Long Posts

How to Keep Your Ego Under Control When Trading

I’m sure you’ve heard of ego trading

It’s when you:

  • Mess with your strategy,
  • Make heavily biased calls,
  • Unduly increase or reduce your risk,
  • Hesitate to pull the trigger at the right time,
  • Camp your positions expecting a massive/unrealistic moves in the market

… and the list goes on.

But how can you drop this egoic approach to trading?

First, it’s useful to define the ego, and for this, I have a little story to share.

“Very Stupid…”

A few years ago, I was doing a sesshin, an intensive meditation retreat in the Zen tradition.

At this point, I was already deep into meditation — I had already attended several retreats (in other traditions) and had spent 2 months sitting and serving in one of them.

But this ‘sesshin’ retreat was different from anything I had done previously.

Zen meditation (Zazen) tends to be practiced in short sit sessions of about 20-30 minutes. And so, in that retreat, we would sit for 20-30 minutes followed by 10 minutes of walking meditation, and we would do that continuously throughout the day from 4:45 a.m. to about 9:30 p.m.

The Roshi (teacher) would check in with the meditators individually on a daily basis to see where they were at in their practice and their understanding of the path.

On the 2nd day, it was my turn to meet with him.

I bowed and sat in front of the Roshi. He looked at me in the eyes and gave me a koan.

A koan can be a question that the Roshi gives you that does not have a rational answer.

For instance, “what is the sound of one hand clapping?”

The idea is to penetrate the essential meaning and then to demonstrate your understanding in your response to the teacher.

I can’t even remember the koan that was given to me, and, quite frankly, I don’t think I understood it fully partly due to the nature of those questions, but also due to the Roshi’s rather thick Japanese accent.

I only remember that I felt embarrassed to ask him to reformulate the koan once again.

So, I mumbled something as an answer.

The Roshi then said: “Very stupid. Not Zen.” He rang his bell to dismiss me.

The Roshi was a stern but compassionate teacher. Yet he didn’t know at the time that his words had touched some deep conditioning within me.

As I went back to my meditation spot and sat down, I began overthinking his words and attitude towards me.

“Did he mean that I’m stupid, or was my answer stupid?!”

“He probably meant that I was stupid.”

“How can he treat me like this…”

My ego was bruised.

I kept thinking, and thinking. I wasn’t meditating anymore, I just sat there, eyes closed, reliving the whole experience a thousand times in my head.

And this went on like that for some time.

The Ego, A Master Story Teller

Once I began putting 1 and 1 together and concluded that the Roshi’s words were directed at me, my ego began revolting.

It began rehearsing stories about how and why the Roshi dislikes me; about what I could have said back.

But had the Roshi said those words to someone else, my ego wouldn’t have been bothered at all.

Because that’s not me. That’s someone else.

And that’s the thing: the ego is behind most of our problems.

There are many different definitions of the ego, all of which can get quite complex.

The way I see it is that the ego is basically your identity–who you think you are—and it’s usually constructed of a name, a story, and a personality.

Within this personal story is a collection of thought, beliefs, memories, impressions, perceptions, emotions, sensations, all working together to form a sense of being an entity that’s separate from everything else.

And that feeling of separateness is very solid.

Your ego can get very defensive about what it believes to be true. In fact, anything outside of confirmed thoughts, beliefs, and behaviors will be rejected.

The reason is very simple: the ego creates the illusion that our beliefs and opinions make us who we are.

And since it is all about self-preservation, it works to defend us by generating:

  • Strong emotional reactivity
  • Worries and overthinking
  • Insecurity
  • False confidence
  • Black and white thinking
  • Constant comparison (a belief that others’ success hinders your own)
  • Judgment of others

This creates all kinds of problems in our lives, especially on the trading front.

Softening The Ego

No matter how robust your trading strategy or style is, if left unchecked, over time, your ego will wreak havoc in your trading account.

It will sneak up on you when you least expect it, and before you know it, you’ll be acting in destructive, in ways that you know are not in your best interest.

The easiest way to determine if your ego is at play is to ask yourself one of the following questions:

  • Do I need my analysis to be right?
  • Do I have fear when I initiate my trade?
  • Am I attached to the outcome of this trade?
  • Do I feel disappointed when I take a loss or a series of losses?
  • Do I have trouble letting my trade work without constantly checking each and every fluctuation in my PnL?

If you answered “yes” to one or more of the above questions then it’s likely that your ego is in the driving seat.

But what can you do to keep it under control?

First, there are a few immediate things that you can do:

  1. Keep your position size small.
  2. Make sure you understand your trading system and what it’s attempting to do.
  3. Understand probability theory–the basics.

Those 3 steps are essential, but they only help keep the ego in check to a certain extent.

The next step is awareness – you need to start to become more aware of when your ego is playing up so you can stop it before it’s too late.

In order to cultivate awareness, it helps to do some self-inquiry work.

You see, self-concern lies at the root of almost all ego-related issues.

We tend to take things personally because our subjective point of view refers everything back to us —hence, we think losses or being wrong (for instance) say something about ‘us’, or threaten ‘our’ survival.

To change that, we must learn to see reality more objectively, without that constant self-reference.

And you can start doing that self-inquiry work by asking the question “who am I?” and thinking deeply about what that answer might be.

Are you your name?

How can you be a name if it can easily be changed?

Are you your body?

All cells within you are constantly dying and being renewed. So, how can you be a body if it is constantly changing, aging, disintegrating?

Are you emotions?

How can you be an emotion when it is constantly fluctuating and transforming?

Are you thoughts?

How can you be thoughts when you can observe them and see that they are constantly coming and going, ebbing and flowing?

Are you your inner monologue?

That’s also a thought. How can you be a thought?

Are you your beliefs?

How can you be your beliefs — they too are always changing, altered by experiences.

Also, what you believed 10-20 years ago isn’t necessarily what you believe today. Your beliefs are influenced by your upbringing, conditioning, and society … how can they be “you” or “yours”?

Are you your memories?

How can you be your memories when these, too, come and go. You don’t always remember everything. Did you know that there is also such a thing as “false memory”? When remembering the past, your mind has a tenuous and colored perception that is subject to change. So how can your memory be you?

Are you sounds, sights, tastes, smells, sensations?

Same thing: These are apparitions in awareness and they are constantly changing.

Are you your house, relationships, car, job…?

How can you be those external things also subject to change, alteration, decay?

So when doing some self-inquiry work, you’ll eventually see that you’re none of these things, yet when combined together they appear to form an entity – an ego, an “I”.

And that “I” has a few derivatives– My, Mine, they, their.

But when you look closer at that “I”, there’s nothing really there, only an awareness of those different things.

This self-inquiry work helps in lessening the attachment to an ego that’s fundamentally not there.

And combining that self-inquiry work with the kind of meditation that I teach in the Trading Psychology Mastery Course, now you have a very effective way of keeping your ego under control day-in and day-out as you trade your way to financial freedom.

When Trading, You Need an Ego

I want to make it clear: You are not looking to “kill” your ego, or deny its existence.

There’s a time for for an experience like ego death, and trading just isn’t it.

You can’t trade without an ego.

The ego, as illusory as it is, is your protector and has been formed since you were a child, mainly to help you cope with the harsh realities of life.

So you don’t want to kill it when trading, you want to soften it and turn it into something that acts for you, not against you.

The ego is a complex structure in the mind, that’s why you want to learn to work with it skillfully.

When the constant self-reference is strong in the mind, you don’t even know what presence is. You have no frame of reference of the present moment because you’re in your mind all the time.

But you see, it’s actually possible to see that a story, a viewpoint, is arising in your mind.

The analogy that I’ve used, I think in the Trading Psychology Mastery Course, is that a thought is like a bubble.

The egoic way of being is that when a thought arises, we get into the content of the bubble. So we’re inside the bubble, we’re immersed in it. And so, whatever the bubble tells us, we have to believe it because we’re inside of it, and it colors our reality.

For instance, say you initiate a trade. You believe in that trade. But eventually, it results in a loss.

Often, there’s a sense of self invested in that loss, because, as I said, there’s a bubble englobing your head, and your sense of self is in the thought of the loss.

“I took a loss. And it hurts me.”

And of course, that taps into all the previous times when you failed, felt pain and so on…

But, if you do the self-inquiry work above, alongside a consistent meditation practice, when that thought, “I took a loss and it hurts me” arises, you’ll tend to see the thought instead of going in the content of it.

You’ll tap more easily into that observing quality of your mind and you’ll have the opportunity not to go into the content of that thought.

Which means that you won’t be going into your habitual story… you’ll actually watch it instead.

You’ll suspend all viewpoints and all labels and all stories (you won’t generate any other thoughts and stories), and you’ll watch what’s already there, what has already arisen. You’ll watch it carefully.

Then, what you’ll see is that, just like a soap bubble loses momentum, the thought will dissipate and kind of fall away. (Again, if you’re not feeding it.)

And at one point, it’s just not there anymore.. .there’s just space and presence… a state of greater discernment and openness.

And this is really a game-changer.

Last Few Words…

Going back to my story, despite some meditation experience under my belt, as you noticed, I still got hurt by the Roshi.

I am human, I have an ego.

And the thing with the ego is that it’s always looking for ways to reinforce itself.

Defensiveness is its intrinsic trait. We quickly feel attacked, questioned, misunderstood, victims of injustice…

Now that I think about it, the Roshi probably wanted to elicit such reaction within me in order to test me.

And I failed the test. Big time. Again, I’m just human.

Everyone will get reactive about something at some point.

That’s why self-inquiry and mindfulness are on-going practices. They do help you decrease the compulsivity of the egoic mind –the number of times it arises and the duration of it.

But that happens over time.

Over time, your ego evolves into a higher form– an ego that is lessened, less judgemental, more calm, less neurotic, more comfortable, confident, and, as a direct result, in a position to perform better as a trader.

I know I threw a lot at you in this post.

This work is difficult, yes, but it’s life-changing.

So, stay patient and just focus on showing up.

The results will blow you away.

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Yvan
I've been trading for a living since 2006. By merging mindfulness (an in-depth study of the mind and its tendencies in the present moment), a good trading process, and an efficient business practice, I went from being a losing trader to a consistently profitable one. Through my work here at Trading Composure, I aim at helping you do the same.
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