Over the many years of being around markets, trading markets, being around traders, and now working with traders, I know that more students than not have a real problem with admitting when they are wrong. I also know that they very likely had this handicap before they took up trading – and that I absolutely have no interest in playing psychiatrist. Forgive me for being selfish, but my job is to demonstrate how to trade in live markets, not analyze the clients, or even analyze markets for more time than I need to. This is why on my days off that I don’t think about markets, or read anything market related. By avoiding market material however, I occasionally come across interesting information which can be helpful to traders, which is what happened this past weekend when I was on the website ted.com and came across a video of Kathryn Schulz, who calls herself the world’s leading wrongologist.
Obviously not admitting being wrong can be painful in a trading account for sure, but the more common problem that I see in people with this affliction is they don’t trade to begin with. My guess is that by trading, and losing, they would have to consciously admit to themselves that they are wrong. Nothing provides self-therapy better than seeing the account balance at the end of the day. For someone who fears failure not trading can be a good thing, because it assures the person won’t lose her money. Fear of failure will most times assure the individual that success will be alluded, but at least it won’t leave her broke.
I’ve been curious about this trait of not being able to admit we’re wrong, which so many of us have, because, as you can imagine, it can take up a lot of valuable time. In the end it is very silly because as the old quote goes: “to err is human” A better answer I believe lies in the advice that young Prince William’s Godfather gave him upon his marriage. “When you are wrong admit it quickly. And when you are right keep your mouth shut”. We can apply this to trading by saying “when price tells you you’re wrong exit the trade quickly. And when price proves you right don’t do anything --let your profit run.
Here is a link to Kathryn Schulz’s blog which is worth perusing: The Wrong Stuff
Jay Norris is the author of Mastering Trade Selection & Management, McGraw-Hill, 2011, and host of Live Market Exercise for Clovernest Financial Group.
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