Most people make the decision to quit something right at the time when it’s most difficult to stick with it.
Yet, in another one of those ironic laws of living a successful life, the period when it’s most difficult to continue with something is typically the very WORST time to quit at it.
Right in the middle of a difficult period is when we make our most irrational decisions. Our emotions take over and we fail to see the big picture. The decisions we hastily make during these periods are the decisions we regret the most later on in life.
This is true in all areas of life, but traders can relate to this fact especially well.
How often have we seen periods where growth stocks underperform value stocks and vice versa? Periods where swing traders outperform long-term investors and vice versa? Even long periods where T-bills outperform stocks and, yes, vice versa?
It’s tempting during periods of underperformance to wonder if our trading approach has been passed by. We see what’s doing well and wonder if we too should make the switch to “high frequency trading” or “value investing” or whatever strategy is hot this month.
The second half of 2011 was a frustrating period for trend traders. It didn’t matter whether you were short or long, the choppy market would break trend followers back to even just as soon as they started counting their profits.
There’s no doubt that during this period, many traders abandoned their trend-following methods. Many headed for that “greener grass” I’ve talked about before.
But those who did quit on their strategy are likely regretting it now as the NASDAQ is currently 29% above its October lows. Those who jumped ship, chasing whatever method was hot at the moment, missed out on the start of a powerful Uptrend.
Regardless of whether you’re Warren Buffett, Nicolas Darvas, or Paul Tudor Jones, it’s those traders who stick with their method of choice through the good times and the bad that end up making a fortune in this game.
The next time you’re facing tough circumstances – in your trading or in any other area of your life – force yourself to back away from the situation and avoid making a rash decision. In hindsight, these impulsive decisions are always the most detrimental to your success.
Yes, it requires mental toughness when things are going bad, but you’ll never regret decisions that are made with the long-term consequences thoroughly thought out.
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