When You're Hot You're Hot

Almost everyone's instinct is to be overconfident and read way too much into a hot or cold streak.
Nate Silver

No matter who you are, there are times when you just aren't functioning at the top of your game. You try and put on a trade, but your heart just isn't in it. What do you do? Do you continue on and hope for the best or stand aside and wait before tackling the markets again? As a general rule it's usually a good idea to stand aside.

If you are a music fan you may remember the 1971 song by Jerry Reed "When you're hot you're hot". The verse of the song is: "When you're hot, you're hot. And when you're not, you're not". My father (one of my hero's) loved that song and used to tell me remember those words for that is how life is! He was a salesman much of his life and used to tell me most sales people do it backwards, they make a sale in the morning, then take the rest of the day off to go fishing, play golf, whatever. He told me no, no, this is when you work harder than ever because you're hot, so try and pile up the sales for when things go bad and go bad they will. It is when things are not going well that you take a day or two off, go fishing or play golf, or whatever to clear your head of the cob webs, then begin again. Sage advice!

At first glance, this advice may seem counterintuitive. Throughout our lives, we've been told over and over, "At first if you don't succeed, try again." It may be necessary to try again, but it may not be a good idea to try again when you aren't ready. Give yourself a break. Your body and mind have limits. When you are feeling low, a lot of your mental energy is spent so that no one will suspect you're in a slump. If you broke your leg, you wouldn't try to jog two miles a day. You would stay off your feet until you recovered. If you had a high fever, you wouldn't jump in a cold pool and swim a few laps. When physically ill, your body can't take it. You would end up feeling worse when it was all over. It is vital that you rest and recover Similarly, when you're not feeling up to par, and have wavering confidence, it's wise to say out of the markets until you are feeling better.

A common mistake is to ignore your feelings and just push yourself to keep going. When you are a seasoned trader who is not feeling very badly, this may work. But if you are relatively new to the trading profession and are feeling down, you will find that the harder you push yourself, the more you'll feel let down and frustrated. Instead of pushing yourself beyond your limits, calm down, rest and cultivate a fighting spirit.

It may seem unproductive to take a break when feeling in a slump. But it works. Don't fall for the conventional view of success as making huge profits even when you aren't psychologically fit. It's better to work at your own pace, and focus on the process of trading. If you hone your skills in a calm yet deliberate manner, and take breaks when your psychological energy or confidence is depleted, you come back with a tough, fighting spirit that will help you achieve lasting success.

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Reprint from PrudentTrader Archives 2006