Wednesday, June 03, 2009

The Ability to Not Trade: An Unappreciated Contributor to Successful Trading

In a previous post, I compared the trader to a sniper, blending self-control with a high level of aggression and decisiveness. There is one other respect in which traders are like snipers: both engage in periods of intense performance activity punctuated by potentially long periods of inactivity.

The sniper may wait hours or even days in a hide, waiting for the perfect shot. Wet, cold, cramping, and simple boredom are the sniper's greatest enemies. It is a rare individual who can keep still for extended periods of time and then function with the utmost skill and accuracy. How do they do it? Many keep themselves mentally occupied and active, even while they're physically still.

One characteristic I've found among successful traders is that they function effectively when they're not trading. When markets become very quiet and range bound, they occupy themselves with a variety of activities, from sharing ideas with peers to conducting research. Traders who do not tolerate inactivity well inevitably feel the need to trade, often when there is no objective edge present. For them, losing money is less onerous than experiencing boredom.

By structuring your non-trading time, you can be like the sniper: fresh in your thought and perception, even as you're waiting patiently for the next opportunity. Reviewing markets and relationships, reviewing your performance, testing trading ideas, learning from and teaching others: there are many activities that make non-trading time productive.

If, however, your motivation is not to understand markets and develop yourself--if your motivation is to enjoy the thrill of risk and action--you will find non-trading time to be aversive. There are those who live to trade and there are those who trade to make money. Trading success is an expression of what you bring to markets; it cannot fill a personal void.