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Following a strategy is key to success in the markets, but what if you make deliberately wrong decisions and still make money? Here are some ways to avoid this form of self-sabotage.
If traders are going to succeed over the long haul, they must follow their own rules; and in order to do so, they must maintain a state of personal and emotional balance. This paradigm is the essence of my work with traders. However, the problem with this strategy is that we are talking about results over time. In the short term, unfortunately, things can happen quite differently; even the most carefully conceived and faithfully followed system will periodically produce losses. And even more vexing is the fact that, sometimes, breaking your rules can result in significant wins.
This paradox was brought home to me recently when I attended an industry conference. In discussing with another conferencegoer on how to keep traders faithful to their rules, he pointed out that markets will sometimes reward bad habits and as a result, the experience of doing the wrong thing and winning despite it reinforces the bad habit. As we explored this phenomenon through examples of traders we knew who had fallen prey to this temptation, we talked about what happens to us when doing something we know is wrong gives us an unexpected reward.
Markets will sometimes reward bad habits and as a result, the experience of doing the wrong thing and winning despite it reinforces the bad habit.
At first, our minds are confused by the fact that despite our breaking the rules, we have won. At first, we conclude that this behavior should be encouraged. But then conflict sets in; the part of you that wants to follow the rules is in direct opposition to the part that says: "Remember we were positively rewarded when we went against our system? Are you sure you don't want to do that again?" This part of you thinks it has a valid argument because it has evidence that you can get positive results by breaking the rules. Thus begins a pattern of sabotage that can spell the demise of a good trader and a working system.