My recent post on being right versus being profitable highlights a problem that affects many active traders: they are acting out conflicts or problems from their past in their present trading.
The need to be right reflects concerns about self-esteem and the need to prove and validate oneself. This is not a market issue, and it's most likely an issue that affects other areas of life, from work to relationships. If one, for example, spends a great deal of time arguing in relationships over who is right and who is wrong, it wouldn't be surprising for them to fight markets.
In a good relationship, there's no right or wrong: my role is to do everything I can to ensure the happiness and fulfillment of those I love. If they love me and take the same approach, we'll all be better off. If I inadvertently hurt the feelings of my son or daughter, I don't argue with them that they're too sensitive or misunderstood me. I apologize and try to understand the situation better.
In a good relationship, it's more important to preserve trust, harmony, respect, and love than to validate oneself. Interestingly, when there is such an environment, that is the most validating of all!
It is similar with markets: in our relationship with them, we want to be active listeners. Our egos may feel a need to impose our views, our agendas on markets, but if we're truly listening to markets and in harmony with them, we will find the right actions. And that produces a validation in profits beyond any occasional calling of market tops and bottoms.
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One of the reasons I like your blog so much is that its relevance goes well beyond trading and markets. Thanks.
You always blow me away with this type of trading-as-life perspective and I share them with those I love even though they are not traders. Excellent, just excellent!
Thank you.
Hi Brett,
Here is another example of fighting the market, my own today....day-trading the Hang Seng, scratch after scratch after loser after scratch....and finally late into the day I clawed back and then a trade went against me super quick, undoing the the claw back in a flash.....I just couldn't pull the stop trigger as fast as I should and turned the day into a worse result.....still trying to work out what lessons to take from this, any comments? thanks Adam
My Trading Edge,
I've found that automating or at the very least creating my contingent limit order for my exit as soon as the entry order gets executed helps solve the "pulling the trigger" issue when a trade goes against me quickly. There is definitely something very damaging to the ego when a trade immediately moves against you, but if the order is already waiting to be executed to exit, your can still follow your trading rules while having a hurt ego. I've top-ticked long trades and bottom-ticked short trades and it is the worst feeling.
For me, entering that exit order has become as much a part of the trading process as the trading entry. It's interesting from a trading psychology perspective, too, because even while I'm entering the exit order, I don't think it will get hit, because I am still hopeful and thinking that the trade will turn out right. There is probably some different part of my brain I am using at that moment (probably one more related to rational thinking) than the part of my brain that would get activated if the trade went against me and I had to pull the trigger (which would activate the part of my brain involved in anger and other negative emotions). At least that's my hypothesis from the things I've read here.
I trade with stops far enough that the minute it takes me to create an exit order is feasible, and realize that for a day-trader who's trading different stop sizes, the mechanics of doing this may differ.
Similar, one needs to maintain a healthy relationship with one's trading system.
I like to refer to myself as a Receptive Market Participant. Receptive and accepting of what the market wants at all time. What I want has no value. What I want is what the Ego wants. Being receptive is having a sense of stillness and trading in the present. One is constantly processing new information in the foreground and integrating it into the background.
The ability to listen to the market, though not an easy skill, is so fulfilling that it seems way over the top that in addition you get the satisfaction of minting the coin.
Such receptivity to the market employs many of the same skills one needs in listening to people: patience, putting your ego on the back burner, being alert to both small and big details, honing one's memory so one can continue being engaged with others in the future, etc.
If I force trading when I am not listening to the market, it feels the same way when I am trying to discuss difficult matters with an unsympathetic person. I get the same tense sensation in the pit of my stomach.
Dear Brett,
Thanks for your keen insight.
While this is not my trading strategy, I have certainly experienced the sentiment occasionally. It does not seem so much an ego thing as a desire to catch a move at its very beginning perhaps after divergence or a tick flush. When a trader enters on a pullback is he or she not trying to pick a turn?
I have to disagree. Being right is paramount. We know that trading is a losing proposition to start with thus we are required to predict the market at a better then chance ratio to make money. To predict at a better then chance ratio then we must be "right" in some respect more often then not, where respect could be defined in different ways.
To saying listening to market is jut another way of saying "making a prediction". It just making a prediction that the market will continue to do what it has been doing versus doing something else or it is making a prediction from more recent data but in the end, it is a prediction and again one must be right to profit.
I think people in general are afraid of this. And let us say a discretionary trader is right more then not then how does he know whether he is predicting or influencing the market?
Perhaps good traders create their own markets. Perhaps markets are not mathematical at the core.
It seems you can take basically 2 philosophies: 1. trading is mostly losing thus only portfolio type of options need be considered or only a very minimal trading or 2. one can predict market and make money.
If 1. then being right is not important as trading is irrelevant to the market gains -- you only push a small percent but if 2. then it is critical.
Let me expand on why being right is important. It is important because if people act on certain beliefs with a certain expectation in mind and if those beliefs correlate well with reality then the results predicted will correlate well with the results that one actually gets.
But, if one's model is wrong then the end result will be a matter of pure chance. So being wrong is doubly wrong for it tells us that our models are wrong.
Without knowledge then losing money is more likely then not.
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