Saturday, 3 May 2014

When Strengths Become Derailers

The tricky thing about playing to our strengths is that it is often our strengths, applied across situations uncritically, that can hold us back. The dark side of strengths are sometimes called derailers, because of their potential for interfering with progress and derailing success.

Consider the following examples:

1) The diligent hard worker who periodically burns out and fails to maintain valuable friendships and personal relationships;

2) The process-oriented trader who develops good trading habits, but fails to innovate and expand those habits;

3) The trader who processes information very well through teamwork and social interaction, but who falls prey to consensus thinking;

4) The caring manager who has great relationships with employees, but avoids conflict and does not effectively uphold work standards;

5) The trader who is passionate about markets and learning about trading and who loses money by overtrading.

In each case, a strength carries the seed of its own undoing: what powers us down the track can also derail us.

It’s a good exercise: list your top three strengths as a trader and then clearly identify a dark side to each that has, at times, derailed you. You’ll wind up with a pretty good list of best and worst practices that can feed your self-awareness and guide your trading process.

The Difference Between Gamblers and Traders

Yes, the vast majority of traders are gamblers, maybe the majority of market participants are in fact gamblers. The traders that are gamblers trade with no plan and without understanding the odds are stacked against them. Whether it is buying far out of the money options with no method for profitability or randomly chasing stocks on a whim, gambling is when you risk money with the odds against you and have no edge. The losses of the gamblers is where the majority of the profits come from to the winning traders in the markets who have an edge.

Now the other side is the traders that consistently win by using an edge that gives them an advantage over the other traders. The winning traders are not trading against the casino they are trading against the gamblers. They have become the casino, like the casino they know the odds are in their favor and they will be profitable in the long run. Like the casino has table limits they have risk management to not over expose themselves to any one bet by the gamblers. The biggest problem that gamblers have is their emotions that cause them to always lose in the long term by placing bets based on feelings instead of the odds. The winning traders trade based on probabilities being in their favour and pick their trades carefully based on the best chances of success.

The casinos are built from the losses of the gamblers, the winning traders accounts are built on the gambling of the traders with no plan, no edge, and no risk management.

Quote for the day

“Trading in the markets is a battle of give and take. The real pros are prepared and they take their profits from the rest of the crowd who, lacking a plan, give their money away through costly mistakes.” - Matt Blackman