Friday, August 01, 2008

Those Who Fake It Never Make It: Notes on Faking Reality

After noticing Trader Mike's update regarding a doctored interview with Dave Mabe of StockTickr, I decided to leave a comment on Dave's site. Here I'd like to amplify that comment, because it gets at the heart of trading success and failure.

We talk about losing discipline in trading as we might talk about losing our car keys or our way out of a forest. But losing discipline is not about a simple act of forgetting. It is an active process of refusing to act upon one's knowledge, of blotting out uncomfortable realities. It begins in small ways: talking about our winning days, but remaining mum about losers; convincing ourselves (and others) that we're "doing okay" and "breaking even", when in fact we've stopped looking at the red P/L; ignoring a profit target and taking small gains; violating a stop-loss level and substituting hope for planning on a losing trade.

Out of such small fakes of reality come the larger ones that lead to blow ups: the breaking of risk management rules, the rogue trader's futile attempts to cover up losses.

The really good traders? They don't present themselves as gurus. They're all too keenly aware of the market's way of humbling such pride, and they keep their hard-won lessons firmly in mind. Reality is their best grounding. It's the boasters and self-promoters who have to fake reality to sustain their images in the public mind. But if would-be gurus can't be faithful to reality, how can they remain true to you?

Years ago, when I was in Syracuse, I met with a trader who wanted coaching and counseling. He had sustained major losses in the markets. During his description of his trading woes--and his grandiose plans for making the money back--he casually noted that his home life was tense because he had hidden the losses from his spouse. I declined further meetings with the gentleman. His problem was not trading and, strictly speaking, it wasn't psychological. It was his lack of integrity: his unwillingness to be true to his wife, his plans, and his perceptual process. I had no doubt that his marriage would blow up the way his trading had blown up--and for precisely the same reasons.

As part of writing my new book, I asked over a dozen bloggers and traders to share their ideas about self-coaching and what has worked for them. A dominant theme in the responses has been a relentless drive to keep score: to learn from losing trades and winning ones; to assess performance and guide risk taking accordingly; to clearly identify strengths and weaknesses and adjust trading styles for those. These are experienced and successful traders who have met with success largely because they've been unafraid to sustain the look in the mirror.

Now when I first start working with a trader or a firm, I will toss out a simple homework exercise, such as keeping regular journal entries. Some traders go out of their way to make the most of the assignment; others fulfill it with minimal effort; still others fail to follow through at all. It's the difference between those who work hard at trading and those who hardly work: one seeks earned achievement; the other seeks the unearned. One is grounded in plans, the other in fantasies.

Show me a person's relationship to reality and I'll show you their character--and their success. Contrary to the popular saying, those who fake it never make it.


Firebird said...

Dear Dr. Steenbarger,

Even though I'm sure your Idiot Wave post will remain one of your most popular posts for a long time, IMHO this is by far one of your best posts ever (hard as that may be).

Thank you for all the BS-free education, best trading,


PS If I may add, worst of all it's those who lie, not only to others (wrong), but to themselves (stupid).

David said...

I totally agree. Dave

speedtheplow said...

The hardest thing in the world for some people is to be true to yourself (i.e.: not fake reality). It has taken me all my life; only now am I becoming the person I have always wanted to be. I told myself so many lies along the way, but many of these lies were amplified and exacerbated by friends and family--people who claim to love you, but often have conflicted feelings (I blame nobody; life is a struggle for all). But here's the thing: if you don't give up on yourself, you can do it. Eventually. (I hope.) Or as Brecht once said: You can make a fresh start with your last breath. Thanks for the inspiration, Doc.

FeirFactor said...

Great post. Enjoyed reading it.

Swami said...

Thank you! A very insightful post indeed.

GentlePEACE said...

I am planning to join a prop firm to start trading. As such I am very new to this. Lately, I have been doing my research about trading in general and have come to know that algorithmic trading is making a big impact in the financial makets and more than 80% of trades are expected to be Algo traded this year, resulting in a massive job cuts for traders, and this trend will continue in the coming months. And a time will come when traders would be wiped out!!! Please advice if it is advisable to go into full time trading as a career option or should I stay away. Thanks.