The Illusion of Good Trading
Too many would-be traders are suckered into the market with the promise of glitz and glamour. Instagram is full to bursting with 20 somethings boasting Rolex watches, $10k trading days and the latest McLaren. Their profiles are filled with the finest homes, women and luxury items that most millionaires would not dream of purchasing because it is just too damn expensive! Top this off with your desk full of $100 dollar stacks and we are good to go. Yeah baby, this is trading. Big, quick, sexy and of course, easy money.
Real traders know that the reality is far different. If you are excited during trades, the reality is, you are probably losing money or have perhaps made too much money in a short space of time that will impact your psychology leading to losses in the near future. Most huge losses come on the back of huge wins.
In trading as in poker, your brain can go into 'tilt' mode which dislodges your rational decision making and leads to large losses or missed opportunities. I know this first hand because it still impacts me to this day, the difference being, I can spot and analyze it before it impacts my livelihood.
So What Does Type 1 (Exciting) Trading Look Like?
- Taking on positions that make you feel uncomfortable. You feel elated when they win and devastated when they lose. A clear sign you are trading too large.
- You are at the edge of your seat: You literally are bracing for every tick of the market, watching it go up and down. This is it you are about to become a millionaire! Oh boy.
- You can't sleep because you are worried about the position. Truly exciting stuff.... I really don't miss those nights.
- Your mood swings from Mr.Generous to Mr. Kick the fucking cat off a balcony.
- You bought this sucker because it was going up. And you were right. It keeps going up, you sir are the smartest man alive. Congrats, oh wait... it's going down. It must be the market's fault, it will come back.
I hope the above is painting a clear picture of what you will find if you follow the internet bullshit hype cycle. There are multiple symptoms at play here which are easy to diagnose. The mishaps need to be understood before putting serious capital into the market though, this is usually an afterthought, most of the time after a huge loss.
If you are stuck in the elation despair cycle you need to stop trading before it's too late. Get a mentor and re-evaluate why it is you are here, why are you actually trading and do you have a system.
Good trading is boring. It's so boring that you will look to take trades that don't exist. Your eyes will create the infamous 'Bolivian Chandelier' pattern that quote frankly - DOES NOT fucking exist. Let me explore the flip-side however.
What Does Professional Trading Look Like
- You have a specific set of rules that determine when you buy a stock, when you sell a stock and at what point you will enter or exit the trade. Example of a trading process here.
- You write this down in your grey and boring ass spreadsheet the evening before the market opens. At this point you are the least excited you've ever been. Coffee from the workday has worn off, the kids are crying and it will be okay if you let it go one day.
- You understand your position size and how much risk you are taking in every position.
- You know that this is a probability game and that you have literally no influence in a game of random outcomes.
- You acknowledge that all you can do is follow your rules. Follow your trading plan and execute your strategy.
- Your diary is full of trading stats that you review regularly to understand how you are trading, where you need to improve and how best to express your edge.
- When your strategy is working you don't fucking YOLO trade your life savings into one trade and get your "Hail Mary" pay day.
- You consistently win more than you lose in more or less regular time intervals.
- Your trading diary is honest and if someone audited your account they would find the same numbers.
- You now have a statistically higher probability of being wealthy in a shorter time-frame but acknowledge that nothing is certain hence your constant psychological self-development enabling you to change as required.
Maybe It's Your System
If you are finding it hard to commit to a specific strategy, it may very well be the system you are trading doesn't align with your personality. I did a full write up on trading systems and personality found here. It took me some time to experiment, fail and keep going until I found the right system that suited my personality.
Some of the greatest traders every have lost it all, and had years of pain and experimentation until they hit their stride. This is why the performance psychology aspect of trading is more important than the system itself.
Being "boring", developing patience and deeply learning and changing how you act is where the real money is made and lost. Just as someone will give you a diet you can't follow. A trading system is only as good as the effort and discipline executed around it.
I hope you've found this helpful. I struggled to see the truth about trading for years get caught up in social media, heuristic pressure and low self-esteem. All of these issues create a very clingy and desperate approach to trading which results in delusions of grandeur and crescendo as extreme pain.
Unlike every other endeavor in life, the market is not going to tell you a simple formula on how to make money, even if it did, you would need to follow it and stray away from distraction. Trading is not something that should provide you with excitement or elation, it surely can, but I can confidently say - it will not add to your overall financial net worth. When I feel elated these days I sell 20% of a position at least to keep myself grounded (as long as it is within my rules).
Good trading is a routine, discipline and a keen self-awareness. It's a business with simple inputs, rules and principles that you need to follow time and time again. Over time the probability distribution you have worked out will fall in your favor and compound to create true wealth. That wealth is not only financial but also the discipline to understand the truth and nature of yourself and how you relate to the stock market.
If you want it badly enough, you will find it or at least gravitate towards the truth of what it is and how you relate to it.