This is an extremely important question and one to which the majority of investors/ traders do not give sufficient thought. Successful traders understand with absolute clarity why they trade.
Why you trade must be the subject matter of the mission statement in the trading plan you are going to write. Your purpose for trading is a powerful force that will keep you going during tough times and will keep your feet on the ground during the good times, thereby allowing you to rise above despair and euphoria which are emotional states that lead to the biggest trading errors.
Because most traders are not absolutely clear with themselves why they trade, a vacuum is left that needs to be filled. And filled it is—not by any thinking process that you go through, but by your current belief systems. It happens by default because you do not consciously fill the vacuum. Here are some of the purposes that may drive you to trade, some of which most people will not even be aware of:
• to prove to or impress somebody, usually family or friends, that you can make money in the markets. Sometimes, this person you are trying to impress may be long dead,
• to show your broker that you know how to come back from deep in the red and turn your losing account into a profitable one,
• to show people that you can be right about predicting what will happen in the future,
• to achieve freedom by placing yourself in an environment that is outside the rules and constraints of society,
• to experience the euphoria of catching big moves in individual trades—and the associated bragging rights over said friends and family, even the dead ones,
• to make lots of money,
• to satisfy an addiction for random reward,
• to beat the market, just as you have beaten your competition in business or elsewhere,
• to attempt to control the market in the same way that you control your managers, staff or business,
• to be a hero—to anyone who cares to take notice of you.
As you can see, most of these objectives are driven by ego. The ego pushes our natural intuition and abilities into hiding and sends us in the opposite direction to achieving liberation. The more we react to the needs of ego and pride, the more controlling and power hungry we will become and the less chance we have of being objective and carefree and thereby liberated from prejudice, envy, greed, and selfishness.
Ego causes us to force things. Ego compels, rushes, tries to impress, competes to beat, desires control, hates being wrong or losing or failing and operates from the perspective of what others may think of you when you act. The greater your ego, the lower the probability that you will be successful in the trading arena—and the many other games that you and most others play in life.
Abandon all those notions and look at it this way. I suggest that your overriding purpose for trading should be to use it as the medium to:
• learn what becoming free means and to achieve that freedom,
• continually acquire mental skills that are necessary to become free.
What is being free? I suggest that you are free when:
• you are not tied to the opinions and status of others,
• you have nothing to prove to anyone,
• you never force anything, not the smallest action,
• you refuse to listen to fear,
• there is no struggle, strain or pain.
“A man can be free without being great, but no man can be great without being free.” Kahlil Gibran, Lebanese born American poet, artist and writer.
When your actions are effortless and you pre-accept the result of any action that you take, regardless of the outcome, you will be free. Complete acceptance occurs when absolutely no conflict, mental or otherwise, follows any outcome that is achieved, and the outcome of any event does not cause any strain in executing the next event in your chosen environment.
If your purpose is to be free and you achieve a high degree of this state of mind, then you will be successful in all the ways you define and measure success in the environment of your choice.
Stating that achieving this state of mind is your purpose for trading means that to achieve it you will have resolved all the physical and mental conflicts required to ‘get there’.
Trading the markets is one of the best environments to use for personal growth and improving life skills. The more you grow and the better your mental skills become, the more money you will make from trading. Remember that we are tested the most during times of trouble, not when it is plain sailing on calm seas.
The paradox is that the more you focus on making money as your mission the chances are that the less you will make and the more you focus on your skills and processes the better your financial outcomes will be.