A Trader's Ego - The Ultimate Battle.

I wrote an article 10 Reasons Why ‘It’s Ok to Fail’ is the Perfect Mantra for ‘Trading Success’. This was one of my longer articles, and longer articles rarely get fully read. 

Nonetheless a few people have thanked me for the section on ‘Excessive Ego’, which arrives some three-quarters of the way through the article. This means some plucky people did persevere.

It was suggested by someone that I should consider making the ‘ego’ section into its own short article. – So here it is.

Some background and context first.

The full article explored a mindset attitude I have noticed and witnessed in many of the highly successful individuals I have coached over the past decade. Though this attitude is rarely made explicit by them, it emerges in our discussions as an implicit attitude, I term it as ‘It's OK to Fail’.

These individuals do not run and hide from failure, they accept failure as an occupational hazard of trading and even an inevitable aspect of it.

This acceptance helps them build and factor failure into how they work, which in turn helps make them more robust, more resilient, more effective. – What Nassim Taleb would term ‘anti-fragile’.

Combating ‘Excessive Ego’.

Many trading psychology articles suggest trying to eliminate ego from your work, which apart from being as impossible as attempting to remove your shadow, fails to recognise there is also an upside, as well as a downside to ego.

From a positive perspective, having an ego means having a solid, healthy and strong sense of ‘self’. which is vital for resilience, self-belief and confidence. Your ego drives you forward, it enables you to battle through the uncertainty and find a way, and it counters some of the negativity which can be induced by failures and disappointment. Your ego is working all the time in the background driving you to on succeed. But, this is also where some of the problems arise. - What does success mean for your ego?

Your Ego Often Has A Different Goal to Your Conscious Self?

"Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money". - Ed Seykota, Market Wizards. 

The idea of accumulating wealth as a measure of success is relatively new to us as humans. Success for our ancestors meant being accepted by social groups (tribe/community).

The more respect you had from those in your social group, the higher your ascendancy and the greater your chances of survival for yourself and your descendants.

By contrast, being ostracised from your tribe or community was tantamount to a death sentence. The prehistoric version of being ghosted on Facebook, but with real consequences.

Your ego has evolved over millions of years of evolution. For want of an analogy, it is part of your default operating system. It functions quietly in the background, out of sight and out of mind, driving you towards behaviours which increase your chances of safety.

Safety for the ego, means ensuring you are respected by your peers and thus remain within the social group. Your ego does not know that you no longer live in savannahs of forests, and that expulsion from a tribe or community is no longer a matter of life or death. Thus the ego still works to ensure we are respected by others in our world and that we act in ways which foster that respect.

In trading, success requires making profits and accumulating wealth. Whilst consciously you are driving forward to make profits, unconsciously your ego may be driving you in a direction of seeking to earn respect from your peers (and your self), and to avoid being disrespected.

Think of it like an invisible rudder steering your ship. Consciously you are steering towards a place called ‘profitland’, but unconsciously there is another rudder steering you to a place called ‘respectland’.

A stark example of this arose a couple of years ago: I was coaching a portfolio manager in a large Hedge Fund. This individual had three years of a strong track record behind him. His performance averaged close to 10% over 3 years, which was very respectable in this fund (or any fund at the time). During those three year, he had been one of their best performers and was rewarded well for it.

His trading style was a short-term liquidity driven approach. This approach worked perfectly for him, but within the fund he felt that it was not respected. He believed that longer-term macro driven approaches were preferred as a way of working. Thus, he told me that he wanted to adapt his style to an approach which looked to take advantage of longer-term moves, and which required holding positions far longer.

He was going to be abandoning an approach which had proved very successful for him, for one which he was not accomplished at using, and which, having carried out psychometric tests on him, would almost certainly been ill-suited to him. (See our article "How 'Risk Personality' Influences Trading and Investment Performance.")

As an analogy, it was like opting to ditch a car which had won three formula one championships in a row, because he felt his car looked ugly compared to his less successful competitors.

If I refer back to Ed Seykota's famous enigmatic quote from Market Wizards, "Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money". I believe he is referring to their Ego winning, even though they lose in the real sense.

Ego is always there, always present, always lurking in the background. 

I am glad to say that the portfolio manager in the above story saw sense and resisted the temptation to change his style, with continued good performance justifying that. But his thinking nonetheless highlights his vulnerability to this.

His story is not a one-off. I have had many conversations with traders in banks, hedge funds, energy firms, and private traders, which are echoes of that story, some with disastrous consequences.

There is a paradox at work here. What your ego is doing, is making you feel others are judging you, your decisions, and your actions. It is thus seemingly handling control of some your trading decisions to others. 

And yet, paradoxically, it is not others who are really in control, it is you through the conduit of your ego, acting in a way you believe others will respect you, and seeking to ensure you are not being judged negatively.

Often, when we delve into these issues, the 'ego' belief is rarely even remotely true. If anything, it is more likely that most people are too worried wondering what you may be thinking about them, to be thinking about and judging you.

The challenge in trading is to harness the part of your ego which motivates and drives you forward, whilst working to eliminate the negative aspects, the self-judgement and the damaging self-talk that goes with this. By doing so, you will reduce the possibility that your ego leads you astray away from your goal.

There are few things which are more guaranteed to undermine your ability to succeed in trading than letting your ego take control and you losing touch with reality.

An attitude of ‘It’s OK to fail’ is a reminder to balance and contain your ego, and to ensure as much as possible you remain travelling in the right direction.

Article by Steven Goldstein

Steven Goldstein is a Performance, Team and Executive Coach who focuses on helping improve the 'mindset' aspects of Risk and Financial Markets' people and businesses.

Core to Steven's work is the belief that everyone has the potential, often latent or hidden within them, to surpass where they are now and to grow into what they want to be. His work as a coach helps people to rediscover that potential, and to close the 'Output Gap' between their performance levels and their potential, which equates to a significant 'opportunity cost'. 

Prior to becoming a coach Steven worked for more than 20 years as a Rates and FX trader at some of the world’s leading investment banks. See Steven's Full Profile.

If you are curious about how Steven could help you or your business, please email him at info@alpharcubed.com. or call +44 (0)7753 446097. 

To know more about the work of AlphaRCubed and their broader performance and growth development services, please view their brochure at this link, or by clicking on the advert below. 

About AlphaMind

AlphaMind is a joint venture between AlphaRCubed and the Mark Randall Consultancy which seeks to help people develop and cultivate optimum mindsets (An Alpha Mindset) for trading and investing success. We offer workshops, group development programmes, and one-to-one coaching to people and individuals in Financial & Commodity Markets

AlphaRCubed offers Trading & Investing Growth Performance and Development Services for private indivudals and businesses involved in trading and investing activities. You can learn more about AlphaRCubed in their electronic brochure here, or via their website. The

Mark Randall Consultancy offers Mindfulness based trading and coaching to people and businesses involved in Trading & Investing and beyond in the wider corporate space. MRC's unique and powerful outcome driven approach is aligned to the US Special Forces “Ultimate Warrior” Mindfitness training programme and is applied to the corporate workspace.

Subscribe to the upcoming 'AlphaMind' Newsletter at this link.

Join the AlphaMind Linkedin Group.

Follow us on Twitter and Instagram .