I’d like to paraphrase a fishing analogy. Show someone how to invest by following a winning trading methodology and he/she will be happy for awhile. Teach someone how to think effectively about trading and he/she will be profitable for a lifetime.
All too often as investors, our focus is on indicators, price action and our interpretation of fundamentals. We enter our trades based on data, but if we see our position move against us and we lose money, what then? We go back and review our system. The missing link here is that we must figure out ourselves before we can trade competently. Lack of that will destroy any trading system. A true understanding of your personal motivations is more essential than any indicator.
In his book Trading Rules That Work, Jason Jankovsky neatly unbundles these motivations. He claims there are 3 keys to successful trading:
- Traders must first understand their own motivation and psychology for investing.
- Traders must then master and embrace the psychology inherent in their personal trading rules.
- Traders must dually monitor and master the market’s collective psychology.
I heartily endorse Jankovsky’s three keys. The challenge is in how you learn to do this. It is both my experience and my belief that it’s critical for every trader to keep accurate and comprehensive records of all trades, recording in particular what you’re feeling and thinking before and after the trade. I’ve found the single best tool for achieving these objectives is a trader’s written journal.
Expanding upon Jankovsky’s premise and digging into my old journals, I’ve witnessed my personal transformation into a mature trader. Along the route, I seem to have passed 5 key road markers:
- As I matured, I moved away from self-criticism and moved towards honest self-evaluation.
- Early on, my trading experiences were evaluated according to how I felt about a trade. As I matured, I transitioned into evaluating my emotional control during a trade.
- As a novice investor, I often experienced doubt and fear. These have been replaced by faith and confidence in myself and my system.
- In the early years, I read books, took courses and reached out to mentors who could teach me. Now I am the one doing the teaching.
- As an immature investor, I was an “infomaniac” who vacuumed up everything in site yet struggled with the basics. As a mature investor, I have a depth of understanding that allows me to filter and ignore much of today’s market noise.
These are 5 observations from a very personal journey, but the point is that successful trading is about so much more than just data, charts and a strategy. The reality is that these communicated truths can be read here and intellectualized, but only through your own experience and hard work can these truths be integrated into the very fabric of your trading belief system before the full benefits will be realized. Your profitability will be largely determined by your mastery of this inner game.
I confess that I’ve been guilty of having my past mentors review my trades and offer pithy explanations that drip with keen insights. But only after spending my own dollars did their insights become part of my trading. There is always a gap between what a trader has written out as his trading system and the real time implementation of that system. I call it the “slinky gap”. Over time, the stretch or spread between one’s system and one’s mastery over themselves diminishes to the point where the slinky no longer stretches out and comes roaring back with a painful slap.
When mastery of your trading system is matched with mastery of yourself, the combination becomes virtually invincible.
Trade well; trade with discipline!
- Gatis Roze, MBA, CMT
- Author, Tensile Trading: The 10 Essential Stages of Stock Market Mastery (Wiley, 2016)
- Presenter of the best-selling Tensile Trading DVD seminar
- Presenter of How to Master Your Asset Allocation Profile DVD seminar
- Developer of the StockCharts.com Tensile Trading ChartPack