Lesson 7. Surviving “The Dip” in Trading

The Dip is a book by business guru Seth Godin that spent four weeks on the New York Times Bestseller list. Recently I was talking with a friend about this book, and it occurred to me it is highly relevant to binary options trading. Really, it is relevant to just about any business startup, but I think with binary options and other types of trading, “the dip” is somewhat exaggerated. It can last longer and take you deeper into the hole financially and emotionally than you may be ready for—but the rewards can be worth sticking it out.

What is “The Dip?”

Imagine a graph with an x-axis and a y-axis, where the x-axis is time and energy, and the y-axis is reward. When you first start out on any venture that you are really serious about, you like to think that you will walk a steady upward line as you move from left to right. The more time and energy you invest into something, the greater the reward should be, right? Steady work should equal steady profits.

As you may have noticed with trading, though, success rarely actually takes this form. A smooth, steady climb is highly unlikely, and you should thank your lucky stars if you get one. There is a lot more up and down in real life, and quite frequently more down than you feel you can handle.

The graph of the dip goes like this: You start out on your venture (trading, for example), and for a while, everything seems like it is going smoothly. You may be making money, or you may be learning a lot—either is a form of reward. You feel you are making steady, smooth progress toward your goals.

Then, something changes. Abruptly, you start seeing your reward decline. You are still putting in steady time and effort, but there seems to be no reward for either. In fact, you are seeing less and less reward. You may find yourself struggling along the learning curve. Things which made sense last week may make no sense this week. A trading method you tested out and received great results with suddenly breaks. You may stop making money; you may even find yourself losing money. At this point, you are in what Seth Godin calls “the dip.”

To Quit … or Not to Quit?

At this point, you are probably questioning all the time, money, and energy you are still pouring into your pursuit. Is it going to pay off at all? Is the dip you are in really just a dip? Will the graph turn around and start heading back up soon, your reward increasing exponentially … or have you simply wandered into a dead-end, an endless collapse?

Quitting is not always the wrong decision, which is one thing that I like about Seth Godin’s book. The subtitle for The Dip is in fact, “A Little Book That Teaches You When to Quit (and When to Stick).” Success is built on a series of failures, almost without exception. Anyone who makes it right off the top without putting in time and effort has not actually succeeded at anything; they have simply gotten very lucky. Winners are not always people who push and push when they are in a dip. Sometimes they are people who walk away from their failing pursuits and pursue something else instead. Being able to recognize a failure and walk away quickly and start something else is actually a key trait for success.

With respect to trading, the question of whether to quit or keep pushing is actually more complicated than it may initially appear. There are different levels on which you can quit or continue to push through. The big question of course is whether you should quit trading binary options altogether or keep struggling to make it. But there are many smaller questions besides that one. Should you quit using your failing trading method and check out another? Should you quit trading live and go back to demo? Should you quit working with your trading partner or mentor? Should you quit trading a certain asset, or trading during a certain time of day?

Should You Quit Trading Live?

If you are losing money (outside of expected, normal losing streaks your system predicts), this is one of the easiest ones to answer … Yes. You should most definitely stop trading live with real money. Every dollar you lose is one you have to make up for. You will only lose time trading real money when you do not know what you are doing.

The great thing about trading is that this is a dip you actually never have to deal with. If your broker lets you demo trade, you can work on solving your other problems without losing money. This is one of the main reasons you should keep your day job while you are learning how to trade. That way you are not losing money by dint of focusing all your efforts on trading. You should take trading as seriously as you do your day job, but there is no reason to rely on it exclusively until you know you can. That way you will still be making money, getting by, and saving up for when you are ready to trade live again.

Should You Quit Using Your Trading System?

One very common scenario with binary options trading and the dip is this: You have been using a trading system for a while now, maybe months or longer. You might still be practicing, or you may be trading for real. Then one day out of the blue, for reasons you cannot even grasp, it stops performing the way you expect it to based on your testing. You are no longer winning as often as you expect to, and your profits are declining. You are suddenly failing.

At this point you may be thinking of throwing in the towel with trading altogether, or you may simply be thinking of abandoning your current trading system and picking up another one. You may think, “This system is not working, so I should quit and stop wasting time and find one that does.” Or you might think, “It was working before, so if I just keep troubleshooting, I will figure it out.”

In the scenario above, it actually would probably make sense to keep troubleshooting your current system. Why? You already had a solid basis for using it. Odds are you need to tweak something in your method or in yourself, and it will start working better again. Remember: there is no such thing as a perfect system. Chronically quitting and trying new systems and throwing them away is a common mistake, and can lead you on a wild goose chase for months or years.

On the other hand, if your situation was slightly different, it might make sense to try something new. If you have already been trying for months to fix the system to no avail, maybe it is time to quit and try a new one. Or if you never got a particular system to work, but you keep trying because it works for someone else, maybe it just does not suit you. Swallow your misgivings, accept the failure, and move on to a new one.

You may encounter similar difficult choices when it comes to other aspects of how you trade. Is there a particular asset you should quit trading? If it has become choppy and unpredictable, maybe you should—and switch to one that is performing in a more predictable manner. Do you have a trading partner or coach leading you in the wrong direction? Maybe it is time to quit that relationship.

Should You Quit Trading Altogether?

You will do a lot of quitting over the course of your journey as a binary options trader. You almost certainly will end up throwing away multiple systems and approaches on the road to success. But should you throw away your would-be career as a trader and try doing something else to make a living instead? That is another difficult question, but it is one you will not be able to avoid when the going gets tough.

Trading is not right for everyone. You will definitely not succeed at trading if you do not first and foremost love trading, even with its challenges. It takes passion for the art itself, and not simply the end goal of profit, in order to excel. This is especially true when you find yourself in the dip, wondering whether your hard work will ever pay off.

But when you do push through, and when it is appropriate for you do so, you should find yourself emerging from the dip someday. It might be next week, next year, or in ten years, but eventually, you will accumulate the knowledge and resources you need to see the reward start increasing again. And when it does, you will often discover it does not just start climbing steadily; it often takes an exponential jump.

We have all heard the saying, “the harder the battle, the sweeter the victory.” It may seem like a trite saying, but in situations like this, it is often quite literal. The harder your struggle through the dip, the more you will learn about trading. The expertise you develop through that struggle will empower you to heights you would never have reached without the battle. So if you do decide trading is right for you, you should expect the struggles. Embrace them, and hang in there. Quit systems and strategies that really are not working, and fight through and perfect those which can serve you. Evolve through your challenges, and one day, you may succeed beyond your wildest dreams.