Trading psychology matters because why we pursue profits in financial market matters. To paraphrase Ayn Rand, the search for self-esteem is the surest evidence of its absence. If we need profits from markets to feel good about ourselves--if it's all about the calls we make in markets and the moves we "catch"--then we will always be frustrated when the probabilities don't pay off for us.
Here is an important trading psychology principle:
If you're trading for the right reasons, your market participation will bring out the best in you.
If you're trading for the wrong reasons, your market participation will bring out the worst in you.
Does trading expand you and make you a better human being--one who is more aware and more self-aware; one who is capable of acting decisively on unique insights--or does trading so narrow and frustrate you that you never develop?
We always exist in a relationship with the work we perform, just as we exist in romantic relationships. The best relationships bring out the best in us. They inspire us to be more than we are. The worst relationships are focused on, "What can I get out of this?" Markets can challenge and inspire us, or they can drown us in narrow self-interest.
Trading psychology matters, because if we have the wrong trading psychology, the odds are good we're pursuing markets the wrong way. When I work with the traders at SMB, I have the privilege of reading their trading journals. Some are entirely focused on how much money was made and how much was left on the table. Other journals make minimal reference to P/L and instead focus on process and self-refinement. Over time, that difference makes a difference.
In the Forbes article, I summarize the qualities of self-actualization that have appeared in recent research. A great self-assessment is to ask yourself how often you experience those things in your trading. The challenging thing about trading is that it can be a powerful platform for building your strengths--or a certain path to losing your soul.
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