In a recent Confessions of a Market Maker podcast, I joked that pushing ourselves to get bigger in our trading (a common topic among male traders) is akin to pushing ourselves to get bigger in the bedroom. If there is one formula for diminished performance in both domains, it's focusing on size.
Research suggests that risk-taking is linked to personality traits (particularly extraversion), but is also domain specific. One can take risks in one area of life and be quite averse in others. Many traders moderate their risk-taking precisely because they need to maintain an even mindset during their trading. As soon as they experience the drama of rising and falling P/L, their trading processes become disrupted. For those traders, thinking big and acting big is a path toward getting small.
For many traders, we want to get better and better before we get bigger. And we want to get bigger, not necessarily by taking more risk per unit of capital, but by increasing our capital base. In other words, if I'm trading stock index futures and leveraging my best trades by three-to-one, the answer to getting bigger is not necessarily to go to five- or ten-to-one. The answer is to increase my capital base and keep doing my consistent thing with 3:1 leverage.
The best path to a consistent trading psychology is consistent trading. And the best path to growing your trading is to do so sustainably, maintaining consistency of trading and mindset. Pushing yourself to get bigger, putting outcome ahead of process, too often means that our egos have hijacked our trading. If we fill our minds with P/L concerns, what room is left to process markets?
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