Why do you trade?
Think about it for a moment. Why do you
trade?...
Now, if you are like 99% of traders, your
answer to that question was “to make money”. However, the fact
is that this is almost never the real answer to the question,
although it may always be considered to be the right one.
If you did happen to answer “to make
money”, then let us ask this in a slightly different way, “Why
do you TRADE?”, or if you prefer, “Why do you TRADE… in order to
make money?”
The point is that there are almost an
infinite number of things you could be doing to make money. So,
why did you choose online trading? Indeed, given that there ARE an
infinite number of alternatives, your choice to use online trading as
the means to make money represents an opportunity cost, in so
far as when you spend your time learning and practicing Trading,
you do not therefore have that time available to be learning and
doing other things. These alternative possibilities might also
have brought you money, perhaps even more so than Trading.
So, consider the question again, perhaps a
little deeper this time… “WHY do you trade?”
The answer ultimately has to be, or really
should be that, apart from financial considerations, you trade
because you ENJOY Trading. You chose the medium and activity of
online trading in order to make your income and achieve your life
dreams because you prefer it to real estate investment, rare
coin collecting, horse betting, starting an internet business,
opening a bakery, or any other alternative money-making activity
that you may care to name. This means that, apart from any
financial motive, you trade for the enjoyment, the intellectual
challenge, the emotional thrill, because it happens to coincide
with your mental temperament, or whatever else turns you on
about it. Certainly, you also want to make money, but that is
not the ONLY reason you trade, as we have just demonstrated. The
fact that in the time that it takes you to truly master Trading,
you might just as well have started an internet business that
went on be valued for millions, or even billions, of dollars
means that you do NOT trade for money ONLY.
It is important that you realize this
because a number of critical points arise from this
understanding.
The first is that, given that you choose to
trade because it fulfills emotional and intellectual needs, in
addition to the obvious financial, it is critical that you
choose a MODE of Trading that is largely in harmony with
these motivations. Hence, if you rather like the competitive
thrill of pitting your wits against the markets, then a 100%
systems-based approach, where you simply execute trade signals
generated by a tested totally mechanical technical system, is
unlikely to meet the emotional needs that you have. If the
system is valid, it might make you money, but the question is,
will you let it?
Conversely, if you are a person with an
extremely structured, logical, pre-planned outlook on life, and
not very spontaneous or thrill-driven at all, then a pre-tested
mechanical trading system is precisely what you DO need. To take
the opposite “seat of the pants” approach would most likely
prove highly destructive to your wealth.
Hence, the reason WHY you trade will also
tend to determine HOW you should best trade. There is no ONE way
for everyone. By the way, this is the reason why so many people
who buy expensive ready-made trading systems do not necessarily
succeed with them. The system may work fine, but it does not
properly fit the temperament of the day trader. In other words,
there will always be the temptation to tinker with it, “improve
it”, or simply not follow it at all, especially when it hits a
losing streak as EVERY trading system will do without fail at
some point in time.
I used to believe that fully backtracked
mechanical trading systems were the ONLY valid way to trade, but
I no longer believe that any more. Now, that may arguably still
be the case in a financial institution, where the only goal IS
to make money. However, for the private day trader, we have to allow
for other motivations apart from the purely financial. It is
crucial that you actually enjoy what you are doing (in whatever
sense the word “enjoy” is meaningful to you personally) if you
are to have the stamina, determination and persistence to
continue with it until you achieve a high level of mastery. If
you are doing something that is totally incompatible with your
personal style, you will not enjoy it, you will not persist with
it, and you will be constantly wishing you were somewhere else.
Another implication of the idea that we are
trading in order to achieve our inner personal needs, apart from
the mere financial, is that personal growth work, i.e. work upon
our own minds, becomes absolutely necessary. Most people who
start trading have a “just show me how to make money” attitude
to it. They want the short-cut route to big bucks. That is often
one reason why their first trade or two is of a position size
totally out of proportion to their total account size: they
lose, and then retire wounded, negative and in a state of some
shock.
You need to realize that apart from the
pure mechanics of online trading, which are actually relatively simple
these days, there is the vast arena of the mind to consider.
Indeed, my friend the late Robert Krausz of “Market Wizards”
fame used to teach that fully 70% of successful Trading is
psychological. However, by this we do not just mean learning to
think positively about Trading or visualizing your Trading
success, although all of this is critical. You have to also
consider whether (a) you might be trading for all the wrong
reasons, and/or (b) your psychological health may be badly
damaged by all sorts of negative beliefs about money, success,
self-worth, etc. as a result of childhood experiences, or even
later experiences in life.
In the case of (a) above, you have to be
sure that your answer to the question “Why do you trade?” is not
something like “To get even with my boss” or “To do scary things
with our savings so as to scare the hell out of my domineering
wife, because I’m sick to death of her controlling our
finances”, or “because I got banned at the Poker club for
cheating, so this is the next best form of Gambling I can think
of.” All of these reasons might sound totally bizarre, but many
people have some really bizarre reasons for trading! However, if
you were to ask the question, they would reply in a heartbeat
“To make money.”
In the case of (b), we are talking about
getting out of your own way, taking the foot off the handbrake,
and removing all the impediments in your mind to relaxed and
successful trading. If you grew up with the “Protestant ethic”
that you have to work hard and long to make ANY money at all,
that “money does not grow on trees”, that all rich people are
crooks whereas the virtuous work hard and long for average
wages… then you are going to have a hard time being really
successful at Trading!
If you suffer from low self-confidence and
believe that good things generally don’t happen to you, then you
are going to have a tough time becoming a good trader. It is not
that the market is out to get you, although you will probably
end up believing that, but rather you will eventually get
yourself! In day trading, you are ultimately competing with yourself
and against yourself, i.e. against your own negative tendencies.
That is why becoming successful at Trading
is also closely linked to becoming successful at life in
general. Happily, for the most part, whatever you lack
psychologically can be made up for over time through suitable
study of personal growth materials and through brain
re-training. There is almost no such thing as a completely
hopeless case. However, it is vital to remember that Trading
success does NOT come purely from understanding the mere
mechanics of the process. If life were really like that, we
could ALL become world-class Snooker players, artists to rival
Da Vinci himself… or even top traders! The fact is that, as in
any other area of excellence, success at online trading is not
guaranteed by any “magic formula”, but rather by study, practice
and mental retraining. In that sense, it is closer to a sport
than anything else you might do in the money-making arena.
In conclusion, do give some serious thought
to the question we have been pondering and answer it honestly:
why do YOU trade? If you understand the real answer to that, and
understand the sort of person you are, then you are best placed
to (a) decide if you should be trading in the first place,
instead of doing something else that might suit you better, (b)
select the correct trading style most appropriate to your
personality and motivations, and (c) do the personal growth work
required to overcome whatever negative psychological attitudes
you may already possess. .
