The Fatal Attraction to Trading Profits30th August 2018
In my experience helping retail traders succeed, I have come to understand that the pursuit of money is one of the main impediments. When asking aspiring or struggling traders why they want to trade, 80% of the time the reply I get is: to make money.
Today we’re going to reflect on the goal of making money, using a rather extreme example which should help you understand why any warm feeling for money is a fatal attraction.
Case in Point: Lottery Winners
“The goal of a successful trader is to make the best trades. Money is secondary.” – Alexander Elder
Most people are attracted to trading for the wrong reason: to make money. I don’t have statistics on this, but I’m willing to bet that the “goal” of making money is probably one of the most common reasons for burnout, stress, and a whole other array of psychological disorders.
But today let’s look at this from another angle and see what kind of happiness and joy lottery winners obtain after they hit the jackpot! For a moment let’s forget that the actual economics of the lottery and take a peek into how people’s lives change when they reach the objective of becoming rich.
This article from Business Insider should be a cautionary tale for all those seeking immediate gratification or quick riches. The key concept is this:
receiving large sums of money can be the worst thing that ever happens to you.
Here’s why. In order to get anywhere in life, you need to grow through your trouble and not throw money at it. Throwing money at problems rarely solves them. It can frequently make them worse. Moreover, without having grown your bank account with your own efforts, you will lack the discipline and insight to actually manage the money successfully.
It happens in trading as well. I’ve met a handful of retail traders that made a fortune with oversized bets in a strong trending market, without having the skills to recognize that:
- they were taking outsized bets (often 5-10% of equity on each single trade);
- they were doing well only because of a particular catalyst that was delivering abnormally strong momentum;
- by focusing on the money they were making, they never questioned their actions.
Inevitably they gave it all back, and more, just like most lottery winners do.
Money Cannot Buy Happiness
Success isn’t defined by your wallet. It’s defined by waking up with a smile on your face, knowing it’s going to be a great day. – Mark Cuban
Know this. There’s a difference between being rich and being wealthy. You can be rich yet have to work 10 hours a day and not be able to enjoy your life at all. Vice-versa, you could be making much less but be in a situation that allows you to spend time with your family, with your children, and actually enjoy life. That’s the meaning of “wealthy” and you don’t have to be rich in order to experience that kind of lifestyle.
Yet most people have some kind of financial threshold that holds the key to their “happiness”. How far from the truth they are. Money can help you reach your goal, but it cannot be the goal itself. There is a subtelty here which can be life-changing if you understand it:
happiness is to be found in the pursuit of your goal – not in reaching your goal.
It’s the difference between trading for money/profits and trading because you genuinely like the markets or are interested in economics or how the world works. Only if you actually appreciate and enjoy working toward goals and dreams, are you on the right path. The goal should be aligned with your talents, with what you’re naturally gifted with – and not a means to an end.
I like these questions posed by Dr. Brett Steenbarger because (if you answer them honestly, after having traded the markets and knowing your natural inclinations) they do help in understanding whether you should actually pursue trading or not. Give it a try (these questions also appeared in Michael Covel’s book Trend Following):
1. When something goes against you in the market, do you often find yourself venting your frustration?
2. Do you enjoy (or as a child did you enjoy) roller coasters or other thrill rides?
3. Do you often find yourself procrastinating over work?
4. Do you consider yourself moody—sometimes rather up, sometimes rather down?
5. Would you generally prefer going out and partying with friends rather than staying at home with a good book or movie?
6. Do you often find yourself apologizing to others because you forgot to do something you were supposed to do?
7. Are you generally high-strung, tense, or stressed?
8. If given the choice at a buffet, would you prefer to try exotic foods you’ve never heard of rather than familiar dishes?
9. When you have a task that needs to be done around the house, do you tend to take a quick and dirty approach, rather than a meticulous, painstaking approach?
10. After a losing trade, do you often feel guilty or get down on yourself?
11. Have you experimented with or regularly used two or more recreational drugs (other than alcohol) in your life?
12. Are you often late for appointments or for social plans you’ve made?
The best traders have a high conscientiousness, low neuroticism, and low openness. A good trend follower sticks with rules and systems (conscientious), won’t impulsively enter or exit trades on the whim of emotion (neuroticism), and will trade for profits, not stimulation (low openness).
Dr. Steenbarger describes the outcome as such:
- If you indicated “yes” to most or all of questions 1, 4, 7, and 10, you most likely score high on a trait called “neuroticism.”
Neuroticism is the tendency toward negative emotional experience, and it shows up as anger, anxiety, or depression.
- If you responded “yes” to most or all of questions 2, 5, 8 and 11, you probably score high on a trait called “openness to experience.” Openness reflects a tendency toward sensation seeking and risktaking.
- If you answered “yes” to most or all of questions 3, 6, 9, and 12, you potentially score low on a trait called “conscientiousness.” Conscientiousness measures the degree to which an individual is oriented toward duty, responsibility, and dependability.
Remember that the best in the business are some of the least flashy people, to the point that one of my current contacts is nowhere to be found on the internet! They are meticulous and conscientious about their work, and they don’t let their emotions or needs pull them astray.
Over to You
“People with a household income of less than $10,000 a year who play the lottery spend $597 a year on tickets,” according to the New York Times. They buy lottery tickets because it’s fun — a brief hope break in a dreary day.
The key here is to NOT wait until you reach some financial objective before living your days differently. Dreary days are only as dreary as we make them. Start looking at what you have, instead of what you don’t have. Consider shifting your career in alignment with your natural gifts and talents. Basically, start making more mature decisions NOW and look at what you have, and the resources you possess, instead of what you don’t have. Usually all it takes is a change of perspective, in order to get onto the right path.
And for those of you that possess the right personality traits, know this: the odds of winning the lottery are much lower than the odds of a successful trading strategy. But to reach the point where you can execute a strategy with consistency, many hours (months) of hard work are necessary.
That’s why you must also enjoy the trading process, not just the trading profits.
About the Author
Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.
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