How Trading Builds and Strengthens Your Character

Trading consistently for profit is half methodic execution and half objective thinking. Beyond financial success, the school of trading can be an important teacher of strong character.

  • Matt Hagemann
    Matt Hagemann
    Trend Following Instructor

Traders have a bad reputation for being self-centered egomaniacs driven only by cold money. It’s not surprising because whenever documentaries or movies about finance are on TV, their portrayal of protagonists is not necessarily favorable to the broader audience.

A few scenes come to mind:

  • Wall Street: Gordon Gekko’s (Michael Douglas) infamous “greed is good” speech.
  • Margin Call: John Tuld’s (Jeremy Irons) cold-hearted stepping over people because “it’s just money”.
  • The Big Short: Where a team of analysts investigate the subprime mortgage bubble and hear stories of how NINJA homeowners are getting screwed.

In many ways, Wall Street functions like Las Vegas where the enticement of a huge payoff has a tendency to draw in some of humanity’s worst characters.

But for the majority of people who make a living trading for themselves and their families, great integrity and great generosity is what commands their character.

I’m fairly certain that basic positive human character traits are solidified because of their trading. Let me introduce 4 ways by which trading can help you act better and think better in everyday life.

1. Trading Teaches Patience

An obvious character trait you can acquire from trading is to become more patient. Whether you are planning to hold a position for years or for a few milliseconds, successful trading requires patience. It implies a good deal of suffering until a trade works out as anticipated (the word patience comes from a Latin root meaning “to suffer”).

Market conditions are often such that a positive outcome is delayed because it takes considerably longer than expected, or may be negated altogether.

What do traders do if they are impatient? They start to second-guess decisions and act impulsively which leads to mistakes that could have been avoided if they had simply ignored the situation.

Some traders then trade in and out when they should be holding, or they do the exact opposite of what they should be doing: Dumping winners to secure realizable profits, and more fatally, averaging in on losers to recoup their loss faster.

Impatient traders never make it in the trading game. They get filtered out.

Who wins then? Traders with a willingness to wait out day in and day out until the right opportunity comes along. If there is no opportunity, no actions are taken and mistakes are avoided. When mastered well, this character trait can be used for benefit in situations entirely unrelated to trading.

2. Trading Teaches Good Listening

To read the market accurately, you have to pay close attention to what the market is trying to say. You have to develop the skill of listening to something other than yourself.

When speaking with others, we are constantly thinking of ways to turn the conversation back to what we really want to talk about instead of contributing to the topics that others care about. Do you want to be a great trader? Then you have to become a great listener.

You can look at a chart as a pictorial form of language. The price patterns, the ebb and flow of trends, the euphoria and disappointment in price action are what charts speak to us. You must be able to hear what is told and respond appropriately where needed.

Sometimes charts are noisy (which we avoid), sometimes charts speak harmonious music. Those are the ones we engage with.

What do women want most in a man? A man who will listen to them, pay attention to them and remember what they tell them. Trading makes you a better and caring listener, and one who can contribute useful insights at that.

3. Trading Teaches to Not Blame Others

Imagine yourself running through your stock screener, eyeballing charts of your candidates and suddenly find what looks like the best trade of the week. In fact, this chart is the best-looking setup you have seen in quite some time. So you submit your market order to enter a position.

In the first week, it’s immediately going exactly as you anticipated, gaining 3% that week. In the next two weeks it continues to move in your favor, rising another 2% and 6%. You tell your spouse and all your friends how astute a trader you are.

Then you open your charts on Monday the fourth week and notice that the stock suddenly went the other way pre-market because of an earnings report. How do you feel? You feel betrayed and resentful. You beat yourself up for not having closed that position the previous Friday, not having put the announcement in your calendar, not having closed a portion of your position while you had the chance and what have you. Regret and shame color your mood.

While such emotional reaction is understandable in a situation like this, it is not the best way to respond. It will eventually drive you out of the game. In order to get beyond the blame game, traders need to learn the art of forgiveness.

Forgive the indicators for not pointing out weaknesses in the chart, forgive yourself for not doing enough due diligence. Take away lessons learned in order not to repeat the mistake and move on to the next trade.

4. Trading Teaches to Be Humble

Our ego hinders us to evaluate a situation objectively. Too strong an ego will prevent us from doing what we should be doing with a trade gone bad: taking the quick loss and moving on. Our ego can also hurt us with our winners.

How many times have we held onto a big winner, believing that it would be an even bigger jackpot, only to see those profits dwindle back to nothing?

Poor trading comes from trading our egos, not from price action. When we predict market moves and trading our views with conviction, trading tends to become a game of ego. We can use every thinkable technique to instill discipline and overcome emotions, but if we pursue trading through ego, we will be vulnerable.

If I can’t detect a clear trend, I don’t trade. We suffer when we expect markets to trade the way we want them to trade. Trading teaches us to hold loosely to our pride. Capital markets are too big for any single individual to conquer. No one controls the market. The best way you can achieve a stable and positive outcome is to design a system that puts as much probability on your side as possible.

In truth, trading trends is all about trend following. You will notice that a trend is already in place whenever you want to trade in the direction of the trend. The ego-driven trader seeks glory in outsmarting the market in the hopes of catching a reversal before everyone else does.

What works in trend following is a humble posture towards the market, letting it tell us what we should do.

Last updated July 15th 2020

3 Lessons that Separate Winners from Losers

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