Ego and Trading – Do You Want to Be Right or Make Money?
In today’s episode, we speak on ego and trading, more specifically, what the ego is, warning signs that ego is getting in the way of your trading, and finally some rules to help you keep your ego under control while trading! Most people that enter this industry believe that the markets are against them, when in reality, they are the ones holding themselves back from success! This happens beneath the surface because of the ego! While you can’t trade without ego, for the majority of traders, their ego is working against them and not for them. Have you ever asked considered the question “Do I want to be right or do I want to make money”? Most people would believe that if you are right, then you are going to be making money - but this isn’t really the case! How many times has it occurred that you might have an idea for a trade and then you execute the trade, get stopped out, and then the market goes in the direction of the trend without you onboard? You were right - right? But did you make money? Probably not - you actually lost money AND you were right at the same time. How does your ego handle that? If you are like most people - your sense of self is in the thought of the loss and that taps into all the previous times you failed and felt a similar pain which leaves you vulnerable to start trading emotionally and can become a very slippery slope quickly! So let’s get started by first defining the word EGO: “Ego is your idea or opinion of yourself, especially your feeling of your own importance and ability”; The Ego is the part of a person’s mind that tries to match the wishes or desires of the unconscious mind with the demands of the real world. Your identity - who you think you are - is formed through a collection of thoughts, beliefs, experiences, memories, emotions, and perceptions all working together. As human beings, the ego wants to uphold the ideal versions of ourselves that only allow for success and not failures - we don’t want to admit that we are wrong about anything including trades. Your ego will be very defensive about what it believes to be true - outright rejecting anything that does not align with your confirmed thoughts, behaviors or beliefs which is why traders lose lots of money trying to protect the “ego's version of reality. In fact, Albert Einstein had a great quote about ego which went along the lines of “More the knowledge lesser the ego, lesser the knowledge more the ego.” When we relate this back to trading, the more knowledge you acquire the less your ego is present in your trading, whereas, the less knowledge you have the more ego plays into your trading. One of the major psychological challenges for new traders is that our conditioning throughout life is based on being right! It’s all about self-preservation! Our grades are determined by how right we are on tests, we then move into the corporate world where our livelihood depends on us doing our job “correctly” without making mistakes. So when we enter the trading arena - we bring along these existing beliefs that we have to be right to make money. A lot of smart people tend to make poor traders at first because they are used to being right when they apply their “brainpower” to a task - so they just assume that this will carry over into their trading and equate to profits. But what happens when things don’t go as planned? When something we believe should have happened, doesn’t? The ego takes a hit and can create wreak all kinds of havoc on your trading account if not kept in check! So how can you determine if your ego is coming into play while you are trading? The easiest way to do this is to perform some self-analysis by asking yourself the following questions: Am I attached to the outcomes of my trades? Do I take my losses personally? Am I focusing on my P/L as soon as I get into a trade? Do I need my analysis to be right? If the answer to