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Investors and traders often ask me what they should do to improve their investment and trading skills, expecting me to point them to a specific sector or trading style.
The surprise is usually immense when I point out that they are their best trading edge, and therefore should invest the time and money learning about themselves first and foremost.
I, like most traders, have walked the thorny path of trial and many errors, until I discovered that self discovery was the door to trading with greater consistency, mental clarity and calm.
When I first started out trading I knew, or so I thought, about the value of education. Dutifully I attended many a seminar. I flew to America and worked with some of the top traders. The end result was always the same: I would return home, and before too long I’d start making the same old mistakes in my trading and in my investing.
It took me two bear markets to learn the psychology behind the markets and how that was affecting me in my decision making.
It is often said that you will not know how to trade with consistency until you have experienced one bear market.
If that where true, most investors should be rich by now, alas the reality is quite the opposite: Traders and investors alike keep repeating the same mistakes over and over again, in different permutations. Statistics show that around 80 % of investors under perform or lose money in the long term.
The reason is obvious: Traders and investors are looking in the wrong place for improvement.
They are emotionally and mentally married to their trading systems as short term traders. As investors they live on hope of a better future return on their investments, and the fear of realizing losses early.
I know, you have heard it before. Why you are still repeating the same behaviors?
The reason is to do with the way the mind works. You may understand something intellectually, but you do not know how to turn this knowledge into practical application in your trading and investing. The conditioned mind thrives on perceived safety. Safety to your conditioned, logical mind is to keep doing what it knows.
Good, bad, or neutral, it is of no consequence to your mind.
If a certain behavior is engrained into your matrix you will keep repeating it, even if you “know” that the behavior isn’t in your best investment or trading interests.
This is where the right kind of education comes in. In fact, it is the king pin around which all long lasting trading and investment success revolves: Taking the time to understand you opens the door not only to huge insight into behaviors and patterns you hitherto had great difficulty disentangling in your head it improves profitability faster than anything else will.
The old regrets , hinds sights and what if’s which are plaguing investors and traders to a point where they find it hard to enter into the next trade out of fear and frustration with themselves, will begin to lose their power once you understand yourself better.
It is rather ironic that we expect to perform well and yet most of you don’t have even a basic understanding of how your minds work, and how you create reality.
I too started out with that ignorance and had to pay a very high price for learning what really makes you a great investor or trader. There is still a belief out there that you are a victim of the markets. Trading and investing are dangerous pursuits, best left to the experts, blah, blah.
None of the above is strictly speaking true.
While you can argue that it is best to pay someone to do a stock selection for you, because you don’t have the time yourself, your ability to forecast the markets is no greater than mine or your brokers ability. Granted, having spent the last 15 years pouring over tens of thousands of charts, my aptitude at reading chart patterns may well be greater than yours.
However I cannot forecast any market move with certainty, just as you can’t.
I just know my parameters inside out. No mental effort required there. Practice has enabled me to take one quick look, see support, resistance and fib levels. No tools needed for that, just hours of practice and knowing where to look. That makes me quicker than you, but is no guarantee that an investment will perform. Most economic forecasts are wrong, just as most people get it wrong when they “believe” that the price of a share is going up next year, or down.
Now we are right into the core issues many traders and investors face:
Your ability to deal with uncertainty: It will affect greatly how you handle risk and thus have a massive effect on your trading and investment profits.
This is where you and I differ. I have thoroughly educated myself in the workings of the mind, to such a degree that I now teach this knowledge to traders and investors. I also have a toolbox of effective techniques that allows me to deal with my fears much faster than you.
All this allows me to trade with the mental calm and focus of a Zen master. (Yes, I studied Zen and followed Genpo Roshi for some years) I do not claim to be a better trader or better investor than you. In fact, you could well know more about trading and investing than I.
I know though that the odds are extremely high that my cognitive awareness and my ability to switch mental states at will very quickly, is much greater than yours. This is how I score in my trading.
I do not hang on to losers and I have developed the mental toughness to take aggressive entry points with very low risk. Win, draw, or lose. I do not identify with the outcome of a single trade.
I know though that my risk management is impeccable. Losing much money, in 6 figures, in my early trading career, and having seen many seasoned professionals give away their hard earned gains due to cognitive dissonance and lack of awareness have hammered this into me in the first years of trading.
Trading and investing, while great fun, are not a walk in the park. Learning what is most effective in getting consistent trading results took me years to learn.
Your learning curve needn’t be that long.
I encourage you to take a fresh look at yourself and start 2015 with a new set of rules: Hone your greatest trading edge, and do what you can to learn about YOU.
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Mercedes Oestermann van Essen is an active trader, trading psychology coach and the author of “The Buddhist Trader” and other books on trading psychology.
She holds webinars and bespoke trading psychology seminars for high net worth investors, and professional traders.
