The foregoing article was originally written in July of 2015 and has been updated to reflect new discoveries.
Often times, I’ve witnessed new traders enter the field and the thing they’d obsess most about is developing a “system” or method of some sort that will generate consistent profits. I was much the same way when I came into the game, but in all truth, that’s only about 10% of the battle of trading. In this article, I’m gonna, through my own experience(s), tell you what I think is the hardest part about being a trader. Be prepared for the pure, unadulterated truth of becoming a trader could be like.
What’s the most difficult part about being a trader? The answer is: Ego.
I am not exaggerating when I say that I developed a method in which I was correct in 85-90% of my calls on the market, be it intraday price moves or moves based on my view of the daily charts. By the way, I’m a pure Price Action Trader, meaning that my only consideration is the prices themselves. Anyways, there were times when I’d sit in front of the screen, and market-watch on a 2-minute or even a 5-minute chart and would be able to tell you exactly what the market is about to do and would be right, again, 85-90% of the time. Let me digress for a moment and say this — I’m not setting the stage for the selling of any eBooks, coaching, or any of that stuff by mentioning the precision of my calls on the market. I will not be selling a damn thing, so please don’t take this as such.
That being said, the same goes for me watching the daily charts. I’d perform my analysis and would correctly call a major move and be dead ass accurate. In fact, if you follow me on twitter (@MeauxArgent), you would probably see some of these calls that I’ve made over the past couple of years. I even called the crash in oil prices and called the rebound (you can see where I called the rebound here: Analysis of the Crude Oil Market). There was also another call I made on Amazon (AMZN) stock. If I remember correctly, AMZN was trading at $248 per share at that time. I called a rise in the price of AMZN stock and it went on to rally more than $200 (UPDATE: AMZN is at almos $1200 today). There was also a call I made in wheat. I was bearish in wheat and took a short position and it turns out that I was right. There were also several other major moves I called in 2015 alone but that would take another article to outline.
Even when I was wrong about trades, my method worked in one or three ways. 1) Keep me out of that trade. 2) Exit the trade with a small profit. 3) Exit with a small loss.
Before you think that I’m bragging about my method, here’s the kicker in all of this. Of all of the trades I named, I acted on only ONE of the trades mentioned, that being wheat (I acted on several others but I’m discussing only those mentioned). And even then, I exited the position with a profit of $700 per contract but if I would have held on to my position as I originally intended, my profit would have been a little more than $4,000 per contract. Even on my intraday calls, I rarely took positions and when I did, I was usually right (UPDATE: it’s this way of thinking that was so problematic). To put it plainly, I was able to call the market with a high-degree of accuracy but I had trouble acting on my conclusions. It was as if I didn’t believe in my method…even though I was right most of the time. To show you how severe my trading defect was, I’ll say this: if I acted on my information, I’d probably be a millionaire by now. The type of moves I’d forecast were the types that could quadruple my capital in a week’s time! Nevertheless, my trouble was in taking the trades.
For a while, this drove me into a deep depression. Here I was, a guy who’d set out to achieve great financial success and I’d created a concrete plan to do just that and I was having trouble executing my plan. My desire for wealth was not a pipe dream as I had a plan that could accomplish that for me in a relatively short period of time. During this depression, however, I got to thinking objectively about all of this and I realized that:
1a) I was playing with scared money. It wasn’t that I was under-capitalized, my issue was that I wasn’t willing to lose. I couldn’t stand the thought of the market moving against me even in the slightest. A dumb ass way of thinking, I know.
SOLUTION: I came to the realization that I have nothing to lose. The only way to gain what I truly want is to lose what I currently have. If I want a better life, I had to lose the current comfortable life. Worrying about the money, as it turned out, was simply a way to remain in my comfort zone.
1b) UPDATE: Actually, the point made in 1a was only half of the problem. After digging much deeper into my psyche, I realized that it wasn’t so much about the money. When I’ve traded in the past and lost money, I’d forget about the loss rather quickly and wouldn’t have any ill feelings about it. My problem was that my ego was tied to my trading. In other words, I wanted to be right. I wanted to be able to brag about correctly anticipating the direction of a market. I’d built up this complex within my mind that I was a highly accurate forecaster of market direction. But, when it came time to prove it by putting my money on the line? I’d plan my trade down to the precise entry and would chicken out because I was terrified of being wrong and thereby hurting my ego. Here’s the trip part, though — if the market did move in my anticipated direction, even though I punked out and made not a cent on my call, I’d brag to others about getting the call right! You could say that this period was one of self-aggrandizement. In hindsight, I recognize this as being complete insanity. I remember even chatting with other traders and actually fucking debating with them about why my analysis/call on the market is right. That is loser shit!
SOLUTION: The truth is that the need to be right is for losers. As long as I had that mindset, I was going to remain a loser, no matter how accurately I could anticipate the market’s moves. Since nothing is certain in markets, the need to be right is futile. Instead of thinking in terms of right and wrong, which was an ego-satisfying way of thinking, I thought in terms of winning and losing. Thinking of trading in terms of wins and losses tends to bring objectivity to the endeavor while thinking in terms of right and wrong is an emotional, ego-stroking way of thinking. Above all else, this was most important discovery.
2) I then had to ask myself what were my REAL goals in life, as in my subconscious desires. On a conscious level, I wanted to be a successful, wealthy trader, but my subconscious desire was obviously something different. Ya see, during most of my life, I’ve never had much money. I’ve never held a job that pays over $30k a year. When I would make great money, it was always the result of my entrepreneurial efforts. For example, when I was 23, I was making upwards of $50k+ a year as a freelance graphic designer. But, here I am now with a concrete plan to make millions of dollars, and it’s almost as if I had a difficult time convincing myself that I could do it. I determined that BELIEF is what it boiled down to.
SOLUTION: Of all of the previous problems listed, this was by far the most difficult because it may be the root cause for all of the others. The way I got around this was to first, reread a book by Maxwell Maltz, MD titled PsychoCybernetics. I read that book many years ago but it’s message went right over my head. During this second reading, however, I understood exactly what he was saying. I realized at once that my problem was that I identified myself with my past self instead of with my future self. In other words, I continue to see myself as that guy who didn’t have much money growing up and so forth. By reinforcing that self-image, the subconscious mind will see to it that I remain as that guy who never made much money. It mattered not that I had a plan to make millions. As long as I continued to view myself as being someone who doesn’t really have much, that would continue to block me from getting more. A sort of self-sabotage, I guess you could say. The obvious thing is/was to change my self-image and to believe in myself and my abilities. I realized that when I thought of myself as I intended to be in the future, taking trades was no problem, I’d guess because there wasn’t the mental blockage there to keep me in my comfort zone.
Conclusion: As I’ve shown, anecdotally at least, coming up with a trading plan is only a small part of the battle in becoming a successful trader. The real struggle in trading is at least 90% mental. I found that removing your ego (and/or the need to be right) from trading is by far the most important thing. Fuck bragging rights, the purpose of trading is to win big, lose small and thereby make money. I remember believing that the more accurately I was able to analyze the markets, the sooner I would march on to trading success but not even close. Like an idiot, I used my method to feed my ego instead of to grow my bank account. That being said, I hope that my story will help those who are in similar situations.