Stock Market Wizard, U.S. Investing Champion Mark Minervini Shares Ideas and Wisdom Here FREE!
October 06, 2014
I call it the CLUM Principle: “Comfortable equals less; uncomfortable equals more."
Life is like a tree; the fruit grows at the end of the branches, so you have to go out on a limb to get it. Moving outside your comfort zone doesn’t mean taking on big risks. It means you will have to stretch yourself and do things that, at first, may feel unnatural or counterintuitive. Fortunately, you don’t have to jump from the safe and familiar directly to what feels completely impossible, as if you dove off the cliffs at Acapulco while you still learning to swim. It’s a process of gaining proficiency—and comfort—along the way.
Picture a series of concentric circles; at the center is your current comfort zone. You start in the center, at “ring 1”, which encompasses what you already know. From that initial phase, you gain some experience, learn about yourself, and begin to hone your discipline. But ring 1 is only a starting point. You can’t stay there permanently if you want to achieve trading success.
Think of the effort involved in learning to play a musical instrument or to become good at a sport. It takes hours of practice and feedback from good coaches/teachers who will help you improve your technique. With time and commitment, your skill level advances, to the point that you’re able to play Beethoven or swing for the fences with a heavier baseball bat.
You can’t jump from ring 1 to ring 4, though; you need to put in the necessary the time and effort (and a lot of it) to gain competence and confidence. If you rush, without building a foundation of skills and experiences, you’ll invite disaster.
Whatever the endeavor, as you move from beginner to more advanced, you stretch yourself from ring 1 to ring 2. Now, ring 2 is your comfort zone, and your stretch place becomes ring 3. As trader at ring 2, perhaps you’ve further refined your selection criteria and can now take bigger positions, without being exposed to undo risk. With more experience and information, you move into ring 3, and ring 4 becomes your stretch place. And so it goes.
As Ralph Waldo Emerson said, “The mind, once stretched by a new idea, never returns to its original dimensions.” In the same way, as you successfully expand beyond your previous limitations, you won’t have the desire or need to go back to the small place of your original comfort zone. Looking back, you will be pleasantly surprised by how much you’ve grown and matured in your trading. What had seemed so difficult, even impossible, is now well within your comfort zone. With practice and discipline, this new, expanded level of competency becomes axiomatic to the point of being second nature. This is how mastery is built, one step at a time.
No ‘Victim Thinking’…
We all have our quirks and flaws, especially when we’re starting out or we feel unsure about what we’re doing. Common flaws in trading include being afraid to pull the trigger and get in a position; selling too quickly without letting profits run; and holding onto gains for so long, the stock reverses and most (or all) of the profit is lost. The deadliest mistake of them all is refusing to sell at a loss, especially early on when it is contained by the parameters of your stop-loss.
Whatever area you have to work on, you must begin by taking responsibility for your trading results. In other words: no excuses.
If you want to succeed, you can’t fall prey to “victim thinking,” that the market is unfair; it’s a rigged game and you can’t win. You can’t blame the stock, the market, the Fed, your mother, or your first grade teacher who made you miss recess… In order to control what you’re doing and learn from it, you have to accept the fact that your successes and failures are 100 percent in your control. When you turn on your computer, the stock on your screen looks the same as it does for everyone else—same highs and lows, consolidations, breakouts, trading volume, and all the rest. The stock doesn’t know who you are. It doesn’t “act” a certain way for you and not someone else. It does not have a vendetta against you. (As crazy as these statements are, nearly every trader entertains such irrational thoughts and fears occasionally.)
Taking responsibility does not mean blaming yourself. Responsibility is empowering, because it acknowledges that you do have control over the situation. When you take responsibility for your losses—for example, acknowledging that you don’t get out of losing trades fast enough—you are telling yourself that you can get better! You can develop the discipline of cutting those loses until you become robotic about it. Blame, on the other hand, is disempowering. Blame makes you feel like a victim. You tell yourself you have “bad luck.” Then what are you going to do? Hire a witchdoctor to break some evil spell?
Take 100 percent responsibility, which enables you to stick with your strategy and improve your execution.
Excerpt from Trade Like A Stock Market Wizard; How to Achieve Superperformance in Stocks (McGraw Hill - 2012)