The Traders Journal

Stock Market Mastery Part III: The Equation


KeyStock market mastery has many components, but the first step is to acknowledge that it all starts with you – the investor self.  Jesse Livermore once told his sons:  “Successful trading is always an emotional battle for the speculator, not an intelligent battle.”  He knew that his biggest enemies were his own inner emotions. This blog is the third in a series of four based on the survey I conducted with 80 investors.  As you may remember from my previous blogs, there are four primary modules that determine whether or not individual investors reach their potential.  We’ve already explored two of these:  planning roadblocks and knowledge issues.  This article will deal with the third component: personal psychological baggage.  At a later date, I’ll tackle the final item: execution barriers.

For now, I’d like you to consider that investing success boils down to a simple equation:

Planning + Trading System + Beliefs + Execution = Results


Of the four modules that investors cited as holding them back, it is this third area dealing with personal psychological baggage that is perhaps the most difficult to overcome.  I say this because it demands that you – as an individual investor – step outside and beyond your own comfort zone much more than any of the other three.

New investors need to make a concerted and productive effort early on to identify their own personal propensity and comfort zone trading in various time-frames.  As I have witnessed, when novice investors unknowingly trade a time-frame that is uncomfortable and inappropriate for them personally, they find it nearly impossible to effectively address their individual psychological baggage.  Invariably, this impedes them from succeeding as investors. 

The majority of “newbie” investors taking my classes start out believing that investing is just a two-step process.  They think that if they just learn how to trade, then the next and final step is simply deciding what to trade.  But in my classes, I present them with the all-important Step 3 -- endeavoring to match the investors to the trading time-frame most appropriate and most comfortable for them as individuals.  I try to get them to think of investing as a collaboration between two personalities.   Because the market has different personalities in different time-frames, you’ll feel much more invested in a trade if you align your own wheelhouse of emotional, psychological and lifestyle goals with that of the market that you trade.

Given this reality of the market, I offer my students a multi-choice smorgasbord of six different trading opportunities in six different time-frames.  I challenge each investor to pick that time-frame to which they feel most drawn. Some investors admit to enjoying the energetic feel of the markets and had trading plans akin to military operations.  Those investors clearly gravitate towards shorter term trading.  Other investors admit that they have difficulty controlling their own excitement and find it discombobulating when they get too close to the market.  They do much better from a distance where some of the daily volatility can be ironed out.  The textures of longer term investing feel more appropriate for them.

Once you have addressed the time-frame challenge, you can move onward to focus on your beliefs.  Under the umbrella of “Personal Psychological Baggage”, six barriers were the most commonly mentioned by the investors I surveyed.  As you read through these “enemies within”, I dare you to consider which might apply to you and specifically in what situations:

  1. Overcome by fear:
    • the fear of losing money
    • the fear of leaving money on the table
    • the fear of losing face
  2. Acting too emotional within the 4 “I’s”:
    • Being impulsive
    • Being indecisive
    • Being inconsistent
    • Being impatient
  3. The adrenaline junkie who needs a quick fix, the thrill of the gamble or some instant action.   The motivation here is all wrong.
  4. Trading in deep denial – just like the old cliché says “Denial is not a river in Egypt”:
    • can’t look at “down”  markets
    • ignoring positions
    • too much confidence or not enough confidence in one’s own skills
  5. The procrastinator who can’t pull the trigger to buy and/ or likewise can’t cut losses and get out.
  6. And finally, my personal favorite and ongoing project:  the lack of discipline.  Maintaining discipline to follow through and bring execution totally and completely under control.

We traders are just people, and history shows us that people need statutory laws, civil codes and societal pressures to function effectively.  The markets, on the other extreme, demand self-policing and individual accountability.  The kind of self-discipline necessitated by the markets is an unnatural act for most people and it creates an ongoing struggle in the investor self arena.   As a trader operating in a sea of market variables that are beyond your control, you are challenged to take control of an equally complex sea of attributes within your own investor self.  Therein lies the equation that’s so pivotal in determining your success as an investor.  As evidenced by the 80 investors in my survey, an investor’s results can be quantified to some degree and are directly attributable to the simple equation: 

 Planning + Trading System + Beliefs + Execution = Results

If some hot-shot PhD were to quantify the attributes in each portion of this equation, I have no doubt they could give a ranking to all of us individual investors that would predict our performances with frightening accuracy.  As I stated in my second blog in the series, attempting to acquire the abilities to achieve mastery in the stock market is both a worthy lifetime objective and an achievable goal.

Trade well; trade with discipline!

-- Gatis Roze


Gatis Roze
About the author: , MBA, CMT, is a veteran full-time stock market investor who has traded his own account since 1989 unburdened by the distraction of clients. He holds an MBA from the Stanford Graduate School of Business, is a past president of the Technical Securities Analysts Association (TSAA), and is a Chartered Market Technician (CMT). After several successful entrepreneurial business ventures, Gatis retired in his early 40s to focus on investing in the financial markets. With consistent success as a stock market trader, he began teaching investments at the post-college level in 2000 and continues to do so today. Learn More
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