Breaking The Cycle

I’ve been working with a struggling trader, helping him to discover where his difficulties lie. Sometimes when we are in the thick of things, it can be hard for us to see ourselves what might be rather obvious to others. In this particular case, the problem was one that is all too common among many who are relatively new to the business of day trading – the trader was stuck in a variation of the destructive cycle of the “grail hunt”.

The standard “grail hunt” cycle goes something like this: The student trader learns a trading methodology, usually from a book, seminar, or a trading coach. The methodology is probably sound in itself, but the new trader underestimates the time and discipline required to make it work consistently. They may start trading it quite well, or they may hit a loss early on, but they will hit a losing period sooner or later. The loss may be due to the student not trading the system correctly (overtrading, hanging on to losses, the list of possibilities is almost endless), or indeed it may well be down to market conditions and thus fully expected within the parameters of the system in question. Either way, once they enter the first period of drawdown, the new trader becomes disheartened and decides that the trading method must be at fault. At this point they go off in search of a new method, or a new “guru”, and in this way as they seek out the Holy Grail of trading systems, the cycle continues. The grail hunt is highly destructive because with each iteration, the trader becomes more desperate, and usually a lot poorer until eventually they give up when they run out of motivation, money, or both.

Suddenly all discipline would go out of the window

The trader I’ve been working with recently, as I mentioned, was stuck in a variation of this cycle. It went like this: He would start trading a system, and with the enthusiasm that accompanies any new endeavour, would put much effort and discipline into each trading day. Naturally this usually meant a successful start. However, once he was comfortably ahead of the game in terms of points, he would start to become complacent and, believing that he had now found “the” system, would pay less attention to his trades, and of course, would then rapidly lose his gains. The switch from profit to loss serving as a rude awakening, he would regain his focus and start trading in a more disciplined manner once more. However, being now in negative territory in monetary terms, when the inevitable down days came along, he would find them much more difficult to cope with – he had no profit to buffer him. Thus he would, in true grail-hunting style, move off in search of another new system. What would then follow, is that once he started trading his new system, he would start seeing perfect setups for his old system appear on the charts! Suddenly all discipline would go out of the window as the trader started mixing signals between new system and old, with predictable consequences.

The remedy for grail-hunting is, of course, to understand that there is no holy-grail, that the only way to ensure a consistent outcome is to trade in a consistent way. If a trader cannot follow their system 100% of the time, then either they lack the discipline required for the job, or they do not have enough faith in their system. Faith in the system is easily acquired by paper-trading for as long as necessary to understand every nuance of the method being employed. Discipline is, perhaps, more difficult to attain; I will discuss a simple and effective method for doing so in my next article.

Harvey can be contacted via his website, where you can also read about his day trading course

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