Anyone who claims to be intrigued by the “intellectual challenge of the markets” is not a trader. The markets are as intellectually challenging as a fistfight. Ultimately, trading is an exercise in self-mastery and endurance.
The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.
Just remember, without discipline, a clear strategy, and a concise plan, the speculator will fall into all the emotional pitfalls of the market – jump from one stock to another, hold a losing position too long, and cut out of a winner too soon, for no reason other than fear of losing profit. Greed, Fear, Impatience, Ignorance, and Hope will all fight for mental dominance over the speculator. Then, after a few failures and catastrophes the speculator may become demoralised, depressed, despondent, and abandon the market and the chance to make a fortune from what the market has to offer.
There is a strong psychological bias to be right about we do with our investment. In most people, this bias greatly overrides the desire to make a profit, or it inhibits us from reaching our true profit potential. Most people have overwhelming needs to control the market. As a result, they end up with the market controlling them.
One of the critical criteria I use in judging my traders is their ability to take a loss. If they can’t take a loss, they can’t trade.
Accept a loss without guilt, anger, shame or self punishment.
I haven’t seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren’t. Many outstanding intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important.
The real purpose of trading is not to make money. If that’s your goal you’ll probably struggle. But all of the following tend to work. If you goal is to be a great trader, then you probably will do well. If you goal is to use trading as a way to measure your self-development, then you will probably do well. If you just love trading and that’s why you do it, then as long as you are willing to work on yourself you will probably do well. Those, in my experience, are the key motivations that bring success in trading.
To be a successful trader you need to trade without fear. When you use fear as a resource to limit yourself, you will create the very conditions you are trying to avoid. Or to say this in another way, you will experience your fears.
There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets that you lose. Winning a bad bet can be the most dangerous outcome of all, because a success of that kind can encourage you to take more bad bets in the future, when the odds will be running against you. You can also lose a good bet no matter how sound the underlying proposition, but if you keep placing good bets, over time, the law of averages will be working for you.
The more I trusted myself the more I could focus my attention on subtle relationships in the market’s behaviour, to learn new things about the market, helping me become a better trader. The less I cared about whether or not I was wrong, the clearer things became, making it much easier to move in and out of positions, cutting my losses short to make myself mentally available to take the next opportunity.
You can’t control what the market does, but you can control your reaction to the market. I examine what I do all the time. That’s what trading is all about.
The reality is that most of us struggle in having to wait, that is the Achilles Heel in what we do; patience. Those that conquer patience tend to enjoy their trading work; those that have no patience are constantly tormented.
Entering a trade will involve all your beliefs about opportunity in relation to risk, missing out, needing a sure thing, and not being wrong. Exiting a trade will involve all your beliefs about loss, greed, failure, and control. Considering the unlimited potential for profits, entering the market will be much easier, because exiting will require you to confront your beliefs about greed, loss, and failure in relationship to the constant temptation of the possibility for unlimited profits.
No man ever reached to excellence in any one art or profession without having passed through the slow and painful process of study and preparation.
Excellence is an art won by training and habituation. We do not act rightly because we have virtue or excellence, but we rather have those because we have acted rightly. We are what we repeatedly do. Excellence, then, is not an act but a habit.