Business Assets & Liabilities

Your businesses biggest assets and liabilities lie in the deep sub-conscious of your mind.

Ok, now that you’ve gone through your checklist of resources, we need to analyse you!

If you’ve been trading for a while, this will actually be a little easier (depending on how honest you are with yourself) than if you’re first starting out. Someone who is just starting out may not have experienced some of the things that most traders inevitably experience.

So what is the purpose of self-analysis?

Self-analysis is a process of, identifying strengths and weaknesses, building on those strengths, and eliminating the weaknesses. Believe it or not, the mere fact of identifying a weakness is half the battle won.

It is not easy to sit there and work out your strengths. Most people actually believe they are above average, but they think this in general terms, and they don’t actually believe they have any specialist strengths.

For example: one of my strengths is persistence. You can knock me down as many times as you like, I’ll still get back up. But do you know how I worked this out? Because years later I am still trading, even though in my early stages of trading I lost lots of money and placed a lot of strain on my family.

Weaknesses are even harder to work out because you have to own up to something that is not desirable. To admit to yourself that you don’t know how to take responsibility for your own decisions can be a hard pill to swallow. I’m not suggesting all struggling traders do this but it is a common trait.

To start out, read through the following and give yourself a rating of bad, average or good; low, average or high; no, sometimes or yes.

These questions are being asked twice for a reason. Pay special attention to what is written in brackets.

Emotional Control (how well do you respond to problems?)________________________

Patience (are you a patient sort of person?)_____________________________________

Trust (are you are trusting sort of person?)______________________________________

Confidence (do you have confidence in your abilities?)___________________________

Assertive (do you like to get what you want?)___________________________________

Focus (do you have a good attention span?) ____________________________________

Decisions (are you a prompt decision-maker?)__________________________________

Details (can you take action with minimal detail?)_______________________________

Uncertainty (can you take action even in the face of uncertainty?)___________________

Commitment (do you stay committed to a task?)_________________________________

Risk (are you willing to take risks?)___________________________________________

Security (do you seek freedom?)_____________________________________________

Emotional Control (do you react to problems?)__________________________________

Patience (are you an impatient sort of person?)__________________________________

Trust (do you find it hard to trust people, companies etc?)_________________________

Confidence (do you lack confidence in your abilities?)____________________________

Assertive (do you settle for second best a lot?)__________________________________

Focus (do you have a poor attention span?)_____________________________________

Decisions (do you take a long time to make a decision?)___________________________

Details (do you require lots of detail before taking action?)________________________

Uncertainty (will you shy away at uncertainty?)_________________________________

Commitment (do you wander from one task to the next?)__________________________

Risk (do you fear taking risks?)______________________________________________

Security (do you seek security?)______________________________________________

Your answers to the top 12 questions should be in contrast to your answers to the bottom 12. For example, if you answered any of the questions in the top half ‘no’, then your answer in the bottom half should be a ‘yes’, if not, you are contradicting yourself.
You may be getting a fair idea of some of your strengths and weaknesses by now, but let’s dig a little deeper. This next exercise is about mistakes traders make and is really for those that have traded before, so if you are an absolute beginner, try relating the questions to another endeavour you have pursued.

Read the question and write down if you have done it before. If so try and remember when, and then write down if you are still doing it.

Have you ever –

Traded without a plan?

Not used a stop?

Let a loss run?

Cut a profit short?

Traded on a hunch?

Risked too much?

Lost more than 10% on one trade?

Been over confident with a pick?

Listened to other’s recommendations when this is not part of your plan?

Wanted to be right about a trade?

Under-estimated what it takes to make consistent returns?

Over-estimated your emotional control?

Treated trading as a hobby?

Thought too short term?

Guessed what a chart and price is saying?

Gone into a trade with no clear exit plan?

Tried a system once or twice before abandoning it and moving to another?

Used too many technical indicators and oscillators?

Bought all the best equipment and software thinking this will make you a better trader?

Spent too much time trading thinking this will make you more successful?

Jumped up and down like a child when you had a profitable trade?

Blamed the markets for a loss?

Traded and then not review your trade after?

If you’ve made it this far, well done! If you go over all your answers from both exercises you should have a good indication of some of your strengths and weaknesses, and which weaknesses are still problematic for you today.

A very valuable lesson I learned on how to eliminate your weaknesses was to put up barriers in front of them, because over time, the barriers weaken their power. Your mind is made up of Neuronets, which connect parts of your brain, that associate stimulus with memory, and the more these Neuronets are fired, the stronger they become.

Imagine a piece of wire and wrapping tape around it. The more tape you wrap around it the stronger it becomes. Neuronets are the same, and the more you behave, think, or act in a particular way, the stronger they become.

But the opposite is also true. The less you activate there Neuronets, the weaker they actually become, and so, if you decide to block a certain behaviour, over time it will become less of a habit and less of an automatic behaviour, thought or action. 

So how do we block negative actions, or our ‘weaknesses’? We create a list of both strengths and weaknesses, and at the end of every trade we grade ourselves. This forms part of your trade review process, and your self-analysis report.

During your trade review process, check off any of the weaknesses you encountered or struggled with before, during and even after the trade.

For example, if you have a tendency to cut profits short, you would have this in your list of weaknesses. Then if you were to actually do this during your next trade, you’d check it off in your trade review, and at the end of the week, list it as negative behaviour that occurred during week. This way you can then implement plans to prevent them happening the next week.

This reporting process also enables you to spot the behaviours, negative emotions and thoughts that occur on a regular basis, thus forcing you to take a stronger stance on removing them.

Now that you have worked through the business and its objectives, you should have a clear idea of what you want your business to look like when it gets there. You should also have a 5-year goal, some plans, a list of your resources, and a list of your assets and liabilities.

So armed with this, answer the following questions; some are repeated from earlier.

How much do you have to trade with? ________________________________________

(This is your trading account balance, or an amount you have already designated, or an amount you plan on using for trading at some time in the future.)

Can you afford to lose all of this? ____________________________________________

(Does this make up a large part or a small part of your overall wealth? Is this money for riskier pursuits or do you plan on using it to pay for living expenses?)
 
What would you like to make within the next 12 months? _________________________

(This can be both a monetary figure and/or a percentage of your capital such as an overall return.)

How much are you willing to lose before you’ll abandon ship? _____________________

(This is your risk tolerance. How much of a draw down are you prepared to take? This can be an amount of money, or a percentage of your capital.)

How many losing trades in a row could you handle? _____________________________

(This is another form of risk tolerance; however a lot depends on your risk per trade.)

Are you expecting too much of yourself? ______________________________________

Are you expectations too high, now that you know how equipped or ill equipped you are in relation to your resources and your assets and liabilities?

Move on to Step 3 - Market Basics