As with most things that challenge us, our egoic mind gets involved and often ends up controlling our state via our thoughts (e.g. negative self-talk) and emotions (e.g. joy, fear, regret). As a result, we often end up investing most of our energy on trying to defeat ourselves rather than focusing on what we set out to do in the first place. This is not an optimal state of mind from which to be making decisions about anything, not to mention trading.
The successful trader is successful, as he/she thinks in probabilities and does not entertain decisions born out of the egoic mind. There is no emotional attachment (neither positive nor negative) to individual trades, as individual trades have no validity by which one is able to gauge the overall success of a trader. Losing trades are an inevitable part of trading, it simply cannot be avoided all of the time. Losing trades can be compared to the wear on a race cars’ tyres. The driver knows and acknowledges the fact that if he/she wants to win, it will cost them a few pairs of tyres to try. As worn out tyres are an accepted part of racing, so are losing trades an accepted part of trading. If you don’t want to use your tyres, then you can’t race.
I have had the opportunity to speak with many successful traders other the years via my work, and organise the information gathered via our discussions. They seemed to have a similar understanding of the market, and where they fit in to it all as a trader.
Here are the five characteristics I feel to be a very important part of the successful traders mental landscape, and those in the minds of the interviewed traders.
I spent 9 years of my life living in Montana in the United States. My time there was amazing and what I miss the most about being there is the nature. I was always in the mountains walking, bicycling, camping, skiing and fishing. It was a truly amazing place to be. I remember once falling into the upper East Rosebud river, and if you have ever been there before, then you know that falling into this part of the river is a mistake of potentially great magnitude. I fought like an angry Grizzly in an attempt to get out of the river alive. I finally got out and I was physically and emotionally exhausted. I sat on the bank of the river listening to its deafening roar, my arms embracing my Rottweiler Ben. I was horrified and desperate whilst in the river, and grateful and relieved once out. Was I angry with the river because it tossed me into its rocks? Did the river owe it to me to ensure my safe exit from its rapids? The river was the same before I fell in it, it was the same while I was in it fighting to get out of it and unchanged once I finally succeeded. I was humbled. I once lost my shirt on a trade like I almost lost my life in the river that day. It was my irresponsible behaviour that got me into clutches on the river, and it was my irresponsible trading that got me into that trade. While I didn’t have the capacity to consider my emotions whilst in the river at the time, I had ample while in that trade. The ride lasted about 5 minutes and I was exhausted and my account half empty once it was over.
To me, the market is the upper East Rosebud. It has the capacity to defeat anybody, at any time. I did get back in that river, but the next time I chose to do so, I knew where and how I was going to get in and out. If things got out of hand, which they sometimes do, I was protected with the appropriate gear. Despite my horrifying experience with the East Rosebud river, I am now able to get back in it, as I take full responsibility for how and if I choose to do so. Isn’t it incredible how something once so frightening can be so enjoyable! Responsibility.
Have you ever made a bad decision that you perhaps unconsciously knew was wrong but continued to hold on to out of pride? Humans don’t like being wrong and many will fight to the death to defend what they believe to be true. Wouldn’t it be so much more peaceful to acknowledge a mistake, have the intelligence to learn from it, alter the approach and try again? Being honest with yourself at a time where not being so may cost you, is what is required of the successful trader. Our egos often make us blind to the truth, and having the courage to see through our egos with honesty and face reality, will enable us to see things how they really are, and not how we want them or expect them to be. When we have the courage to be honest with ourselves, we stop looking for false reasons to support our poor decisions. Honesty.
Courage means moving into the unknown despite all fears. While fear keeps us safe from danger, it also has the power to keep us from venturing into the unknown, preventing us from experiencing new and exciting things. I view courage, in relation to trading, as the force that drives us to believe in our ability to define our advantage and act on it. If your advantage enables you to identify a trading opportunity but you lack the courage to follow through, your days as a trader are numbered. Your advantage will enable you to see what you need to do in order to be profitable, but it is up to you to actually do it. As the Spanish writer Baltasar Gracian once wrote
Without courage, wisdom bears no fruit.
Being exposed to a string of bad trades may very well have a negative impact on a trader’s ability to enter the next one, but doing so anyway requires tremendous courage. Danger is real, fear is not. Fearing something does not make t dangerous. Courage.
The word intelligence is the term I use to refer to an individual’s ability to (A) implement a chosen strategy to deal with an area of focus, to (B) implement it, to (C) assess the level of success, to (D) make necessary changes if necessary and to (E) try again if required. You don’t need to be extraordinarily clever in order to be successful, and trading is no exception, but you must be able to see if what you’re doing is working, and then make the necessary changes in the event that it is not. I see this everyday in the way people deal with all kinds of challenges. They do the same thing over and over again and in most cases, keep getting the same results. The interesting part is that they still expect something different to happen. An intelligent human being is able to see that if what they’re doing isn’t getting them the results they desire, things need to change. They step back, re-think the situation, make an adjustment, and have another go until they get the desired result. It should be noted that the meaning I give to the word intelligence in this context, is not related to an individuals IQ, but rather their ability to assess the level of success with what they’re doing. If what you’re currently doing isn’t getting you the results you want, then try something else. Intelligence.
Have you ever tried to accomplish something that required you to persist? Unless it was life or death, maybe you gave up. I think this is normal. How do you know if the strategy you have chosen to help you accomplish something works, if after having tried it only a few times, you try something new? I don’t think this would enable you to gauge the true ability of your method. Don’t you think that if you spend the time to devise a strategy to help you with a specific area of your life that you ought to try it out for a while? I remember the first time I bought a pair or Levis Button-fly jeans. It must have taken me over 5 minutes to button my fly the first time, I remember it as if it was yesterday. I wasn’t sure how to quickly and easily get the button through the hole in a single motion – but after a few tries, I realised that If I put the right side of the button through first and pushed with my thumb whilst holding the denim around the hole firmly with my other hand, the rest of the button popped through effortlessly. In time, I learned to appreciate the Levis Button-fly. When implementing a strategy, it’s important to give it an honest try, with intelligence. Some things just take time to master, be it buttoning up a pair of Levis or implementing a trading strategy. Commitment.
Performing various tasks such as walking, will, for most people, require almost no conscious involvement, as the body, over time, manages to “remember” how to do it merely by doing it over and over again. A baby who has just learned to walk must focus, deliberately try to walk in order to consciously orchestrate the movement of limbs required to walk. Over time, the mind will remember what is required to walk, and conscious effort will no longer be required. The task of walking thus becomes unconscious.
In trading the same applies. When one begins trading, the act of using ones advantage to identify a trading opportunity and follow through, is a conscious, procedural task but over time, the act becomes second nature, and almost automatic. This is when the trader has, metaphorically speaking, learned how to walk.