Trading is, in truth, a multi-leveled experience. Learning it can change your life in some profound ways.
If you trade long enough, you eventually acquire a new mental model through which you begin to see and experience your life.
Your life circumstances become a matter of risk to reward, process, good trade/bad trade… you learn to make better, more informed decisions; you also learn to accept things better (especially those that are out of your control) and approach them with more humility.
That’s what I’ve experienced in my own life anyway.
Ever since I became a trader, the similarities between trading and other areas of life have never stopped to amaze and fascinate me.
Here are 8 lessons trading taught me about life.
Lesson #1 – The wisdom of impermanence.
- Trade outcomes come and go in a probabilistic manner.
- Chart patterns are not really reliable – one day a certain pattern generates an expected result; another day it doesn’t.
- The market is always changing – systems that have been winning for a while eventually start losing; systems that have been losing for a while eventually start winning. And the cycle continues.
As I reflect on this constant uncertainty that reigns in the market, I come to realize that life is same – everything is in constant motion; impermanent.
Usually, we plan our lives, organize, arrange everything, and keep things as safely and securely as possible but yet our security gets blown away when impermanence takes place in unexpected ways.
So if things are impermanent, what does this teach you?
In the teachings of the Buddha, one of the first things he said is that the root cause of all of our suffering is grasping. It’s craving for things to be a certain way. And the wisdom of impermanence shows us (experientially rather than through the teachings of someone else) that, indeed, there is nothing to grasp. It teaches you to let go of grasping. Because grasping is the source of unsatisfactoriness, since nothing is reliable.
When the unreliability of things is realized, letting go becomes the only thing to do. The only thing that works.
I mentioned the Buddha, but this is not just Buddhism. Stoics taught the same thing, with Marcus Aurelius saying
Receive without pride, let go without attachment.
or Epictetus saying
For good or for ill, life and nature are governed by laws that we can’t change. The quicker we accept this, the more tranquil we can be.
Impermanence is a truth that permeates everything in existence, and, in trading just like in life, it is something to be understood, not feared. Understanding it will help you approach any circumstance — in the market or in life — with wisdom.
Lesson #2 – Losing is part of winning.
Most traders lose because they won’t take losses. Their rallying cry is, “I’ll get out when I’m even.”
But why is getting out at even so important? Because if you get out even you could say, “I wasn’t wrong, I didn’t make a mistake.”
The irony is that losing traders keep losing because they don’t want to lose. On the other hand, winning traders understand that to win they have to take losses. It’s just part of the process.
Success in general is not an event, it is a process composed of valleys – failures, mistakes, losses. Take, for instance, the process of scientific investigation which human advancement rests upon. When a science experiment is conducted, many results will show up – positive and negative ones – all of which are data points. That is how scientists view failures – as just data points.
When we adopt a similar approach in trading, every winning or losing trades become data points. By this process of careful experimentation, as we keep trading, we discover more data about what works and what doesn’t. That’s all there is to it! Every other way of seeing losses is just a poor use of your imagination.
Lesson #3 – Knowing what’s in your control and making peace with what isn’t.
Let’s say you are in a long-term relationship, and you love your partner. You presumably want, like most people do, to be loved back and for the relationship to last.
But those outcomes are not really under your control because they depend in part on both external circumstances and the will and feelings of your partner.
What is under your control, however, is to be as loving a companion as you can be, and to work towards making the relationship the best you can.
Now, transpose this analogy to trading and it’ll become clear to you that the inner workings are the same. Suppose you find yourself to be irritable, you get angry because you got stopped out of a trade only to see price reverse. These things happen very often, right?
If you can understand that you can’t control the market, you can only control yourself, you’ll eventually inch closer to success. Because you won’t be fighting the market anymore. You’ll be concerned with your reaction to whatever happens — improving it and being absolutely faithful to your trading plan.
Lesson #4 – Success is an inside job.
Externally, you may or may not achieve success (because remember, things external occur out of a long chain of cause and effect and mostly out of your control), but it doesn’t really matter in the end because success is entirely up to you – it’s an inside job. It’s how you decide to feel (and live) in each and every moment.
Seneca, a famous Stoic, summarized this idea this way
True happiness is to enjoy the present, without anxious dependence upon the future, not to amuse ourselves with either hopes or fears but to rest satisfied with what we have, which is sufficient, for he that is so wants nothing. The greatest blessings of mankind are within us and within our reach. A wise man is content with his lot, whatever it may be, without wishing for what he has not.
No happiness can be secured if it’s rooted in things that are constantly changing and out of your control.
- Your trading account can grow or shrink
- In life, you can prosper or falter
- Your loved ones can be taken from you.
Yet, in the midst of such changing and unreliable external conditions, there is one thing that can be unwavering: Your perception and the kind of control you have over it.
And this is the only thing that really matters in the end because the control you have over your perception determines how you see and experience the world.
Lesson #5 – Taking responsibility.
For many people, everything is someone (or something) else’s fault. But in fact, you are totally responsible for your life and what happens to you. This is the foundational principle you must embrace if you plan to be happy and successful.
And it’s the same in trading. Read through any trading forum and you’ll be able to spot the losing traders straight away. They are the ones who talk about slippage, stop hunting and thieving brokers all in the same sentence. Traders progress once they take responsibility for their trading decisions and put a stop to the victim complex.
When I understood that I alone was responsible for my trading decisions, and, in essence, what happened to me in the market, I stopped blaming others (broker, Cramer, tipster, the cat) and that’s when the real progress started happening.
This was at once incredibly liberating yet a bit scary, but fully embracing this fact was the start of the really valuable mindset work that I began to do and that has brough me tremendous success.
Lesson #6 – Formulating goals.
Most people have goals they want to achieve in life but they never really take the time to contemplate questions like:
- “Is it realistic?”
- “Do I have a plan to get there?”
- “What can or is preventing me from achieving that goal?”
And so on.
So, they walk through life with vague ideas about how to create the future they desire.
It’s the exact same thing in trading: If you don’t spend some time reflecting on what you have achieved so far (your mistakes, failures, regrets, as well as your successes), things you could do better, your goals, what habits you need to change, etc., etc., then how can you improve? Because abstract answers to these questions will only give you abstract results. Success is a plan.
Lesson #7 — Predicting others.
To do good in life, you have to be skillful at predicting other people’s intentions and motives. In other words, you have to predict their next move ahead of them so that you’re never caught off-guard with something you don’t want to happen. You must do this while driving, buying stuff off of Craigslist, dating, walking in a creepy neighborhood, you name it.
And it’s the same in trading.
The ability to detect patterns and possibilities and act upon them strategically and with discipline, based upon your comprehension of what can possibly arise from your present choice, is a very conscious way to play the game. (which is completely in alignment with Sun Tzu in The Art of War.)
Now, if you’re one of those people who think that trading is not about predicting, then read this post. It’ll all become clear.
Lesson #8 – It’s not about being right.
In other words, be flexible in your thinking. Always.
Here’s an old Zen proverb that I like:
“Only when you can be extremely pliable and soft can you be extremely hard and strong.”
I like it because it hits the center of the bull’s eye: Rigidity only brings about frustration and mediocrity.
In trading, I really learned to be flexible (the hard way) while making myself adaptable to any changing situation. Overall, flexibility not only made me happier and more peaceful but also more susceptible to be successful, not just at trading but at whatever I’ve decided to undertake in my life.
So make it a practice to always ask yourself how you can be more flexible. When you’re going through a string of losses, see it as an opportunity to become more flexible in your thinking, to be ever-adaptable, and never-beatable.
Bonus lesson — Failure is important.
The endeavor of trading taught me that failure is not so scary and that success is not always one’s best teacher. It “forced” me to always work towards a better version of myself.
Sometimes, the situations and experiences we resist the most are precisely the ones that should be embraced because everything that dismantles our limiting mental constructs is beneficial.
Failure is just an experience. We are here on earth to have experiences. Our fears may come true, but even with a bad outcome, there may be good if we have the awareness to see it.
Embracing any outcome shifts our perspective from one that is solely focused on not failing, and control, to one that is focused on learning and growing.