Slow Trader

Tag: Ego

  • Trade without ego

    Eckhart Tolle’s excellent book ‘a new earth’ explains ego beautifully. His spoken version – where Eckhart is also the narrator – is the best.

    To trade without ego is a necessary but difficult goal; to do so, of course, is to trade without emotion. Loss is part of the trading game and the successful, professional trader manages loss with the same detachment as she manages wins. Without emotion.

    Don’t get me wrong, the unexpected ‘grand’ win will come along, so allow ourselves a small celebration. However, the professional trader manages each trade with a (egoless) positive traders equation in mind, an approach that will never have the need for commiseration.

    To achieve a positive traders equation – an equation that includes risk, reward and, the often forgotten about, probability – is everything. Fear, greed and overconfidence are all parts of the ego. And, ego messes up our ability to recognise probability.

    However, with understanding, determination and practise, as in all our endeavours, we can largely eliminate many of the damaging characteristics of the ego. To do so, certainly in trading, we need to train ourselves to be aware of these emotions and manage them correctly. Eckhart says that to manage ego we simply need to be aware of it and be in the present – that is, be in the now.

    Taking a trade, for example, based on making up ‘lost ground’ is trading based on the past; or more accurately, based on the ego. It doesn’t work!

  • Weekly Diary – Slow Trader Fund 21st November 2015

    What makes an outstanding tennis player, card player, chess player…? Its many things but removing ego and emotion are high on the list. I was lucky to watch some of the World Tennis Finals live at the O2, London, this week and the very best (Federe, Djokovic, Nadal) limit their emotional highs and lows when playing. Trading is no different. I have to leave emotion and ego out of it. When I analyse my errors this week all but one are due to emotion. The emotion of over confidence, usually after I’ve had a good win.

    One way to limit emotion is knowledge. Real understanding of how to read the market through price action. I trade for several hours per day but back test trades each day for a similar period.

    Here is a blown out chart of this week on the EUR USD 5 minute chart:

    Snip20151120_23

    As we can see from above, each day provides many opportunities for success if we’re reading the chart correctly – or losses if we’re not. If we’re patient, balanced, calm, focused, not distracted and we really know what we’re doing then there is a chance of winning. But bring emotion into it and it can all go wrong very quickly. Sure that happens to the best of us from time to time. If it does, walk away. Go and watch tennis. Actually that was not the reason I went to the O2, I go most years. But trading the next day, or indeed after any short break, I need to start back slowly. Sit back, take a long look first before trading. The edge is a precious and small thing, it needs protecting.

    Why is trading difficult? Because there is so much money involved it attracts the very brightest. And, as with chess or all the games mentioned above, we are always matching up against someone. When we take a trade there is always someone (or more than likely some sophisticated computer algorithm) that is taking the opposite trade. That is how it works. Therefore to win we need an edge that is preferably unemotional.