e., it's designed that way) and it will always be associated with the person who pulled that streak. Thus, if you believe that person was responsible, you'd probably make the same mistake over and over again. You'll go bankrupt in many games and it will always be "Bill's" fault.
Furthermore, there are many possible responses to "why did you lose money in the game?" They include:
- It was the fault of the guy who pulled all the losing marbles (trades)
- This is a stupid game and it's doesn't reflect real trading.
- It's random chance and has nothing to do with me.
- I didn't have a good system
- I'm a stupid idiot.
All of those responses are excuses and then won't help you improve. There is only one response that will help you improve and that is:
"I risked too much money on a number of the trades and that's why I lost money or went bankrupt."
When you understand that, then you can fix the problem. When you give any of the other excuses, then you just compound the problem and will repeat the same mistake over and over again.
Now are you beginning to understand why taking personal responsibility for your trades is so important?
When you look at your trading results and say, "I created that result," then you are in charge of the process. And if you don't like the result, you can start to look for the mistakes that you made. And when you find the key ones that really produced your results, then you can make changes and get better results. THAT IS WHY PERSONAL RESPONSBILITY IS SO IMPORTANT and why I look for it in all of my super traders.
Do you like the results you produced as a trader in 2005? If not, then what mistakes did you make and how can you correct them. And you might ask yourself:
- Do I have a business plan to guide my trading?
- Do I have a worst case contingency plan?
- Do I have several positive expectancy systems that are well tested for this market climate that I can trade.
- Do I have something else that will work if the markets change?
- Do I regularly work on myself as the core of my trading results?
If you answered "No" to any of those questions, then you have some real clues about why you got results you didn't like in 2005. And those, by the way, are only a few of the questions that you could ask yourself.
Van K. Tharp, Ph.D.