I came across this excellent chart the other day. It shows those times in
history when the S&P 500 doubled over a ten year period and the trajectory
that this doubling took.
Much commentary that followed on twitter related to the steady low
volatility climb that characterised the latest run and how boring this was. One
of the interesting thing about markets and money in general is that people
betray their true desires and personality.
Markets are the true window into the soul and in this instance what
traders were actually saying is that they wanted to be entertained and not
rich. The constant current moaning about the lack of volatility is little more
than the plaintiff cries of children who bedevil their parents every school
holidays with cries of …I’m bored.
This lay observation tallies with what others have found. The seminal
work in this field of trader immaturity is An Analysis of the Profiles and
Motivations of Habitual Commodity Speculators by W.B. Canoles, S.R. Thompson,
S.H. Irwin, and V.G. France. I have summarised their findings below and have
added my own emphasis.
“The typical trader assumes a good deal of risk in most phases of his
life. He is both an aggressive investor and an active gambler.
[He] does not consider
preservation of capital to be a very high trading priority.
As a result, he rarely uses stop loss orders. He wins more frequently
than he loses (over 51% of the time) but is an overall net loser in dollar
terms. In spite of recurring trading losses, he has never made any substantial
change in his basic trading style.
To this trader, whether he won or lost on a particular trade is more
important than the size of the win or loss. Thus he consistently cuts his
profits short while letting his losses run.
He also worries more about missing
a move in the market by being on the sidelines than about losing by being on
the wrong side of a market move; i.e., being in the action is more important
than the financial consequences.
Participating brokers confirmed that for the majority of the speculators
studied, the primary motivation for continuous trading is the recreational
utility derived largely from having a market position.
Numerous indications in our survey indicate that they are not trading
solely or even primarily for profit, but may be maximizing excitement or the
number of winning trades.”
So we come back to the original question. Do you want to rich or be
entertained as the choice is entirely yours.
Author: Chris Tate
Article reproduced with kind permission of Tradinggame.com.au.
The article is concluded by the quotes below:
“It's in your best
interest to focus on building your trading skills rather than on achieving a
huge profit every month.” – Joe Ross
“No matter how good
you may think you are, nobody is bigger than the market and it will beat you to
your knees if you don't treat it with the respect it deserves.” - Adrian Alberts
“Trading does not have
to be very difficult — what can be difficult is finding the right path early on
and properly understanding the major impact of your mental state on your
trading results” - Gabriel Grammatidis
www.tallinex.com wants you to be a
successful trader
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