The Real Struggle: Mastering Trading Psychology

Successfull Trading is Much Tougher Than You Think

In my view, trading the markets is by far the most difficult mental discipline in the world.  Trying to predict where a mostly random time series is going to go, no matter what the time frame, often feels like an exercise in futility.  Even if one can find a system or process that does a decent job of this task, that is only taking care of what is actually the easiest part.  Next, trying to stay disciplined over long periods of time, where the message one often gets is that what you are doing is not working is a mental exercise that can absolutely suck the soul out of you. 

The psychological toll this P&L chasing takes is pretty extreme and makes the task of remaining disciplined even harder.  On top of this, it’s only over very long periods of time that one can actually determine if what they are using as an edge is actually valid, and by the time you can figure that out, it is most likely too late.  The only real answer I know to help combat this is one of diversified return streams.  Trading the market, in whatever form, should be just one of these return streams, and ultimately should not be correlated to the other return streams in your financial portfolio.  This way, your trading can be an alpha generator to your overall portfolio, rather than the main driver of growing your wealth.  This may be the most important lesson I have learned as a trader for over 30 years. 

This game is not about predicting the market, it’s not about trend lines, and it’s not about knowing the fundamentals better than everyone else.  This is a battle against oneself.  Psychology and a brutal examination of self is what is needed.  Learning how to chart the market is simple.  Learning how to recognize and overcome your human flaws is hard.  Which one do you think will lead to success over time?

Thanks,

Jason Shapiro

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