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Alexander Elder - Trading For A Living | ||||
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free download links about online stock trading, forex, futures, stock investing, market, trading systems Trading is a very hard game. A trader who wants to be successful in the long run has to be very serious about what he does. He cannot afford to be naive or to trade because of some hidden psychological agenda. Unfortunately, trading often appeals to impulsive people, to gamblers, and to those who feel that the world owes them a living. If you trade for the excitement, you are liable to take trades with bad odds and accept unnecessary risks. The markets are unforgiving, and emotional trading always results in losses. Gambling Gambling means betting on games of chance or skill. It exists in all societies, and most people have gambled at some point in their lives. Freud believed that gambling was universally attractive because it was a substitute for masturbation. The repetitive and exciting activity of the hands, the irresistible urge, the resolutions to stop, the intoxicating quality of pleasure, and the feelings of guilt link gambling and masturbation. Dr. Ralph Greenson, a prominent California psychoanalyst, has divided gamblers into three groups: the normal person who gambles for diversion and who can stop when he wishes; the professional gambler, who selects gambling as his means of earning a livelihood; and the neurotic gambler, who gambles because he is driven by unconscious needs and is unable to stop. A neurotic gambler either feels lucky or wants to test his luck. Winning gives him a sense of power. He feels pleased, like a baby feeding at a breast. A neurotic gambler always loses because he tries to re-create that omnipotent feeling of bliss instead of concentrating on a realistic long-term game plan. Dr. Sheila Blume, director of the compulsive gambling program at South Oaks Hospital in New York, calls gambling "an addiction without a drug." Most gamblers are men who gamble for the action. Women tend to gamble as a means of escape. Losers usually hide their losses and try to look and act like winners, but they are plagued by self-doubt. Trading stocks, futures, and options gives a gambler a high but it does appear more respectable than betting on the ponies. Moreover, gambling in the financial markets has an aura of sophistication and offers a better intellectual diversion than playing numbers with a bookie. Gamblers feel happy when trades go in their favor. They feel terribly low when they lose. They differ from successful professionals who focus on long- term plans and do not get particularly upset or excited in the process of trading. Brokers are well aware that many of their clients are gamblers. They often try to avoid leaving messages for traders with their wives, even when they call to confirm a trade. Amateurs are not the only ones involved in gambling — quite a bit of it goes on among professionals. Sonny Kleinfield describes in his book, The Traders, the endemic betting on sports events on the floors of financial exchanges. The key sign of gambling is the inability to resist the urge to bet. If you feel that you are trading too much and the results are poor, stop trading for a month. This will give you a chance to re-evaluate your trading. If the urge to trade is so strong that you cannot stay away from the action for a month, then it is time to visit your local chapter of Gamblers Anonymous or start using the principles of Alcoholics Anonymous, outlined later in this chapter. Self-Sabotage After practicing psychiatry for many years, I became convinced that most failures in life are due to self-sabotage. We fail in our professional, personal, and business affairs not because of stupidity or incompetence, but to fulfill an unconscious wish to fail. A brilliant and witty friend of mine has a lifelong history of demolishing his success. As a young man, he was a successful industrial salesman and was sacked; he entered training as a broker and rose near the top of his firm but was sued; he became a well-known trader but busted out while disentangling himself from previous disasters. He blamed all his failures on envious bosses, incompetent regulators, and an unsupportive wife. Finally, he hit bottom. He had no job and no money. He borrowed a quote terminal from another busted-out trader and raised capital from a few people who had heard that he had traded well in the past. He knew how to trade and made money for his pool. As the word spread, more people brought in money. My friend was on a roll. At that point, he went on a speaking tour of Asia but continued to trade from the road. He took a side trip into a country famous for its prostitutes, leaving a very large open position with no protective stop. By the time he returned to civilization, the markets had staged a major move and his pool was wiped out. Did he try to figure out his problem? Did he try to change? No—he blamed his broker! It hurts to look within yourself for the cause of your failure. When traders get in trouble, they tend to blame others, bad luck, or anything else. A prominent trader came to me for a consultation. His equity was being demolished by a rally in the U.S. dollar, in which he was heavily short. He had grown up fighting a nasty and arrogant father. He had made a name for himself by betting large positions on reversals of established trends. This trader kept adding to his short position because he could not admit that the market, which represented his father, was bigger and stronger than he was. These are just two examples of how people act out self-destructive tendencies. We sabotage ourselves by acting like impulsive children rather than intelligent adults. We cling to our self-defeating patterns even though they can be treated — failure is a curable disease. The mental baggage from childhood can prevent you from succeeding in the markets. You have to find your weaknesses in order to change. Keep a trading diary — write down your reasons for entering and exiting every trade. Look for repetitive patterns of success and failure. The Demolition Derby Almost every profession and business provides a safety net for its members. Your bosses, colleagues, and clients can warn you when you behave dangerously or self-destructively. There is no such support in trading, which makes it more dangerous than most human endeavors. The markets offer many opportunities to self-destruct without a safety net. All members of society make small allowances to protect one another from the consequences of our mistakes. When you drive, you try to avoid hitting other cars and they try to avoid hitting you. If someone swings open the door of a parked car, you swerve. If someone cuts in front of you on a highway, you may curse, but you will slow down. You avoid collisions because they are too costly for both parties. Markets operate without normal human helpfulness. Every trader tries to hit others. Every trader gets hit by others. The trading highway is littered with wrecks. Trading is the most dangerous human endeavor, short of war. Buying at the high point of the day is like swinging your car door open into the traffic. When your buy order reaches the floor, traders rush to sell to you — to rip your door off along with your arm. Other traders want you to fail because they get the money you lose. Controlling Self-Destructiveness Most people go through life making the same mistakes at sixty that they made at twenty. Others structure their lives to succeed in one area while acting out internal conflicts in another. Very few people grow out of their problems. You need to be aware of your tendency to sabotage yourself. Stop blaming your losses on bad luck or on others and take responsibility for the results. Start keeping a diary—a record of all your trades, with reasons for entering and exiting them. Look for repetitive patterns of success and failure. Those who do not learn from the past are condemned to repeat it. You need a psychological safety net the way mountain climbers need their survival gear. I found the principles of Alcoholics Anonymous, outlined later in this chapter, to be of great help. Strict money management rules also provide a safety net. If you seek therapy for your trading problems, choose a competent therapist who knows what trading is about. You are ultimately responsible for your own therapy and must monitor its progress. I usually tell my patients that if a month goes by without clear signs of improvement, then therapy is in trouble. When therapy shows no progress for two months, it is time to seek a consultation with another therapist. |
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