Friday, 8 August 2014

It's not all about the Money

The first thought that comes to our minds when think of trading is making money. We buy and sell assets or derivatives with the purpose of making a profit in the process.

Over the years, I have met many traders. And some of them have been successful while others have not.

Recently I've spent a lot of time thinking about what made some of them successful and the others unsuccessful.

Here is one question that I always asked each of them: Why do you trade? Think about how you would answer this. Many of the responses I got were related to making money. In fact, most of the traders said they were primarily interested in making money.

But a few said something very different. Their responses were about their passion for financial markets. They were interested in understanding how markets work. It was like their goal was to solve this puzzle of predicting market movements. Rather than be focused on money, they were focused on becoming good traders. And they were deeply interested in markets.

Any guess as to which group of traders were more successful?

The first group that were focused primarily on making money were generally unsuccessful, while the second group did much better. Initially this seemed strange. After all, if your goal was to make money, then surely you would be good at doing that.

But then I thought about it more. And now it makes perfect sense.

If your sole interest is to make money, you probably won't do very well.

Let's imagine why this might be the case.

Think about your own profession. I'm sure you will find that the most successful people in your profession or industry are the ones who are passionate about the work they do.

When you enjoy your work, you do a better job. And the same goes for trading. If you enjoy trading and you want to learn about markets, you'll do better than someone who's only it in for the money. Of course this doesn't mean you don't care about money at all. But what is important is that you have a strong desire to better understand how markets work.

You see, trading is not an easy profession to be in. It is sometime quite stressful. In fact, it is one of the few professions where you can work hard and end up losing money. And if you're someone who's motivated only by money, it will be a problem.

You'll get upset whenever you lose money. This is was the biggest difference between the unsuccessful and the successful traders. The ones only motivated by money naturally got very upset whenever they lost money. But the successful traders didn't get upset. The losses actually motivated them to learn more. It motivated them to understand why they made losses, and how to improve their future performance.

If you want to become a successful trader, then you need to adopt this mindset. You need to care less about the money, and more about understanding the markets.

I know this is not easy to do. It is very difficult to become detached from trading losses, especially when you've lost your hard earned money.

But then I never said trading was easy. So do try this out. It is in your best interest anyway. Why is that? If you don't worry about the money, then you'll end up making more of it in the long run. Then you'll end up as one of the successful traders.

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