How do we bring happiness to our lives? As traders, how do we bring happiness to our own trading, despite short term whipsaws and shakeouts? How can we stick and trust to our systems without being mislead that we are executing our systems, when we may overlook the fact that we may not be following our own systems?
As a trader myself, I know that I cannot bring performance as the sole reason to dictate my happiness in trading. Day in and day out, losses are part of the game. There are days when, despite any conscientious hard work on my part to look for setups, I cannot find any, nor do they present profitable outcomes. Am I stupid to continue trading on a chart that seems more akin to a rock that has no juice left to squeeze? Over time, I realized that I cannot allow solely profits to dictate emotional highs nor let it be the reason to signify whether I’m improving in my trading or not. Not only will trading performance cause me to whack my head and go deep into depression (which I have gone to, and it’s not a good place to be in), but experiencing that kind of rut leads oneself to think useless, wasted and not able to get back up with the right mindset, crucial to the trading arena. As Anne Marie Baiynd wisely said, “Loss of mental capital (drive, will, confidence) is greater than loss of monetary capital.”
Tony Hsieh’s “Delivering Happiness” summarized a happiness frame work for most humans. As I quote, “Happiness is really just about four things: perceived control, perceived progress, connectedness (number and depth of your relationships), and vision/ meaning (being part of something bigger than yourself).
In trying to deepen my own personal trading happiness, I’ve broken down perceived control and progress – primary components of my trading satisfaction (happiness) – to be dictated in key trading measures (Read: Solution Focused Trading) that are not tied to trading results, but more on the trading processes. I can be trading my best, and still end up with lousy results. That’s the enigma of trading, that our edges can quickly diminish in the market, and that we have to adapt (another measure). In any case, I do my best in checking my control through the following means:
From the perspective of a long-only trader,
1.) Stock Selection/ Quality of List – Have I been following my trading system, of trading more left-handed charts (bullish momentum charts), instead of reversal patterns (right handed charts)? Do I trade compelling high probability setups with good risk/reward level ratios?
2.) Execution of Trades
2.1) Entries– Have I followed my plan on not chasing prices, and sticking to the entry price I’ve listed to be the maximum buying point?
2.2) Position size– Have I measured the appropriate risks and purchased the right amount of shares? Have I been trading too little or too much?
2.3) Exits – Have I allowed the trade wiggle room before cutting the trade short? Have I followed my stops? Have I allowed a “free trade” (I call winning trades to essentially be free trades) to run free and not be dictated by my whims, and to solely be guided by trailing stops?
2.4) Risk Management – Have I lightened positions that were in favor after a sizeable run? Have I hesitated to cut positions that have turned against me? Do I have a plan to mitigate hesitation of the discipline to follow trading rules?
3.) Preparation for the Trading day – Have I been punctual? Do I do my charting homework everyday? Do I actively look for good risk-reward setups? Do I have a list of stocks, that I filtered for the trading day? Do I read enough economic news reports to know the macro picture needed to gauge the market sentiment?
4.) Patience and Dynamic Trading– Have I looked for possible ways to improve my trading, whether through being more patient in allowing trades to work their way? Do I study my journals and make adjustments to my strengths and weaknesses to constantly improve within a framework? Do I look for other markets, when there are not enough opportunities in the markets where I trade?
When we base our trading performance through system-checks, instead of merely the results, we get consistency. We see where we need to work upon. We have a control on the variables (our risk levels, our setups, executions) etc rather than allowing whatever news, emotional or fundamental variable affect our trading abilities, which we have no control. We do not know if the chairman chooses to resign tomorrow. We do not know what the Fed, nor a set of leaders in G-8 are thinking. We may speculate, and interpret that knowledge into actionable competitive advantage through our own mosaic theories, but we should still confirm our biases with the price action.
Every scientist’s goal as Einstein said was “to make things simple, but not simpler.” The theory of technical analysis is a Zen-like theory. It tries to simplify things, but it is not infallible. As a chart pattern savant, I do not find anything wrong trading a stock despite not knowing the fundamentals. I would usually check the fundamentals of the stock, only as a post-analysis consideration, as to why the stock is exhibiting good technical price action. This is my personal Zen-mode of trading. I focus on the price action, and I stop minding the details, until after the trade. There are millions of variables that can affect how a stock is traded, I just choose to simplify my life. This however, does not mean, that I cannot fail, only that I constructed a system based on these precepts. Inter-market analyses, multiple time frame analyses, market sentiment, situational fund flows are all part of technical analysis. It is not merely one chart setup, in one trading horizon that makes the system. It is the overall flow of money. If economic policies and relevant fundamental themes confirm the same conclusions, it only makes the setup’s probabilities of being a winner higher, thereby making the trader more confident in making the trade, and managing it wisely.
Jonathan Haidt in “The Happiness Hypothesis” concludes that happiness doesn’t come primarily from within but, rather, from between. As traders, it is essential at least for me to be able to connect with other peers, not solely in the domain of trading, but to the culture of excellence and keeping up with the team’s willingness to improve. Whether the goal is to become a professional basketball player, or an accomplished trader, the route to success is all the same. Being team players, mentoring our friends to becoming better in their trading is one way, but more than that, it stems from the sincerity of sharing ideas, and contributing to positive mental psychology. Look for trading solutions, rather than depressions. As I’ve said in my beliefs (insert link), elite traders do not need buy and sell recommendations. They are self-sufficient. However, no man is an island, and a great trader also has great company of friends.
Hsieh’s concept of Vision/Meaning as a primary component of happiness, is being part of something bigger than your self. Bringing upon Jim Collins’ concepts (Good to Great) (insert link), great companies and great traders have a wider vision. Whether that vision is what Warren Buffett does, in turning his wealth into productive engines for his philanthropic, and other business ventures to help communities, or George Soros’ capabilities of helping fix economic policies, or Paul Tudor Jones’ time and business ventures to give more educational opportunities to people living in the Bronx, using your money and trading wealth for something bigger, makes you more concentrated and happy to be better traders.
I hope that you find your own trading happiness as well,
The Faceless Trader
Inspirational References: Tony Hsieh’s Delivering Happiness.