I love trading the stock-market. The reason is not because I make a lot of money out of it; I started only 3 years ago, and I would be lying if I told you that I made any money at all.
So what attracts me to the Market is far more than the potential to get a better-than-average return on my capital: it’s about what trading can teach me about myself and about life itself.
There are many analogies that can be drawn between trading and living, the most obvious being that life has “its ups and its downs”, and we’ve got to learn to navigate each phase knowing that sooner or later we will experience another, possibly opposite phase. But if this were the only “lesson” to be learned from trading, you can be sure that my fascination would not have developed and that I would not be boring you with this post.
For me, the reason why trading is a unique “workout for life” is that it teaches us, perhaps better than any other discipline, that outcomes in life are of a probabilistic nature, not a deterministic one. We are brought up to think in terms of causes and effects: “if you do A, then B will happen.” This can be true for the laws of physics, although even in this field the principle of uncertainty, the theory of relativity and the chaos theory have undermined the belief in a perfect causality.
Trading 101 teaches us that no one knows what the Market will do next – no one. Every trade is a bet, and by putting on that bet you have to be perfectly conscious that “everything can and will happen”, as my mentor, Kerry Lovvorn has told me over and over again. Winning at the trading game does not mean making money in this or that specific trade, but having the majority of trades be profitable in the long run, i.e. having “an edge”. This might mean that out of 50 trades, 24 are losers, and these losing trades can happen at the beginning, even back to back. How much sweat, how great a panic to experience a 30% drawdown in your account, and yet still believe in your edge and in the fact that in the long run the odds will play out and you will be profitable!
Isn’t this what life is about? Most biographies of successful people tell the same story over and over: that the failures of these people were numerous and spectacular. We all heard, for example, that Babe Ruth held the record both for home runs and for strikeouts! If failure disheartens us and makes us give up, then we are like a trader that cannot take any more losses and decides to abandon the game before letting his (favorable) odds play out. We are making that single, isolated failure turn into a Failure. We are letting a lost battle become a lost war.
It is difficult to accept losses in trading, just as it is difficult to accept failures in life. However, if we can start seeing things through the paradigm of probabilities instead of determinism we will learn to give less importance to single events and focus, rather, on the bigger picture and on improving ourselves day after day to increase our “edge” and create greater probabilities for successful outcomes in the future.
In conclusion, I would argue that a trader’s mindset is something we should all strive for, even if we are not actually going to embrace trading as a lifestyle. Let’s never forget that “in the short run, everything can and will happen!”