The Mental Strategies of Top Traders: The Psychological Determinants of Trading Success

5.7. GETTING COMFORTABLE WITH THE UNCOMFORTABLE

As contradictory as it sounds, in order to truly learn from drawdowns and to master your trading experiences, you have to learn how to be comfortable with being uncomfortable. Self-awareness alone is not enough. Sometimes traders are aware of their errors but unwilling to do anything about them.

For example, George is a trader whose excessive caution prevents him from being as big as he can be. His plan for this year has been to get a list of names and target prices from the sell-side, have a goal of $1 million per month with the use of $20 million of capital, and improve on his portfolio management. He is very good about getting out of losing positions and has good statistics to show for it, although last year he missed some upside moves after getting out of positions and not getting back in when the stocks moved up again.

He recognizes that he needs to do more on the short side than he has done in the past, but has yet to develop any ideas about how he would do this or how to provide incentives to other guys in the firm to trade more on the short side. We discussed the fact that it takes more effort on the short side to do the work to get at structural alpha shorts than comparable trades on the long side, which may be one reason why people don't trade on the short side. Basically, George is too risk averse and is aware of it; however, he seems unable to face his fears. Self-awareness, then, must be coupled with a willingness to ...