Trading Without Ego

by Ruth Barrons Roosevelt

Make no mistake about it. A trader's self concept has to be separate from the trading. Who you are as a person began before you ever thought of trading and who you will be as a person will extend beyond your trading. When personal self-worth entwines with trading, it not only damages self esteem, it sabotages the trading.

You hear about it. You read about it. Don't be misled. Traders tell stories. They write stories. They tell how great they are. Big trades. Big numbers. Big egos. Hubris. And sooner or later, big downfalls. It goes with the territory.

Consider the outsized egos of certain traders who brought themselves and those associated with them to ruin. Nicholas Leeson brought down the Barings Bank. Victor Niederhoffer ran his fund into deficit. John Merriweather threatened the health of our banking system by betting more than fifty times his capital that his strategies were certain to work, that he could forecast with impunity the direction of various bond markets. There's a pattern here of seeming or real success for a while and then collapse for themselves and for those caught up in blindly following them.

As Wayne Dyer said, Authentic freedom cannot be experienced until one learns to tame the ego and move out of self-absorption.

In his wonderful book, Pit Bull , Marty Schwartz tells several stories of the times he lost money because his ego got in the way. In the end he has this to say about ego:

I've said it before, and I'm going to say it again, because it cannot be overemphasized: the most important change in my trading career occurred when I learned to DIVORCE MY EGO FROM THE TRADE. Trading is a psychological game. Most people think that they're playing against the market, but the market doesn't care. You're really playing against yourself. You have to stop trying to will things to happen in order to prove that you're right. Listen only to what the market is telling you now. Forget what you thought it was telling you five minutes ago. The sole objective of trading is not to prove you're right, but to hear the cash register ring.

Because trading is an uncertain game of probabilities filled with uncertain vagaries, an overly inflated ego or a fragile ego can easily get smashed. Defending the ego uses up unnecessary energy, distorts perception, and sooner or later, will destroy the trading. If your self esteem rises and falls with your trading results, you and your trading are in trouble. Self concept has to be strong and durable and not at the mercy of the current, last, or next trade.

We need to check our egos at the door when we start to trade. Uncertainty is central to trading. If we add the uncertainty of our own self image into the mix of the unknowable endemic to trading, we're in for certain trouble sooner or later.

Some typical symptoms of egotizing trading would be the following:


· Not putting in stops. The ego doesn't want to be proven wrong.
· Hesitating before putting on a trade. The ego wants reassurance before it begins.
· Overtrading. The ego wants to prove itself big time.
· Getting stuck in a trade. The ego has intertwined itself with a trade and is holding on for dear life. It cannot cut out. The ego doesn't want to be wrong.
· Adding to a losing trade. The ego digs its hole deeper in a massive effort to crawl out.
· Grabbing a profit too soon. The ego wants a pat on the back.

How do we separate our ego from our trading? How do we keep from personalizing a trade? How do we avoid personalizing all of our trading?

One way to separate your ego from your trading is to build healthy boundaries between yourself and your trading. Not only do good fences make good neighbors, good boundaries make good traders.

A boundary sets limits, makes distinctions, informs you as to what is you and what is not you, makes clear the distinction between you and others, tells you where one thing ends and another begins. It distinguishes between past, present, and future. It lets you know that another's ideas, values, and feelings are not necessarily yours. A boundary is flexible and permeable. It lets information flow back and forth. It allows you to listen actively without having to take on someone else's opinions and without having to force your opinions on another person. In trading it draws a distinction between yourself and your trading, between one trade and another, between one trade and all of your trading.

One trader would see the signal to take a trade and before she could put the trade on, she'd hear a voice saying, "What if I'm wrong?" Immediately she'd feel small and diminished. The next step was simply to let the trade go by as she sat there stalled by her vulnerable ego. She needed a boundary between her self-esteem and the outcome of a trade. She needed a boundary between self worth and being wrong. With such a boundary she could give herself permission to not always have to be right.

Another trader had had nineteen winning trades in a row. The tension was building and he was strung tighter than a drum when he came to see me. I congratulated him on his recent success and asked him what would be so awful if the next trade was a loser. He said, "I'd lose my self-esteem, and without self-esteem you're nothing. What an untenable state of affairs! His self concept was riding on the results of the next trade. John needed a boundary between himself and his trading. He needed to know that his ego would be intact regardless of what happened to his trading.

A healthy boundary lets you know the difference between your business and yourself, between your trading and yourself. You are more than your business. You are more than your trading. A boundary also informs you that the results of one trade are not to be confused with the results of all of your trading. Boundaries guide you as to the difference between the past, the present, and the future.

Another way to get some distance between yourself and your trading is to look at it from different perspectives. This is also true in your relationships with other people. In most interactions with another person there are three different and separate perceptual positions.

The self position is looking through your own eyes, hearing what you hear, feeling your own feelings, holding your own beliefs, and making your own interpretations. Most of us live our lives in this position. This is the position that gives you passion. It's where the juice is. From this position we have access to some information, but not all of it.

The observer position is that of a neutral observer, a fair witness. This is a dissociated position. Here you watch yourself and the other person. Here you are in the role of a spectator as you listen to yourself and the other person. As an observer you'll have a third party's commentary. This gives you an impartial view, but if you stay here too long, you could end up playing the role of the cold fish.

The other position gives you the other person's point of view. Here you look at things through the eyes of the other, hold the other's feelings, walk and stand in the other's shoes. This position gives you the ability to identify with and through another person. Here you see the world through another person's eyes and get a sense of what they're feeling. If you live too much in this position, you could be in danger of living in the doormat position.

By going to the observer position, you can gain perspective and neutrality. Some successful traders move to the observer position when they put on a trade. If you're getting too involved in a trade, move to the observer position and look at it from that perspective. At the end of a given trade or at the end of a trading day, take a look at your trading from the fair witness position.

You can also look at your trading through the eyes of another person, for example, a trading buddy, a trading coach, or a trader you admire. What would this person say? What would they think? What, if any, advice would they give you?

Ego involves a separateness from all else. Let me recommend an exercise that will help you experience your oneness with the universe and release egocentricity. Go for a walk, or you can even do it inside. I prefer to do it walking down by the New York harbor. Look carefully at a tree, a plant, a cloud, a wave, or a flower or any other object such as a rock, a sidewalk, or a bench. Notice it's shape and the space it occupies. Become the object and experience yourself as filling that space. Keep doing this with different forms. After a while you'll experience wonderful freedom and energy.


"Don’t force trades. Do not attempt to create an opportunity where one does not exist. Be patient. "
Anonymous

Do you have Mental Resistance(MR)?

Life is balance and fair at least in the context of average people.It really is.Some will say if life's fair,then what about the people in Africa?In developing countries where they face oppression,famine,diseases,etc..? Well,I must say that's the way it is in life.It is true that no one ask for hardship.External factors beyond our reach and comprehension is something that we as individuals are hardly,if not impossible,able to control unless there is a critical mass amount of people which I've yet to see(In the case of Africa economic infrastructure).So if external factors are not in our control,what can we change? Our mind.Internal belief has done mankind a favor through the ages although external factors were mocking and condemning the individuals but yet,this remarkable individuals were able to achieve what they belief in.People like Dalai Lama who seems to smile at the wrath of the Chinese government,Bill Gates who drop out of the herd(Harvard) and believe he had something great and Albert Einstein who many would claim him to be a genius but in his biography(Einstein: His Life and Universe),I realized that he wasn't born with a genius given mind, unlike what majority thought.His strongest traits was his ability to believe in is his own theory on certain topics of physics amidst all the scathing remarks that was hurled at him and not allowing the masses to influence his reasoning even though at that time he was a nobody! His genuine love for physics and maths,not the attention of people,saw him through.

So how do we acquire the mindset of Great Individuals?

From my perspective,certain things may seem hard to get because we have something in us that we are thinking subconsciously(without realizing) against ourselves: Mental Resistance(MR).Neither it is a good or a bad thing.Just see it an important component that we MUST have in our system.Why do I say that? I believe,without MR,we would kill anybody who made us angry or rape anyone whenever we feel a tinge of sexual urge,just to name a few what human are capable of. Without MR,we would do EVERYTHING and ANYTHING instantaneously without rationality, whenever our mind pop up an image or an idea,be it bad or good.

On the positive side of not having MR in your mind,theoretically,majority of human beings will be extremely rich or successful because they are taking advantage of all the positive energy in them without having any form of MR.Great isn't it? Now,lets take a hard look at this scenario.

Because the entire human race now has the power to utilize their positive energy without any form of MR in them and all are rich,powerful and able to do all the simplest jobs in the world...Who is going to the jobs that doesn't need degrees?Who is willing to do the things that rich and successful people doesn't want to do?Who is going to do the jobs that doesn't require much faith and belief?

In my humble opinion,I see MR as a form of balancing instrument in life. Only those able to surpass their MR are entitled to be someone with power.Maybe it is because people that surpass their MR are normally people with good virtues like positive thinking,honesty,belief,compassionate...and so on.Those minority that have surpass their MR eventually controls the majority that have yet to pass their MR. Imagine if it was the other way around,I presumed life on Earth will be chaos because governments with wrong mindset and beliefs are running the show!

Everyone in the right frame of mind has MR.In a way,it acts like a force in the mind to balance between our emotions,desires,needs,logic,etc...Without MR,if the scale is tip heavily in the Emotions part,then we will cry,scold,love or laugh unnecessarily without any common sense.In a way,MR acts as a catalyst to maintain our sanity.

MR is the reason why we are safe from harm,allow ourselves to have a good reputation among our social circle,keeps our integrity intact,and so on. But it can be bad because most don't know how to harness the MR to their favor,and for the majority,it works against their best interest without them realizing since it is a subconscious trait.,and when this happens,it slows down our progress,or worst,hinders it.

So how do we allow our MR to work in our favor?
Everything and anything starts from the seed.,yours is the mind.
1.Never procrastinate.If you want something go get it.Period.If you want to be mediocre,you can.If you want to be excellent,you can.If there is no time,make time and if there is no way,then you better be firm with yourself and insist on finding a way.
2.You are you.You are not them.They are not you.Even God will judge you as an individual.So why bother worrying about what other people think? Don't follow the
herd.
3.PSP. No,no... not the portable game but,
(i)Perseverance is the hard work you do after you get tired of doing the hard work you already did.
(ii)Sacrifice is the passion of great souls,has never been the law of societies.
(iii)Persistence have a magical effect before which difficulties disappear and obstacles vanish

PS: If Barack Obama didn't surpass his MR, he would be telling himself stuff like,"I can't be President because I'm black", "I'm too young" or "I don't want people to think that I'm a hypocrite by promising a change but not doing it." If your heart and mind is one,and you're able to sacrifice other things for that one thing that you really commit to achieve so badly,past individual experiences has showed us that you can if you really believe.

Cheers
Hyzel

"One determined person can make a significant difference; a small group of determined people can change the course of history."

Sonia Johnson

Why is Money Management important?

The subtleties of money management unbeknownst to many novice traders is a great cause of concern since it is rarely delve about . Why is that so? Simply because the topic doesn't sell and it doesn't interest readers,unlike strategies,systems and psychology.Majority of the people either hope to find a quick way to make money or the next strategy that has just been "discovered". (or so they say)

I realized that certain sites construe this topic to be a daunting task to understand.I wonder why...I'll give you a straight answer why Money Management is important,there's nothing to beat around the bush really...:

1st)As you have to come to realize on my earlier article :Trading is a random distribution between wins and losers.

After you have accept the 1st rule,you will understand the 2nd rule,which is...

2)It keeps you in the game to play another day.Your money management should be structure in a way that allows you to gradually increase your portfolio even when you face consecutive losing trades.,and during the occasional losing streak where most of us will face,it should be a minor draw down in your overall increasing portfolio.

That is basically the philosophy behind Money Management.

But if you want a more detail answer on Money Management,I bring you...
Michael Covel(Author of “The Complete Turtle Trader”)

Money management is a defensive concept. It keeps you in the game to play another day. For example, money management tells you whether you have enough new money to trade additional positions. Don’t confuse money management with stop placement. Stop placement does not address the how much question.
Money management is risk management. Risk management is the difference between success or failure in trading. Trading correctly is 90% money and portfolio management, a fact that most people want to avoid or don't understand. Once you have the money management down though, your discipline and psychology is 100% of your success.
Money management optimizes capital usage. Few have the ability to view their portfolios as a whole. Even fewer traders and investors make the move from a defensive or reactive view of risk, in which they measure risk to avoid losses, to an offensive or proactive posture in which risks are actively managed for a more efficient use of capital.

The common percentage use among retail traders are 5% of their total portfolio on any one trade.Some 4%,some 3%,some even 0.5%...In my humble opinion,it doesn't matter what percentage you use for a trade really, as long you're able to "stay in the game" for the long term and be there when you're anticipating a profitable move.

Cheers
Hyzel

"Money management is like sex: Everyone does it, one way or another, but not many like to talk about it and some do it better than others. But there's a big difference: Sex sites on the Web proliferate, while sites devoted to the art and science of money management are somewhat difficult to find."

Gibbons Burke

How do I improve on my portfolio performance?

Simple,just 3 words...
The first would be experience
Second would be experience
and third,would still be...you guessed it, Experience!

There's no holy grails or secrets to achieving the success that one is aiming for.One must get "taught" by the market to be better at trading. It takes time,patient and money.Gaining proficiency is the same in trading as in any other profession - it requires experience, and experience takes time.

How can one improve on his portfolio performance?
Well,since there are couple of factors attributing to an increasing equity curve,I will prioritize them from the most important to the the not so important.

1.Gain experience.No amount of education around the world can give you that unique trading edge.Experience is within yourself.To have experience,one must be patient through the random lessons that will be laid to you,for sometimes at a cost(losses) and this may sound cliche,but one must resist the urge of giving up as trading is not an easy profession.

2.Give yourself a fighting chance.When I say this,it means have a huge amount of capital and place extremely small trades. By doing this,you allow room for yourselves to incur consecutive losses and still trade another day. Not forgetting this axiom-"Trading is a random distribution between winners and losers." Be it you're a fundamentalist or a technician.

3.Once your mind,heart and soul genuinely accepts any kind of losses and just do not worry about it,the trader is having the correct mindset and is on his way to the status of a pro trader.Why do I say that? Because when you have fear, it is detrimental to your learning curve.Fear confuses one's knowledge that one attain. That is why sometimes you see 2 people in a same situation,same resources and same skills but end up with different results.Why?Fear restricts one natural logical thinking.,and one of the solutions to reduce that fear dramatically is to trade in small amounts and mentally prepare yourself for a loss.

4.Embed the skill of "High Probability Trading".I might get some stick by saying out this point,but it has help me stay out most of the bad trades that I will usually trade. So what is High Probability Trading? For one,there is diverse definition on it. What is high probability for me,may not be for you. it depends on what angle you're looking at.While some may follow a trend,others may pick a bottom.,etc.Bottom line,be choosy in your trades. Trade only the ones that gives you the highest chance of profiting.And yes,you will still face inevitable losses even after you methodically choose your trades,but hey,that's part and parcel of trading.Losses will forever be a part of a trader's life.

5.There's a famous adage that the trading society frequently likes to remind each other,which is,"Let your profit run and cut your losses short." I find it funny and contradictory to my belief. For me,if it is time to get out,I'll get out.,via the systematic way.I won't let my "profits run base on blind hope".But I stand fast beside the axiom of cut your losses.As funny as it sound,the reason why people hang on to losses is simply because they don't want to lose.So instead of,"Let your profit run and cut your losses short.",it should be "Take your profits and run and cut your losses short."

I'm sure you realized that there's no or little form of technical aspect in the discussion because honestly,it's all in the mind. There's no Secret strategy or any of that sort. The Greatest Teacher is YOURSELF.

Cheers
Hyzel


"All traders make mistakes, great traders, however, limit the damage."
Anonymous