Investing in financial markets will always come with success but also with failures. It is crucial for long term success to learn from each failure, and minimize the number of failures. It is impossible to turn the number of failures to zero, impossible. So, understanding when to accept the failure, not waiting too long with it, but also allowing for sufficient room to the market to prove your decision ‘right or wrong’ is what this is all about. Interestingly, and probably surprisingly to the vast majority of investors: success occurs primarily because of the inner world of the investor. It is mental and emotional processes that determine most of the success (or lack thereof) for individual investors and traders. This is pretty consistent with our 7 Secrets of Successful Investing.
Investing is a mental game.
The problem: Success And Failure Management Remains Uncovered
We assume that every trader or investor takes decisions according to a methodology. The world and the web is full of methodologies: Elliott Wave, candlestick analysis, technical analysis, and so on.
So that’s a red ocean, and many market participants looking at the same set of indicators to take decisions.
How do you really make a difference in this environment?
There are 3 differentiators according to us:
- Focus on perfect entry timing. You need to solve the The Classic Investing Dilemma ‘When To Enter A Position’ to be successful in this space. Now THAT is a topic that is underexposed, and there must be a good reason for this.
- Time line analysis. It is funny but also disappointing to see how ‘the entire world’ is focused on price analysis. Any chart has 2 axis. Price analysis is, in essence, y-axis analysis. Equally important, if not more important, is timeline analysis, x-axis analysis. Now that is a topic that is EVEN MORE underexposed, and there must be a REALLY good reason for this.
- The inner world of the investor/ trader. Yes, a methodology is key. But how you manage yourself, your emotions, your failures, your winners, is much more important.
You were not aware of this? That’s normal, and it aligns with Tsaklanos his 1/99 Investing Principles: a tiny 1% of market participants is outrageously successful. They master the practices and skills mentioned above.
Today can be the first day of a major change in your investing career if you decide to focus on these 3 differentiators.
Reality check: Investopedia, THE source of knowledge for the investing community, does not focus on any of the 3 differentiators we just mentioned. Even a Google search does not reveal any of the points we made above.
The elephant in the room: a fine line between success and failure
There are many ways in which inner processes work, and mostly in a way that makes the individual unaware of it.
As said in our series of success articles: success in market requires a counterintuitive approach. In sum, whatever you are used to do in real life, you flip the view in financial markets. Also, no matter how you are used to think in real life, you flip the view in financial markets.
Here a few examples to illustrate how fine the line is between success and failure:
- You are outrageously excited because you hit a big winner. You lose your focus, one other position is about to get hit hard, you miss the exit. After the other position takes a big hit, you start taking decisions in an uncontrolled way, in hindsight overreacting. Sounds familiar?
- You read an article about a guru like Buffett. You ‘interpret’, and conclude (for yourself) that there must be an opportunity in a certain domain. It appears you were late, and you have to exit that position as that market was at a turning point. You then want to make up for it, start chasing another market but miss the fact that the entire market started turning down. You are stuck with a position or you close with another loss.
We can go on for hours, but there is a red line behind these 2 illustrations which all of us should be really familiar with: the impact of emotions on our decision process + how our mental system allows to interpret information in the decisioning process.
You see the fine line between success and failure?
How to recognize success: FLOW
So, how do you recognize success?
The answer is simple: FLOW.
Similar to all areas in life you ‘feel’ when you are in your FLOW. You can feel it, you get energy even after hours of physical and/or mental effort.
Investing is not any different.
Beauty is important in real life, it should matter when investing.
FLOW is important in real life, it does matter when investing.
You recognize FLOW, you know when you are in your flow, timing your entries and exits feels almost perfect. You give time to the market, you are eager and patient, you act the right moment.
You are really happy with your results.
That’s when you are in your FLOW. That’s when you know for sure that you are mastering your emotional and mental.
But watch out, a few weeks or months later you may be shaken out of your FLOW. It can go fast. So, all you have to do is ensure that you carefully observe what you did well when you were in your FLOW. Also, what went wrong when you were shaken out.
If you do this sufficiently well, for long enough, learning thoroughly from success and failures, you will start seeing the fine line between success and failure!
Here is one more must-read article about success and investing recently published by InvestingHaven’s research team: Investing Secrets – Beauty Results In Profitable Investments.
Note that in our Momentum Investing service we frequently cover successful investing topics and tips specifically for equityinvestors. In our Trade Alerts service we share a lot of tips on successful trading especially as it relates to the inner state of the trader. The weekend updates in both services are priceless when it comes to tips for success and understanding the inner world of the investor and trader. InvestingHaven is one of the few premium services that covers these topics, and it is much appreciated by members.