In trading - 'The best loser is the long-term winner'

I am a big fan of historic war documentaries, there are often many lessons learned about trading and the mindset needed to win in trading from watching these programmes. – As my previous article ‘ 'How to Profit from the Coming Economic Catastrophe'. – And other grand delusions. ‘stressed, the actual percentage of people who succeed in trading is far smaller than the general consensus. Any advantage you can get over the opposition in trading, is vital. Considering the opposition is the entirety of the trading world, basically you have to do things better than the overwhelming majority of them, that means win better, and lose better. - Recently I watched an excellent programme on the Falklands War. A British senior army officer, made an interesting observation, he said that he 'thought the Falklands victory on our part was close run - I think the Argentinians could have won it had they played it right.' - Crucially he said 'In the end it came down to them (The Argentinians) making more mistakes than us.' - I thought about this afterwards in terms of trading. At the end of the day the successful traders are probably the ones who make fewer mistakes, or to re-iterate the quote above which comes courtesy of the mythical 'Phantom of the Pits' - 'The best loser is the long-term winner'.

This seems to defy everything we have learned in our modern society about how we approach the challenges we face in the world. Basically, we are taught to be winners, to ''go for gold', 'winner takes it all', 'got to be in it to win it', etc. In trading however, so strong is this desire to win, that more often than not traders make crucial mistakes, which constantly undermine their performance and their ability to be a winner. I see this in many of the people who come to my coaching, often they have the ability to be successful traders, and many of them already have a career behind them as successful traders, however they know that they could reach even higher, that they call the market far better than actually translates into profits. 

In trading you are up against two enemies, yourself and everybody else. - But 'everybody else' is in the same boat as you, they are up against themselves and everybody else too. Therefore, it stands to reason that everybody has the same principal enemy at the core -  Themselves. - It is this hurdle that all traders have to overcome in order to be successful. Sir Edmund Hillary, the first man to climb Mount Everest, said, 'It is not the Mountain we conquer, but ourselves'. - As a trader this was my core philosophy, and now as a 'trader performance and psychology coach', this is a principal I try to instill into my clients.

One of the biggest hurdles I see in most traders, is an inability to see themselves objectively. In his book 'Thinking Fast and Slow' Daniel Kahneman makes the assertion that 'We're blind to our blindness'. I don’t think it is a surprise, in a recent article I penned on the ‘Behavioural traits of highly successful traders’, trait number 5 was Humility and Humbleness: I have noticed that traders who I rate as high in humility, and display humbleness in their actions, are often the ones whoseem to have an ability to step back from the fray and see themselves, and their situation more objectively than others.

I will finish with one further quote, this time from my all time sporting hero, the great Muhammad Ali -"Only a man who knows what it is like to be defeated can reach down to the bottom of his soul and come up with extra ounce of power it takes to win when the match is even."

Thank you 

Steven Goldstein

Steven Goldstein is a leading Performance and Executive Coach working with Traders, Banks, Energy Firms and Hedge funds: He is Managing Director of Alpha R Cubed, which works with banks and investment firms to improve their human capital within their financial risk businesses. To know more about Alpha R Cubed, visit their website www.alpharcubed.com or email Steven at steven.goldstein@alpharcubed.com.

Other recent articles:

'How to Profit from the Coming Economic Catastrophe'. – And other grand delusions.

Brexit – An ‘Ambiguity Aversion’ Perspective.
Webinar on 'The 10 Behavioural Traits of Highly Successful Traders and Investors'.
The Chimp Paradox and Trading
Winning at Trading and Investing - 'Its all in the Mind'.
The 10 Behavioural Traits of Highly Successful Traders.
The Pre-Mortem: A De-Biasing Technique to Increase Trading and Investment Success.
Meet the ‘One Person’ who could really transform your ‘Trading and Investment’ Performance.
FOMO (Fear of Missing Out): Is it killing Your Trading and Investment Performance?
Video: Trader Risk Personality - How it Influences Trader and Investment Performance.
Killer Biases: How 'Cognitive Dissonance' Devastates Trading & Investment Performance.
‘Billions’: Why Top Hedge Fund Managers Use Coaches?
Following the Crowd: Why we do it?
Dennis Gartman’s Timeless “Rules of Trading”, with added emphasis.
What is Trading 'Risk Type'? Why is it getting so much attention?
Still making the same old trading mistakes. What are you doing about it?

If you have enjoyed reading this article and would like to know more about our 'Behavioural Performance Coaching' work with Traders and Investment Professionals, please click on the above image. Alternatively email steven.goldstein@alpharcubed.com or visit the website www.alpharcubed.com.

Join the flourishing LinkedIn Group ' Behavioural Trading'. and follow me on Twitter.

Screen Image: Copyright: kolobsek / 123RF Stock Photo 

'How to Profit from the Coming Economic Catastrophe'. – And other grand delusions.

'How to Profit from the Coming Economic Catastrophe' - An enticing headline that probably sucked you in. -

What other enticing headlines have you checked out?

- Stock markets are set to crash, make sure you profit and protect yourself?
- How to profit form the impending dollar crash?
- Dow Jones back to 5000, you heard it here first?
- Gold to hit $10,000 in the coming inflationary spiral, don't miss out?

Or do you fall for the easy-money adds?

- Learn Forex Trading: Perhaps the Easiest Way to Make Money on Your Computer
- Learn the Stock Market Secrets of Millionaires.
- Make your first Million dollars, Binary Options Can Take You There.
- Learn the trading tricks that made me a millionaire trader.

The very idea that you are looking for shortcuts to your trading suggests there is a very high probability you are either failing or likely to fail as a trader. - If you really want to start being successful, stop looking for short cuts, start doing the heavy lifting, the hard work, the practice, the training, the development.

Now here is a questions for you: 

Have you ever stopped to consider what the possibility of you achieving success as a trader is? By success, I don't mean fleeting success, I mean consistent high quality success, the ability to consistently outperform the market regularly over time? What do you think the probabilities of that are? 80%? 70%? 50%? - Those would be way off the mark. - Try again: 40%, 30%, perhaps 20%. OK, you are getting closer, but I'm not going to tell you he answer just yet.

I first want to return to the idea of trading as 'Easy Money'. - Do you really think that there are people out there with the answers, people who actually know what is going to happen next? There are many people who make loud noises, who appear confident, who firmly express their opinions. They may be experts in their field, but it rarely makes them better at forecasting then the average 'dart throwing monkey'. Don't be deluded, no one knows when the market is going to crash, or soar for that matter, these people are doing nothing more than playing on your deepest fears.

What about subscribing to a signal service, a binary options programme, or attending a short course that will allow you to 'Beat the market!’. – Do you know how hard it is to 'Beat the market'? Lets start with Hedge Funds, the alphas of the trading world. Last year the average hedge fund made nothing, zilch, not a penny. The year before they fared a little better, on average returning just short of 3% on their capital. These are the world’s top traders collectively. – If you went head to head with these guys they would crush you. - If these guys find it tough to make money, that gives you a clue as to how tough it really is. 

The type of advert designed to suck you in, then spit you out. 

The Grand Delusion: - We are often 'Our Own Worst Enemies’.

Our minds offer us the chance to achieve great things, however they also can play some cruel tricks on us. The human mind never really evolved to thrive in the complexity and uncertainty which is part of life in the financial markets, its really evolved for survival in a world far more primitive than the one we find ourselves in. You can of course adapt and develop your mind, that is what successful traders do, but adaption takes time and development requires hard work and commitment. Most people don't have the time or energy to commit to that, they prefer short-cuts, easy answers, and avoidance of pain.

As a behavioural performance coach and a former trader, I do believe that just about anyone can succeed in trading, but most people handicap themselves even before they start. They do this by over-estimating their chances of success, and underestimating the effort and resources required to actually succeed. Let me demonstrate: I am going to return to the analogy I used earlier, the one where you walk in the ring after some sub-par training and preparations, the one where you overestimate your ability, and underestimate the opponent. – Only I am going to use a real world example. – Joe Savage was a British undefeated bare-knuckle boxing champion. In 42 fights he had terrified and defeated all opponents in the bare-knuckle world. Savage was strong, tough, ruthless and so supremely confident that he believed there was no one in the world of boxing, bare-knuckle or professional, whom he could not beat. - Now bare-knuckle boxers are tough hard men, but in terms of preparation, training, coaching, practice, they really do not cut it when it comes to the 'hard yards' put in by professional boxers. - Savage nonetheless decided to put out a challenge to all the top pro-boxing champions to fight him. At the time we were talking about the likes of Mike Tyson, Lennox Lewis, Reddick Bowe. They all turned him down, however, a journeyman heavyweight called Bert Cooper decided to take up the challenge. Cooper’s record was 38 wins, 31 losses. He did get to fight some of the top names, including a 40-year-old George Foreman on his return to the ring after a long absence. – However, after a brutal 2 rounds with the aged Foreman, Cooper refused to come out for the third round. – The challenge from Savage was some 5 years after that, with Cooper's career well in decline. Cooper felt he had nothing to lose, thus he took up the offer. - The fight took place in 1994, you can view a video of the entire fight below. I promise you, it is not a long clip. - After 35 seconds of quite awkward viewing, the overconfident bare-knuckle fighter hits the canvas for the first time. 18 seconds of further boxing elapses before he hits the canvas again, this time for the last time.

I am afraid for most day traders, amateur traders, and newbie traders who step into the trading ring, bristling with confidence and self-belief, are that bareknuckle boxer. Now it’s quite possible, though I am afraid incredibly unlikely, that you are the exception. I am sure you consider yourself bright, intelligent, capable, perhaps you rate yourself in the top 20% of your peers, if not, the top 10%. However here is the thing: Most of your peers also share this view of themselves! Now even with my limited math skills, I know that cannot be right, not everyone can be in the top 20%!!! The academic field of behavioural finance has a name for this tendency to delude ourselves that we are far more capable than we really are: It is called the Dunning–Kruger effect. Examples of the Dunning–Kruger effect include: 93 percent of U.S. students estimate themselves to be “above average” drivers. Whilst at one university, almost three quarters of the faculty rated themselves in the top 25 percent for their teaching abilities.

So here you are! You believe that, possibly based on a self-delusion, you are in the top 20% of those stepping out into the trading ring. – Now lets return to the idea of the percentage of traders who consistently outperform. Lets just assume for arguments sake that it is something like 10%, then it is almost certain that you are on a fool’s errand if you are not in the top 10%. But here is the thing, the actual number who are able to consistently outperform is not 10%, not even close. The percentage of traders who make money and consistently beat the market is…………………………………

Aha – not quite yet. – Let me first introduce you to two of the most well respected names in the field of Behavioural Finance. Professors Brad Barber and Terrance Odean. These two highly acclaimed academics have spent many years trying to make sense of the way people make decisions in financial markets. – A few years ago, they and a group of colleagues dissected 15 years of performance data from day traders on the Taiwanese Stock Exchange. Amongst their findings, which covered around 450,000 traders, they found that ‘while about 20% of the traders earn profits net of fees in a typical year’, less than 1% of the traders (4,000 out of 450,000) were able to outperform consistently over time. – Let that number sink in for a bit. – Less than 1% were able to perform consistently over time. – This matters, this matters a lot. - You may find you are one of the 20% in one year, but that does not mean a significant levels of profits, nor consistent profits year after year. You may be in that 20%, one year, but out of it the next. - If you want to make a career in trading, you need to get yourself into that 1%, anything else is failure.

Summing it up.

I know from my time as a trader, and more particularly from my time as a coach, how challenging trading is. I work with many traders inside banks, hedge funds and private traders, my work, is comparable to that of a boxing coach, working with them outside the ring to help them be more competent and capable in the ring. The great traders I work with do not rely on anyone else other than themselves to make their decisions, they don’t make grand predictions, nor fall for other people's 'dumb' grand predictions. They deal with the market in front of them, not how it may be if some outlier event was to ever happen. And if it does happen, they will deal with it then. Contradictory to the stereotypes written about traders, they are are not supremely confident individuals with the world at their finger tips. They have their demons, their insecurities, their doubts. Arrogance is not a word you will ever use to describe them, the market will always find out the arrogant trader and deal with that person in its own particular way. I have written previously about the 10 Behavioural Traits of Highly Successful Traders, these are behaviours and attributes which outstanding traders demonstrate, nurture and work-on. They have developed these over many years, there was no overnight success, easy money or simple solutions. 

If you want to really and truly become a person who earns a living from trading, forget short-cuts, don’t give into seductive advertising, start committing to developing yourself, your processes, your practices. Start putting in the hard-yards, if you do not then you are destined to be one of the 99+% who do not make it. 

By Steven Goldstein 

Steven Goldstein is a leading Performance and Executive Coach working with Traders, Banks, Energy Firms and Hedge funds: He is Managing Director of Alpha R Cubed, which works with banks and investment firms to improve their human capital within their financial risk businesses. To know more about Alpha R Cubed, visit their website www.alpharcubed.com or email Steven at steven.goldstein@alpharcubed.com.

Other recent 'Behavioural Trading' articles

Brexit – An ‘Ambiguity Aversion’ Perspective.
Webinar on 'The 10 Behavioural Traits of Highly Successful Traders and Investors'.
The Chimp Paradox and Trading
Winning at Trading and Investing - 'Its all in the Mind'.
The 10 Behavioural Traits of Highly Successful Traders.
The Pre-Mortem: A De-Biasing Technique to Increase Trading and Investment Success.
Meet the ‘One Person’ who could really transform your ‘Trading and Investment’ Performance.
FOMO (Fear of Missing Out): Is it killing Your Trading and Investment Performance?
Video: Trader Risk Personality - How it Influences Trader and Investment Performance.
Killer Biases: How 'Cognitive Dissonance' Devastates Trading & Investment Performance.
‘Billions’: Why Top Hedge Fund Managers Use Coaches?
Following the Crowd: Why we do it?
Dennis Gartman’s Timeless “Rules of Trading”, with added emphasis.
What is Trading 'Risk Type'? Why is it getting so much attention?
Still making the same old trading mistakes. What are you doing about it?

If you have enjoyed reading this article and would like to know more about our 'Behavioural Performance Coaching' work with Traders and Investment Professionals, please click on the above image. Alternatively email steven.goldstein@alpharcubed.com or visit the website www.alpharcubed.com.

Join the flourishing LinkedIn Group ' Behavioural Trading'. and follow me on Twitter.