Psychology

Trading Psychology From a 9 Year Old

I was driving in my car the other night with my twin daughters when the conversation somehow turned to what they wanted to do when they grow up.

Naturally, being only nine years old, they had many ideas. There were those that I was very happy with – an astronomer, a veterinarian, a professional soccer player, or a guitarist in a rock band. And there were some suggestions that I just didn’t like at all. Not that it’s my decision! I’ll naturally support them in whichever path they chose for their life; however let’s just say a nine year old should not know what a Forensic Scientist does.

I asked if either were interested in trading, to which Caitlin replied, "But isn’t trading just guessing?"

That was unexpected! I was a little taken aback and frankly quite annoyed that she thought that all I did was ‘guessing’. I replied by explaining that there was a lot more to trading than just guessing which way the market went. But the conversation quickly moved on to other areas, as appears normal when speaking with nine year olds.

That night I put a little more thought to our discussion, not so much out of concern about my daughter’s perception of my career, but rather my emotional reaction to her statement. Why should I allow myself to feel a little insulted by claims that all I do is ‘guess’ market direction?

What do I actually do in the markets?

I assume risk in the markets, with an expectation of profits. But surely it’s not just guessing, or gambling, or taking a punt. I take positions on my terms only. It’s a calculated business decision. Through skillful analysis of past and current price action and an assessment of likely future price action I am able to identify opportunities to profit from market trends. And I combine this with action designed to reduce or eliminate any risk while seeking to maximize that profit. This is no different to any other business.

I’ve been lucky enough to be involved in a number of other ‘cool’ careers, but nothing has satisfied that need within my soul for a meaningful existence like being a trader does.

And I certainly believe that the career of a trader does provide significant benefits for society (a subject for another future article perhaps).

But when you really get down to the nuts and bolts, is what I do any different from guessing?

The definition of guessing according to the American Heritage Dictionary is:

a) To predict (a result or an event) without sufficient information.
b) To assume, presume, or assert (a fact) without sufficient information.

The common point here is ‘without sufficient information’, a phrase which certainly applies to the world of market analysis.

A novice trader expects that certainty can be found through better analysis or better indicators or indicator parameters. And so they get stuck for several years on this search for the Holy Grail solution. It’s only when all attempts at this have failed and they’re willing to accept it as a misguided attempt to hide from their fear of uncertainty, and are willing to embrace that uncertainty, can they take the next step on the path towards professional trading.

The fact is that market analysis cannot predict the future. All future events cannot be known. And even if they could be known, then we still don’t know how these events will be perceived by the market participants and will therefore influence price.

A trader operates in an uncertain world. And all trading decisions are made without sufficient information, based on an assessment of the probabilities and a minimization of risk to protect your capital when you get it wrong.

Essentially, my daughter was correct – I ‘guess’ market direction.

The difference is that some traders guess market direction without any real plan or guidelines for formulating that decision, with an inadequate appreciation of both risk and opportunity and with an undisciplined, unprofessional and emotionally influenced execution of their trade. And their losses feed the account of those who guess market direction based on a documented, tested and proven plan which is designed to contain risk when they’re wrong and maximize opportunity when they’re right, combined with consistency in execution of their plan.

I guess market direction, but I do so within a framework provided by my business plan and an understanding of the probabilistic nature of the markets.

I had assumed I was at a stage where I was comfortable with who I was and what I did. It appears now that this assumption was false and I have more work to do on myself. It makes sense – personal growth shouldn’t be expected to ever end.

Why was my ego bruised at claims that I’m just a ‘guesser’? There are many possible reasons that I need to address in more detail:

  • At a deep level I really want my daughters to be proud of me. Perhaps for a moment I suspected they weren’t? 
  • Maybe my own self-importance was inflating at too rapid a rate (finally reaching an overhead resistance for a great shorting opportunity) 
  • Maybe at some level I still have concerns that being a trader is a Way of life that adds limited value to society? 
  • Maybe I still have some doubts about my long-term survivability in this industry, and so feel that by ‘guessing’ I am gambling my family’s future?

Who knows? I’ve got more work to do in understanding this.

Your beliefs about what trading is and why you do it are fundamental to the success of your trading business. You cannot expect to operate in a consistently profitable manner if you have conflicting beliefs about the value of yourself, of your chosen career or of your ability to succeed at it.

So when your ego takes a little hit from someone’s comments about trading, take the time out to examine your own beliefs. It doesn’t matter what the comment is:

  • Suggestions that it’s impossible to profit from the market.
  • Claims that you’ll never be able to make it. 
  • Cutting comments about how those losses could really have been better used elsewhere.

If it produces an emotional response in you, take some time out to ask why? What does your emotional response mean in terms of your beliefs about yourself and your chosen career as a trader?

That self-examination may reveal the breakthrough you were seeking, to take you to the next stage of your career or personal development.

Happy guessing,

Lance Beggs is a 39 year old full time trader living in the tropical paradise of northern Queensland, Australia. Lance currently trades forex and index CFDs.Lance says "Like all of us I think I've tried just about every strategy and indicator and timeframe over the years, before finally finding what works for me. At the moment I am daytrading the foreign exchange market (forex) (primarily GBP/USD), and index CFDs (primarily FTSE) on the 5 and 2 minute charts. While I expect details of my strategy will be discussed in the blog or articles on this site, essentially it involves a number of setups based around a structure of major and minor support and resistance."Lance has his own company www.yourtradingcoach.com

Lance Beggs is a 39 year old full time trader living in the tropical paradise of northern Queensland, Australia. Lance currently trades forex and in...

Marwan2010

Established member
680 32
How are traders viewed? Society in general view them as "guessers" or gamblers. The Family are the worst. All the time they moan/groan and always saying go out and get a job! - even though i am earning a cconsistent profit! Basically this pissed me off, so I stopped telling them that I was a trader, instead said that I was a self employed Investmennt consultant!

No they thought I was doing a job!
 

new_trader

Legendary member
6,222 1,270
The difference is that some traders guess market direction without any real plan or guidelines for formulating that decision, with an inadequate appreciation of both risk and opportunity and with an undisciplined, unprofessional and emotionally influenced execution of their trade. And their losses feed the account of those who guess market direction based on a documented, tested and proven plan which is designed to contain risk when they're wrong and maximize opportunity when they're right, combined with consistency in execution of their plan.
A good article and a good summary. When a trader is able to 'guess' the market direction correctly much more often than not, you would have to concede that they are skilled in the art of forecasting.
 

NetTecture

Well-known member
403 12
You know, technically traders ARE guessers. What people do not understand is that there is a difference between a game of LUCK (i.e. where your total profit depends totally on luck, like roulette) and a game of CHANCE, where an individual outcome may be against you, but you can actually have an advantage, and proper money management and skillful allocation of resources can make you a consistent winner OVER A LARGER SAMPLE PERIOD.

When entering a trade, no trader will know whether he will make money THIS TRADE - this is the game of chance. But a good trader will know he has an edge, and can calculate how large it is (or rather was).

Most people have no idea about the difference, and seem to be unable to grasp it, mentally. They mix it up, taking traders for gamblers and thinking that putting money on the exchange is the same like playing roulette.
 
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Black Swan

0 0
You know, technically traders ARE guessers. What people do not understand is that there is a difference between a game of LUCK (i.e. where your total profit depends totally on luck, like roulette) and a game of CHANCE, where an individual outcome may be against you, but you can actually have an advantage, and proper money management and skillful allocation of resources can make you a consistent winner OVER A LARGER SAMPLE PERIOD.

When entering a trade, no trader will know whether he will make money THIS TRADE - this is the game of chance. But a good trader will know he has an edge, and can calculate how large it is (or rather was).

Most people have no idea about the difference, and seem to be unable to grasp it, mentally. They mix it up, taking traders for gamblers and thinking that putting money on the exchange is the same like playing roulette.
Those that can do, those that can't bitch :)
 

NetTecture

Well-known member
403 12
Yeah. but I think it is a little like SQL - most people simply are not able to do that stuff.

When I graduated in school many years ago in germany, one of my major areas was math. We were 123 people in the graduation test, iirc. about hald took algebra, half geometry as main topic. Then one guy - me - took statistics ;)

People have problems with probabilities. Most simply are not wired up to handle that stuff.
 
B

Black Swan

0 0
A good article and a good summary. When a trader is able to 'guess' the market direction correctly much more often than not, you would have to concede that they are skilled in the art of forecasting.
Yep I agree, it's a good article, likeable guy and always a good read. I 'likes the ones' on self, physche and emotion. :)
 
Much like TRADING STOCKS AND OPTIONS LIKE A CHILD. Trading is as simple as you make it. Have a few highly probable rules and follow them with pigheaded tenacity.
 
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Unregistered

0 0
Much like TRADING STOCKS AND OPTIONS LIKE A CHILD. Trading is as simple as you make it. Have a few highly probable rules and follow them with pigheaded tenacity.
 

anandsancheti

Junior member
25 0
I think it is a very good question that he is trying to answer. A lot of the times, i find it difficult to say that i am a professional trader. People think it is a use less thing and i say its only 6hrs a day that i have to put in and no more, i like the lazy nature of it. But i know from personal experience that its hard, very hard to make people understand.
 

Mina

Junior member
23 0
Loved it, children are so innocent but do make you think. We often forget and get consumed with the day to day functions of our life such as trading for a living we forget to step back and take a look.
 

Anton

Newbie
3 0
Why did you choose the "American Heritage Dictionary"? Surely the two definitive dictionaries and reference sources are 'The Oxford English dictionary' (the full three Volumes plus one volume for other entries) and the 'Encyclopedia Brittanica'.
I found this with a large German company when they were using English translation and using some obscure American dictionary rather than the Authortative content of the O.E.D..

On the question of child Psychology, it has been and can be said that a 4 year old knows more about human psycholgy than a Phsycholgist or Psychiatrist after 5 years of study for the former and 14 years (has to qualify as a MD first) of study for the latter.

Given your daughter has such an incisive grasp of what you actually do, rather than what you think you do, I would sugest the following challenge to you.

Get your daughter to look at what you look at with the minimum of explanation or justification (that is important ) and let her analyse printed charts for paterns and movements and then tell you what she has found that occurs in the market. Let her say where she believes a share or FX is going based on her analyses then look at what happened next in a follow up chart. My belief is she will spot things with a clarity that you have never seen.

Do not desensitise her or confound her at any point, (and this is very difficut for you) with "Yes, but's", because that way you will corrupt her straight and clear thinking and vision. Think of it as the desire to argue with a Judge when you should keep your mouth shut, if you do he'll cite you for contempt. It's also the trap people fall into when getting someone to test something new in following prewritten instructions, you cannot and must not say "no not like that " when they are following what has been written, it means what has been written is unclear or inacurate so must be rewritten. If you avoid that trap and give her full reign you will be very suprised.

I thought your piece was excellent.
 

Drunsfleet

Newbie
3 0
Great article - I like to trade to remain self-sufficient - my own boss, work my own hours - with a job whose pay is always performance related!

But perhaps indeed a professional guesser and not a noble provider of liquidity to the market!
 

tatoeba

Newbie
1 0
I would say, guessing IS the ultimate game. Anyway life is a big guess more or less informed but still a guess. Nothing is guaranteed (except death). Most people want to get rid of that guess and, for example, take a job, settle for less, etc.
The most courageous, I would say, become professionals 'guessers' and become good at it! Your daughters will be proud of you :)
 

DubaiDude

Newbie
1 0
I like the flexible hours of Trading,Being my own Boss,Trading from home, No need to sell or buy or manufacture a product, no need for customers,low overheads,can take a day off-market will be there tommorrow.Trading is my Business-Not my life.My Life has an equilibrium between my Biz(Trading),Family,Prayer & Charity and a Healthy Lifestyle i.e. Proper Diet & Exercise.Lastly,as a Trader I'm eager to learn from Others.