Saturday, June 18, 2016

There Is No Such Thing As Trading Psychology

I'd like to advance a principle:  The values and emotional/behavioral patterns that we enact in our trading inevitably reflect those we live outside of our trading.  Who we are as a trader never strays too far from who we are as people.  In that sense, there is no such thing as trading psychology.  There is only psychology; we cannot sustain patterns in our trading if we do not live and reinforce them in our daily lives.

We recently returned from a trip to Norway, trekking mountains and fjords.  Every year we take at least one vacation that places us outside our daily routines and expands our cultural and environmental horizons.  That's also time that we spend together apart from the routines of daily life.  On a smaller scale, we use weekends to find new things to do and places to go.  Sharing new experiences keeps a relationship new; it also keeps one from becoming too wrapped up in day to day work and markets.  This emphasis on life perspective has been key to keeping a level head in trading.  It is difficult to overtrade when you're seeing the larger picture of your personal and trading development.

Similarly, adopting four rescue cats and being involved in the lives of our five children keeps us in a mode of servant leadership.  It's tough to get overconfident in markets and trade with your ego when you spend a good portion of the day helping others. 

I was recently driving on a highway and the road split into two sections, each going the same way.  The left fork was a single lane labeled express; the right fork was a double lane labeled local.  My trip was several hours in duration but I immediately took the local option.  My instantaneous reasoning was that if the single lane became blocked by an accident or car breakdown, traffic would be trapped--potentially for hours.  If the double lane saw an accident or breakdown, there was a fighting chance of getting by in one of the other lanes.  In short, I quickly made my decision based upon the management of downside (tail) risk.

What this tells us is that, not only does our daily psychology become our trading psychology, but our trading psychology has a way of filtering into our daily lives.  Trading teaches us lessons about risk, reward, discipline, and flexibility and those become life lessons.  We trade with the psychology that we cultivate outside of market hours.  Who we are as traders helps shape who we are as people.  There is no trading psychology, only psychology.

So what does that mean?

If there's a pattern you'd like to change in your trading, figure out how that pattern is playing out in your personal life and make that the focus of your change efforts.  In other words, your goal should be to be the person outside of trading hours that you'd like to be in your trading.  Life thus becomes a practice ground for trading, just as the reverse is the case.  Becoming a better trader is no different from becoming a better person.

Well, Mali just walked into the room when she heard my music playing; she only seems to walk in when the romantic tunes are playing...Next in my queue is an email offering a partnership in a money-making opportunity to pitch trading psychology videos.  Think I'll spend some partnership time with the little girl instead...

Further Reading:  The Ultimate Value of Trading