Dear Financial Voice Reader,
Wealth is in the mind. When I wrote my first book, there was a very good reason I called it ‘The Mind of a Trader’. Every one of the 10 leading traders of the world I interviewed for the book told me that psychology was key to success and wealth.
Detachment
Hedge fund manager, Bernard Oppetit, put it this way to me, “Whether I get out at a profit or loss does not matter.” And this surprised me. I expected the world’s leading traders to be more attached to their results and performance. In fact what was a key characteristic of them all was their detachment to the outcomes of their actions; all were far more focused getting the processes right and concentrating on those. Detachment was important for another reason. All those I interviewed were at the top of their professions. They were managers and leaders, not just traders. That sense of mental calm was a critical part of their success.
Pat Arbor, Chair of the Chicago Board of trade put it like this, “The trouble with the loss is not only the loss of money but it’s the ego.” But detachment also meant, in the opinion of legend David Kyte, “I think the best traders are those who don’t read the papers’. These are people detached from broader noise in other words. He would look to see, if the bulls ‘running out of steam’ and the bears taking over – regardless of what the news might be or what should be happening.
Discipline
Linked to detachment, was their discipline. Again, as Oppetit put it, “it takes a lot of patience and energy and motivation”. You need to have a sense of discipline for that. But discipline for what? It was discipline in following their processes to get in and out of a trade as per their processes and system, and not deviate. This means not adding to losing trades in the case of all the hedge fund managers I spoke to. It means not making excuses when you know you are suffering a loss and should exit according to your system. It also means not being greedy when you know the profits have run their course.
Key to the psychology was having a systematic approach in mind and following it and ignoring extraneous matters (such as baby needs new shoes) which can play with your mind and seduce you from deviating from your discipline. As Bill Lipschutz, Global Head of Forex at Salomon Brothers put it, “If most traders would learn to sit on their hands, they would make a lot more money.”
Tenacity & Fearlessness & Ambition
Do not think from these psychology traits, that these leading profitable traders are not passionate. Jon Najarian, a floor trader, put it this way, “Unless you are willing to bang your head against the door until you break through, you are not going to make it.” But these is tenacity and pushing your luck too from a psychology view. David Kyte, another legendary floor trader said, “You make your own luck. If you get in at 50, and it goes to 60, 70, 80, you were lucky and that’s also pushing your luck”.
The underlying theme of letting you profits run, not being too fearful either is clear to me. But, Brian Winterflood, who has managed many traders in his life as a City of London legend, noted in the book how important ambition is for success. “You have to have fire in your belly” and yes money is a driver, “in the big environment it was like going to sleep at the coal face, here it is a bit like waking up at a brothel.” His point being you do have to love what you do as a trader to success!
Alpesh B Patel
For a free online trading course visit www.alpeshpatel.com/apprentice
