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Why would you trade?

August 11, 2009
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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.

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Comments

  • Scott says:

    Hi Gary

    Thanks again for another great post. I thoroughly enjoy reading your views each week. I know for me that trading is more about doing something I enjoy than just the money. I am only starting out in my journey to become a full time trader, after a few career changes and countless business ideas I always come back to trading as its always been something I have wanted to do.

    I think if you look at most successful (and usually wealthy) people in life they got there because they were/are doing something they love or feel passionate about, elite sportspeople for example. I think that in order to be the best at whatever your chosen field is (career/sport/trading/business) you need to be passionate about it & 100% committed. If you have this, the money will follow.

    I look forward to reaching freedom!

    Thanks again

    Scott

  • Vic says:

    Another good post Gary.
    The question for me at the moment is why would I not trade. The reasons for this are not market related so are not really relevant to the topic. It’s not a viable option for me at the moment. I’ve had to put my trading on hold for a while which is always frustrating. Maybe in another 12 months.

    Vic.

  • Gavan Bethke says:

    Hello Gary
    What I most appreciate about your approach, aside from the extremely well researched and tested methodology that has provided me with the benefits of a great mechanical tool, is your philosophical outlook. I have studied practical philosophy for many years and recognise in your approach a sound understanding of human nature and life. In your reaching out to have others understand this philosophy and embrace it there is a selfless contribution to our society. Thank you.

  • John Robinson says:

    Hi Gary

    Have you read the best-selling book “The Power of Now” by Eckhart Tolle? It is about achieving a mental state of living in the current moment and not thinking about the past or the future, or what could or should or might be/have been.

    It’s all about freeing yourself from struggle, strain and pain in everyday life, and your post (in particular your statement “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” I have just realised that it would make an ideal traders book too.

    John

  • Gary Stone says:

    Response to Comment by John:

    “Have you read the best-selling book “The Power of Now” by Eckhart Tolle?”

    No, I haven’t but it sounds like the kind of book that I would like to read.

    But I have played golf on and off since I was 13 and over the last 7 – 8 years have become a student of the psychology of golf (as well as the psychology of trading through Mark Douglas). The necessary state of mind to play well is almost the same as the state of mind necessary to trade well. The entire sentence you quote above I believe applies as much to golf as is does to trading or playing tennis or any other endeavour that we take on.

    Regards
    Gary

  • Dianne Price says:

    Funny about the book “Power of Now” I have just finished reading it (not becasue of trading) and then noticed in my trading notes from 2005 “books to read The Power of Now”. There is a sequel regarding practising the POWER of NOW. I too, am an enthusiastic golfer – what a psychological game!
    Di

  • Keith Bunn says:

    Thats a good question Garry, the answer for me is that uptil last october
    I had lerned a lot, or should I say more than I did previous to that date.
    With your help and plenty of reading today my portfolio has recovered to
    it’s 08 August – October highs and I have started serious trading within the last few weeks.The main differece this time will be that “Buy and Hold’
    will no longer be the order of the day!…..I have up to now been rather tardy at trading but the market has convinced me that to make money one has to trade, thats rather trite but having more than enough to live on I was up
    till last year, comfortable.

    Thanks for your help, Regards Keith Bunn.

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