"All of humanity's problems stem from man's inability to sit quietly in a room alone" - Blaise Pascal.
Having been in the market for over 12 years and taken thousands of trades, I've really had time and (painful) experiences to figure out what works, what doesn't and more importantly, if my trading plan lines up with my personality.
Luckily, having coached dozens of new and intermediate traders, I've had the privilege to spot, correct and identify patterns that occur during their development. To name a few:
- Incorrect position sizing
- Not using stop losses or "believing" in them
- Low self-awareness
- Faulty strategies
- Misguided beliefs around money
Funnily enough, many of the nuances I spot in behaviour revolve around a really neurotic need to make money extremely fast. This speed sometimes blinds people, myself included to the process of trading and gets them focused on the end result.
Trading has incredibly low barriers to entry. Unlike becoming a lawyer, with trading, you can start today without 10 years of college and or mentoring, so we have this "need" for making money fast with a low barrier for entry that attracts people with typically low self-awareness or gambling tendencies. You can guess why over 85% of traders fail or wipe out.
Moving Fast but into a Wall
The paradox with wanting money fast is that we typically act outside of our best interests and don't even know it (how do we know what we don't know)! We begin looking for quick fix information to confirm our biases and give away our control, particularly in the early days. When I started trading I did the same thing:
- Trading on tips
- Jumping in and out of the market
- Not jumping out of the market when I should
- Not jumping in
- Not acting on my own strategy because of fear
The end result of all of this, at least for me and those I've mentored, was huge commissions generated for the broker and very little traction in the market. In 2018 I spend over 10K on commissions and actually came out with less than 1K for myself!
It made me pause and reflect on a few things that I never considered about trading:
- For the amount of time I was putting into trading I was not getting a good return and in many cases losing money
- Due to the sheer volume of random trades I was taking, it was almost impossible to know if my strategy worked at all
- It became harder to pin down what I was doing wrong because I was doing everything and poorly at that!
I felt like I was treading water for years.
I think all traders go through this metamorphosis and are faced with a few important decisions. You either a) recognize that the time vs reward ratio is not serving you well and begin the process of trading as a profession or b) keep blaming things and giving away accountability, "it's always someone else fault" and keep gambling.
If you are at this crossroads and are truly willing to apply the below, I think it could change how you relate to trading by giving you back more free time and reducing the overall stress related to trading.
Some Methods to Slow You Down and Get Feedback
Some of the things I've found really helped me trade better and slow down are as follows:
- Write down your buy and sell rules on a sheet of paper, make them very specific so you can't cheat, here is an example of mine
- Review your last 200 trades in a trading journal, do not leave anything out, it will be harsh but very helpful
- Remove the trades you should not have taken
- Be amazed at how well you would do if you just traded your plan!
- Print the results of your current trades vs the trades you took
When I did my last trading review, I was honestly amazed at just how much money I lost by making assumptions and getting caught up in social media and following other traders into positions I wasn't really committed to.
It was at this point I realized just how much time I was spending in front of the screen and that it was actually hurting my performance immensely. There was an inverse relationship to spending time on Twitter and stock market profits. The speed and urgency of cramming in more knowledge, more information and just more in general was burning me out.
You will never know everything, there comes a time when you have to realise that your best trading weapon is you. Your genetic make-up, skills and personality are where the magic happens, anything external to that is just a waste of time.
Commit to Your Strategy for 200 Trades
Once you have complete a full and honest trading review my honest recommendation is to make a commitment to yourself to trade the next 200 trades in line with your strategy.
Write it on sticky notes, wake up and say it out loud, keep your diary results visible and just do it. Even if you drop position size, commit.
I will admit that the first time you do this it will be hard. I got to about 25 trades and started slipping up but got back on the horse very soon. Over 200 trades, I made 147 in line with my plan, that was the best trading year I ever had (last year).
Be kind to yourself in this process, its hard to look at some of these mistakes. My first review was honestly devastating at the time. More than 55% of my trades were "random". It did however open my eyes.
Purge Your Library
One other thing I may recommend is to really try and stick to one style of trading instead of doing a pick and mix. Having dabbled in options, spreads and value investing - I had a library of books that almost always contradicted each other.
In the exponential information age, we have tons of "knowledge" but seldom apply any of it and wonder why we are confused. Although I do think everyone needs to go through a good series of books to get a feel for what they like, it's also important to focus and master something until profitable.
I highly recommend purging your library of books on strategies or at least keeping a very short list of ones that suit your personality and have produced results. Once you have these books, read and re-read them until you've exhausted them of "aha moments". You will find that when you hit the ones that resonate, they open up a connection of similar authors who align with that style.
Another option is to diversify what you read and work on psychology, data, philosophy and technical skills. These can open new and interesting avenues to your psyche that could unlock trading in different ways and keep you engaged in the process.
Read them slowly, bring up charts, mark them up and take your time to really "get it". Devouring 1000 books won't make you smarter if you can't apply even 1 consistently.
Enjoy Your Life More
Wow, who would have fucking thought that there is more to life than trading!
About 5 years ago, I took a trade with my entire net worth and that of a family member. I was wired on coffee and the stock took off in the morning of it's IPO. My heart rate spiked high on adrenaline and then went even higher... And this was where I welcomed my first panic attack.
If you think that spending time in front of screens, hyper focusing on money and material wealth is going to answer all of the questions you have about insecurity or security, it won't.
The world is full of amazing things to do, even if that's sitting alone with your thoughts and experiencing conscious life.
Slowing down gives you more life and ironically by being more relaxed and in tune with life your stress and FOMO goes down and profits typically go up. This is something I am still learning but since moving to Switzerland has altered how I relate to money completely.
Money will not fix broken relationships, unhealthy comparisons to others and make you a better person. That is up to you and me and how we spend our time. The best investment we can make most of the time, is just slowing down and learning how to be okay alone in a room.
Please take the exercise seriously, reach out and tell us your experience.