The Lethal Mistake Every Trader Makes
The market isn't biased, but you are
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Recently I tweeted this:
Worked hard over the past few weeks, portfolio was up 50%
Got impatient, levered up, got rekt, profits gone
The moment you deviate from your systems is when you get rekt
It's pretty straightforward - I got impatient with the slow rate my portfolio was growing, decided to deviate from the norm, and levered up. And I got rekt for it.
So the mistake here is my over-leveraging right? Yes and no. While it's true that over-leveraging caused my downfall, the systemic issue was my lapse in judgement moments before placing my sell order.
In that instance, I felt myself desperately wishing for my thesis to come true; that we'll wick back down. I felt my brain switching bias - from cautiously optimistic, to straight-up recklessness. My risk management principles were thrown out of the window, and I levered all the way up, suddenly "knowing" that I was right.
I was wrong, of course. But what scared me was that nanosecond in which I was chock full of adrenaline and so incredibly tunnel-visioned on my interpretation of the charts that I ignored all other possibilities. I literally could only see one outcome - mine.
And that's the one mistake every trader makes - the trader superimposes their own bias into the markets, trying to control something that can't be controlled.
Listen: The market is neutral - it provides us with information that can be leveraged into opportunities, but it does not control the way we interpret the information, nor does it control our decisions.
Therefore, the most important skill any trader has to have is the ability to be objective at any moment. The market owes you nothing. It isn't, in contrast to popular belief, working against you.
That's why systems exist - to force us to be unbiased and objective, to help us maintain an unemotional frame of mind. Many people like myself often fall prey to the trap of "revenge trading" - after taking a losing trade, I find myself needing to continue proving to the market that I'm "better" than it.
In such cases, I become emotional and distort the information that the market provides. I then either avoid certain opportunities or disregard my systems in a bid to prove myself. In order to re-affirm my identity, I warp my usual way of doing things - and that's where I lose.
Hence, I believe that trading is more about attitudes than it is about systems - while both are important, a more knowledgeable market participant with an unstable and gambling attitude would likely not outperform a less knowledgeable but more consistent and unemotional trader.
How To Remain Objective
The attitude required in trading is rather counter-intuitive to what we've learnt in our lives. The ability to remain detached runs counter to how we form attachments to friends and family. Trading is difficult because it requires skills that run opposite to what we've grown up with.
As such, the ability to reinforce a good trading mindset is by simply habitually reminding yourself. It's like how you build good habits - by repetition.
What I like to do is to read this line that I have pasted on my screen: "The best attitude is one that believes there is no possible way to avoid the loss. Losing is a natural consequence. The best traders instead control how they react to it, by easily admitting they're wrong and not getting attached to the emotions afterwards."
By continuously reading this mantra of sorts, I find me constantly reminding myself to remain objective, to not be affected by loss, and instead take advantage of the endless stream of opportunities in the market.
I hope this helps.
-Kyle
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