A Winning Mindset

BarroMetrics Views: A Winning Mindset

It’s been an interesting period for the market:

The S&P appears to be on the cusp of resolving its choppy price action that has been with us since Feb 2011. And because the markets I trade are either directly or inversely correlated with US Stocks, they too have been choppy to a greater or lesser extent. This meant that my day trading has been proving more profitable than my position trades. Only problem is I have a mental hurdle to overcome for me to day trade. I much rather put on a position and let me work for me. It also has meant that I have had to exit a series of positions usually with a small loss.

And that brings me to today’s blog. I was having a chat with a friend of mine, John, who asked me: “What is the main difference between a long-term profitable trader and the unprofitable one?”.

I said: “Risk Management”; he replied that while he thought risk management was essential to success, he did not think it to be the main difference. In his view the unprofitable trader traded with  a predominant mindset of ‘wanting to look good’ while a profitable trader tended to have a predominant mindset of ‘wanting to make money’.

Now I understand the latter idea but ‘looking good’?

John explained: : The loser wants to appear to be a good trader. That is what is important to him and this usually means having to rack up win after win and never appearing to take any loss (or at most very few losses). His audience is irrelevant – it can be his partner, his broker, his friends, himself – anyone. It’s the image that is key.

The winner wants to make money because money means ‘xyz’ to him e.g. making money means financial freedom etc. If in the process of achieving his goal, it means taking acceptable losses until he transcends his ‘ebb stage’, then he accepts and moves past the losses.

John admits that it’s not that clear cut. Within each of us there is a desire to ‘look good’ and ‘to make money’. But, John added the main difference between the two was this difference in mindset. It explained why losers can make a series of winning trades and let one trade destroy not only the profits but the whole account.

I don’t know….if John is correct.

Sure, when I was struggling to make it, I can think of many times that John’s words proved prophetic. Those who have heard my ‘gold’ story will see how true that statement is. But can it really be that simple? It is really only a matter of remembering why we take a trade each time we take a trade that makes all the difference?

I don’t know…..What do you think?

12 thoughts on “A Winning Mindset”

  1. Hope it has a happy ending!!
    Re your blog post today, I do not think John is right. Without money management, it doesn’t matter what kind of image the trader has or the audience.

  2. Hi Hollytrades

    Well I eventually learned something – viewed in that light it was a happy ending! (G)

    Thank you for sharing your views.

  3. I think you are both right. I recently watched this TED talk again when I notices some resistance in my trading psychology. IMHO this is the most important TED talk and I recommend it to everyone.

    http://www.ted.com/talks/brene_brown_on_vulnerability.html

    She summarizes her research at one point saying there are two main groups of people; those who live wholeheartedly and accept their vulnerability, which opens up doors to joy, connection and happiness. Then there is basically everyone else who struggle with insecurity, low self worth, and shame because they don’t accept their vulnerability. It’s rather ironic that the solution to feeling vulnerable is to accept it as unavoidable.

    As she talked about people who accept their vulnerability I immediately made the connection to risk management, which I think of as accepting uncertantity and a trader’s complete lack of control on outcome, constantly being vulnerable to the will of the market.

    The desire to “look good” all the time may be a behavior created out of a need to avoid shame and embarassment.

    This may be one of the reasons why traders with a good trading plan can’t employ it consistently. Moments may arise where they might be looking for certainty and security rather than executing their plan, ultimately leading to losing trading decisions.

    One of the biggest comforts in my recent trading is that I know almost exactly how much money I’m going to lose given the worst case on every trade. This made a big difference for me during my most recent ebb period which I retained much more of my capital(financial and psychological) than in previous periods.

    This is just my opinion but I think the issues discussed in the video tie the truth of John and Ray’s statements together very well. Even if someone out there disagrees completely I still recommend everyone watch that TED talk. I think it adresses perhaps THE fundamental struggle human beings face in our lives; and as someone seeking to be a professional trader, a critical step towards mastery.

    From what I understand it may tie in well with your coaching traders on their default futures.

    TL;DR:
    IMHO
    Desire to constantly “look good”; obsessive perfectionism
    =
    behavior to “save face”; avoid shame, embarrassment, dishonor

    Disciplined Risk management
    =
    acceptance of inescapable uncertainty and vulnerability

    http://www.ted.com/talks/brene_brown_on_vulnerability.html

  4. The trader whom Karry Williams called ‘a well seasoned trader”, who has achieved an average ROR (Rate of Return” of 68.1% (calculated by Value Added Monthly Index method) during his career wrote:

    “… But a strong stomach for losers and miniature pride on the need for winners are necessary for consistently profitable trading operations”.

  5. The trader whom Larry Williams called ‘a well seasoned trader”, who has achieved an average ROR (Rate of Return” of 68.1% (calculated by Value Added Monthly Index method) during his career wrote:

    “… But a strong stomach for losers and miniature pride on the need for winners are necessary for consistently profitable trading operations”.

  6. Hi SS

    Thanks for an excellent observation. I’ll certainly ‘drop in’ on the TED talk. Sounds too good to miss.

    Congrats on losing less on this ‘ebb’ phase – that is great news.

  7. Hi Paul

    For me it depends on what is meant by “a strong stomach for losers and miniature pride on the need for winners”….

    If by a strong stomach he means knowing where the assessed probable loss will be, then I agree. If it means holding onto a losing position and hoping that it will turn, then I disagree.

    If by “miniature pride on the need for winners” he means feeling good because we are trading profitably then I agree; if he means the reason for the trade is the need for winners, then I disagree.

  8. Hi Ray,
    This trader also wrote:
    “…successful speculators is mostly about managing risks. In fact, good traders view themselves first and foremost as risk managers” Just like “Texas Hold-Em”, how one play his or her cards is more important than the cards themselves.”

    My understanding is:
    A strong stomach for losing face because of the losing trades and miniature pride on the need for looking good because of the winning trades are necessary for consistently profitable trading operations.

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