Monday, August 10, 2009

Three Bad Reasons for Pursuing Trading as a Career

When I talk with traders who are having problems, I often find that the root problem is that they have pursued work in the financial markets for the wrong reasons. Here are three of the most common problematic reasons that draw people to trading:

1) The Thrill of Gain - While this often masquerades as a passion for markets, a little observation reveals that these traders have little interest either in markets that they don't trade or in markets while they are not trading. The interest in market action often reveals addictive patterns, in which the roller coaster rides of gains and losses become more valued than the achievement of a smooth, upward sloping equity curve. This leads to overtrading and painful emotional ups and downs.

2) The Need for Independence - These traders are drawn to markets because they don't want to have to answer to someone else in a structured job. The problem with this pattern is that the very need for independence that leads people away from structured careers also leads them away from the kind of structured practice and preparation that are necessary for trading success. Just as these traders don't want to be tethered to a 9-to-5 career, they rebel against being tethered to markets. This shows up as poor discipline, poor preparation, and difficulty sustaining even modest efforts at performance development (such as keeping daily journals).

3) The Need to Make It Big - Many traders try to use performance in the markets, not as an expression of their competence, but as a desperate attempt to prove it. They don't feel successful in other endeavors and are using markets to try to be a success in life. As a result, most of their self-esteem eggs are in the trading basket. That becomes threatening and stressful when inevitable trading slumps occur. Worse still, such traders often feel a need to make more and more to fill the hole of lacking self worth, eventually leading them to take too much risk and blow up.

What is the common theme among the three groups of traders? They are using trading to act out (and try to resolve) personal issues that are separate from risk/reward and opportunity in markets. Their needs lead them to place trades more for psychological reasons than logical ones.

Counseling and therapy can be expensive, but they are far more affordable--and promising--than acting out personal conflicts and unmet needs in financial markets. All too often, traders are looking for magic bullets for their trading success when they really need to be examining why they're trading in the first place.


Steve737 said...

Great info once again ! Thank you.

I guess the next question I have is, What are 3 "good" reasons for becoming a trader?

volK said...

this certainly is a post where i should ponder on...

am I using trading to resolve the wrongs/mis-doing of my own personal life?

great post Dr Brett.

many thanks on all these wonderful posts !

Sigamani said...

A great post once again from you!

I have asked myself why i started trading many times and everytime i end up with some or other answers which may not be correct.

I had faced the above said 3 problems in my short trading career of over a year and so far i have learnt that unless you have a discipline to stick to a particular trading system and follow it with utmost discipline you can't succeed in the long term in finanicial markets. Day by day, i am agreeing to this more and i think the day when i started to imbibe into my beliefs i will grow as a trader.

Your posts helped me to put a journal in place and i am recording my trades and now i am able to spot a single trade which is the reason for my draw-down! I need to work on it and climb the ladder back but believe that slow is smooth..smooth is fast in trading.

Your posts are helping me in this regard a lot and thanks for that once again.

Deiva from India

Glen said...

Well, I think I am all three of these, but also I have a desire to trade and I enjoy it.
Everyone has thier own music they march too, just like in sports, there are alot of great athlete's out there, but it takes a combination of many different attributes, only one being athletic, to make it to the pros!

GS751 said...

You always hit it out of the ballpark. I saw the title to this post and was like great hahaha he's gonna kill my future career path.

Tahoe said...

fabulous. Know thyself and choose your path carefully. You have condensed this nicely into three profound aspects of being that can conflict with trading. Great advice! I undertook a similar exercise in evaluating my trading path forward, tell me what people do wrong, I want to know the what/how of all these failures. I am beginning to think that a requisite initiation to trading is, well, requisite. But that might just be my perspective at the moment.

Steve said...

Funny how the trading charlatans hold these same reasons out as the best reasons to be a trader and pay for their worthless seminars!