As you can read here, very often people wanting to trade financial markets do not have optimal prerequisites to be successful doing it, which basically isn’t their fault, but it becomes their fault as they move along their trading journey without improvements. That many of us will experience an entire personality change in the search of trading profits, explains the following article.
While every trader will deal with positive and negative emotions throughout his career – because we are all human, we can’t just get rid of them (even when you are running a fully automated strategy!) – the pro traders have come to understand that their own expectations, opinions and in the end their whole ego do not matter to the markets. Since any market is nothing more than a composite of people buying and selling, a place where supply and demand meets to create a new price, the single individual has no influence on a market that is openly tradable to everybody around the globe. Therfore, what you want a trade to do, what outcome you want to see in your account, is only your own concern – the markets couldn’t care less.
It gets even worse: the market is a completely neutral entity. Just like I said, it doesn’t do anything more than finding that spot (price) where there is an equal disagreement on value but an agreement on price. It’s not there to give you anything at all. It’s not there to take anything away from you at all.
That mentioned, it should be clear to anybody, that all the emotions you feel when sitting in front of that screen putting on trades, changing stops and exiting them, come from you. They are self-induced and do not stem from the marketplace. They are entirely your responsibility. If you enter a trade with some arbitrary expectation that it will be the one making you rich, you know, because “it looks so good”, you are absolutely doomed. The worst that can happen in this case is, that it really did look good and your unfounded expectations are confirmed, you make money and there you have the foundation for blowing up your account: risking too much capital you are entering trades motivated by the hype of greedy emotions that you will be pretty rich soon.
If the market is a completely neutral entity and all your emotions stem from you, then that actually gives you the possibility to change how you react to market movement, losses, profits, how you approach risk mangement and so on.
As has been explained here, our upbringing by our parents and educational system, stand in the way of actually being human and participating in the world as well as in the markets in a manner that you position yourself to receive, instead of demanding and expecting what you think you deserve. Of course I am not referencing any esoterical materials where gurus suggest that things come to you if you just wish for them. No, I am implying extremely hard and enduring work for a long time which results in a change of perception of what the markets are. Then, your emotions and hence your performance will change as well.
However, in order to get to that point where just like the pro traders, you have come to understand that you can only flow along instead of predict what markets are doing next, you really need to work on yourself. It’s not the trading system and not the risk management that keep people from being profitable. It’s their personal psychology and their belief system that interfere with the rules of their trading system and their risk management, that causes overall losses, frustrations and not at all what had previously been the motivation for going into trading. By projecting our wants and needs onto the market, we make sure to violate every rule in the book in order to fail. Even though this is not what anyone of us traders wants, many will never be able to accept the reality of the market and actually change their perception and belief system. Eventually they’ll quit the profession, having lost most of their initial investment. (Please refer to this article to understand more reasons why our prerequisites for trading are all wrong.)
And in dealing with our own trader’s psychology in order to change our perception in trading, and automatically in our everyday interactions, we must be able to distinguish between the subject who is the trader executing the trading plan, and the second part which involves being your own mentor and thereby objectively judging the actions the trader-you takes.
This is a very difficult process and involves the observation and control of one’s own thoughts, not just while trading, but it is a continous task you will automatically do in other areas of your life once you can see how beneficial it is.
It involves admitting to yourself when you have made a mistake, when your outlook or perspective was completely wrong. It means taking losses for the greater gain and completely giving up on who you think you are as a trader. It also means to constantly observe your emotions when you make a profit, when you calculate risk and actually put on trades. It is very easy to deviate from your rules due to some subconscious emotion creating a desired scenario that will lead you to put on a position too heavy, not follow your rules or simply gamble! Tom Basso, ex Hedge Fund Manager and now Proprietary Trader, said the following.
“I try to walk away from the trading desk with the same emotional state every day – no matter if I lose or make money.” – Tom Basso
Basso is very experienced and simply knows that watching your emotional state and how it is driven by losses and profits into any direction imaginable if you just let it do what it wants, is very detrimental to making profits in the markets. Just as the market is neutral, your emotional state should be as well. This is when you see the clearest picture of what the market is telling you, this is when you are the most confident about your trading rules. This is how you are best able to get into the flow of market movement and simply follow it wherever it goes.
When starting to let scenarios grow in your head that revolve around a trade you are currently in, or one that you are planning to take, it is not helpful to distract oneself from the clear rules and step by step actions that the trading plan dictates. A measure of objectivity is necessary to behave in the financial markets’ environment always according to the rules of the trading approach. It is very easy to get caught up in the typical fear – greed emotional spiral that it is very hard to get out of. Oftentimes the trader needs to take a step back to see his trading world clearly again before he can go on having a chance at successful trading.
Only when you have progressed far enough in your trading journey that you realize all of the above is the undeniable truth in trading, have you become humble enough to see the need for continous reflection, self-critique and observation to improve your trading process in order to flow along with what the market is currently doing in the most optimal state. You just know that you know nothing!
The trader with the huge ego is blaming others, is blaming the market, manipulation, news reports or a tip from a friend, he is the one who has not understood that in trading it all comes back to you, he rather denies anything being his fault.
No one knows what happens tomorrow, no one is against or for you, it’s just you losing money or making money. The market is your playground, extract from it whatever you want. The market will tell you right away what state you are in when trading: are you flowing along or are you demanding?
With the latter you lose, the other wins.