So in 2013, I starting trading Forex, which taught me many things about myself and has shaped the investor I am today.
To trade successfully you need to find an edge and play it over many occurrences making probabilities work in your favor.
Not only that though, you also have to either be one of the rare individuals that are not emotional about money or like me and 90% of people who start trading you have to be able to force yourself to master emotional decision making.
There is no getting away from your beliefs about money, success, or winning, they come up right in front of you, when you see your trade go in and out of profit, the pain of a loss or the ecstasy of a win, or the regrets of a wrong split-second decision.
It’s a tussle between being able to almost touch the very thing you want, but often your emotions and behaviors hold you back from actually getting it.
Now looking back, I realize fear has a lot to answer for…..
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Fear of the loss of money, fear of missing out on trades and therefore money, fear of being a failure and also not getting money and so on…
When you want it so badly, these emotions come out in so many different ways when you trade.
Self-sabotage, over-trading, under-trading, revenge trading, over-leveraging, and many more behaviors that stem from our fearful thoughts and emotions.
Making money from trading has felt to me like the scene in Batman stuck in the prison called the Lazarus Pit.
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Bruce Wayne is banished by the evil Bane to the deep underground hole. There is a way out but it’s an impossible climb out to freedom. Bruce Wayne has a roped tied around his waist to help him climb and navigates the treacherous walls up towards the light. He reaches a gap in the stones where he needs to leap to freedom.
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He jumps and he fails.
Luckily the rope saved him.
Through persistence, he tries again, and again, and again, but never makes it across the chasm.
It’s demoralizing.
An insight helps him realize it’s the safety rope holding him back and he needs to risk death to gain freedom.
Finally, he succeeds!
I have felt that to find early success in trading you either have been a natural and or very lucky and get success quickly.
Most though, have to go through an evolution like Bruce Wayne did, where only the strongest survive through a tough journey and you need to face your deepest fears to be successful. You need to persist until you either give up demoralized or succeed.
Fear is not something you can avoid if you want to pursue a risk reward adventure.
Mostly, the only way is through it, with our eyes wide open and without a safety rope.
I think that is what puts most people off from seeking higher returns; they cannot face their fears.
Given the emotions and the strong motivations seeking success in trading, the endeavor can be really frustrating.
I compare it to playing golf. It’s really hard to hit the ball straight when you first start. No matter what you do you always end up in the long grass trying to work out how you get back on the green. Once you have some skill, it becomes easier as you don’t have to take such difficult shots and it is less frustrating.
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In fact, my golf game only got better once I got taught by a professional and practiced many hours. Which was a sign I needed to do the same in trading.
After trying to wing the “trading thing” on my own for 3 years, I signed up to a London hedge fund training with a successful trader called Chris Mathis. He shared his performance for the last couple of years and was profitable making >20% a year with a low drawdown (<10%).
There are so many fakes in trading, many do not share their performance and there is a lot of clever marketing, so it was a breath of fresh air to be taught by someone with a proven track record.
I learned a lot about stacking probabilities in your favor (only trading in the fundamental direction, gauging market sentiment, and the way price action works aka technical analysis).
He also drummed into us a deep understanding of risk-reward and this has stuck with me in everything I do.
Risk reward is a fundamental property of both trading and investing. Without it, you will lose.
As you can see in the picture below, Chris’s equity curve, I actually joined him at the wrong moment. In 2016 the Brexit vote happened and market turmoil occurred in the forex markets.
And that is the thing about trading, there is a random distribution between wins and losses over any given period of time. So you can never be sure a drawdown is just bad luck or lack of skills or your edge has disappeared.
You just need to play your edge, adapt, be flexible, and face uncertainty head-on with your process.
Chris returned 84% over 3 years and 4 months which is roughly 26% pa return with a max 7% drawdown. He did this trading an entry signal very similar to the head and shoulders reversal pattern called a King’s crown, combined with trading in the fundamental direction of monetary divergence and in line with market sentiment.
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At the time I was trading two accounts a small one (below picture) and a larger 10k account which was in a pension.
Being a millennial and having lived through the 2008 financial crash I was skeptical of equities and thought that I would rather trade for myself than invest and lose. I mean 20% per year was not to be scoffed at.
Which is hindsight was not the best decision.
I found trading the larger account challenging, I often second-guessed myself and during the second quarter of 2016 a 20% drawdown occurred, I bailed out of forex trading.
What this experience did do for me however was show me how much-misguided thinking I had around money.
After I stopped trading, I did some soul searching and had a similar Bruce Wayne insight. Which was “you know your thinking around money is just right when your account balance is just pixels on a screen”.
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That was a eureka moment for me.
You see we put so much on the symbol of money, what it means, we all have our own personal thoughts and feelings about the green stuff.
When in fact money is neutral, it has no meaning.
Just pixels on a screen.
It is simply a tool and that is it.
And that folks, is the secret to mastering your trading and investing psychology.
Push through your fear and release pressure on your need to make money, by realizing it can’t give you anything that you don’t already have and you will have a great foundation to succeed.
Pretty counterintuitive come to think of it. And this is easier said than done. But it can be done.
Because I am a millennial I joined the workforce during the 2008-2009 financial crisis I assumed equities were very risky and pursued what some may say is an even riskier path.
There is an opportunity cost to everything we do and decisions can have lasting effects. If I would have directed any spare income into an index fund back in 2008-2016, I would have had a lot more money than I do today, and actually. It was the perfect time to start. I would definitely have been closer to my million-pound goal.
The thing is back then I never challenged my own assumptions, I never researched or talked to the experts on their views about the stock market. I had a very myopic view and did not seek to widen my lens. In hindsight, it’s bloody obvious equities are a straight line on a log scale. As long as we have inflation they will always go up.
Eventually….
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So think carefully about your assumptions you hold most true.
Our personalities have an inbuilt function to remain consistent with our ego and when challenged will become defensive. That’s being human. And a deep awareness of yourself can help you here.
Often we can only see what we think we know is possible.
(Ponder that on a quiet moment of reflection)
In the next part of my story, having stopped Forex trading I started my journey to investing in equities which has helped shaped my current investing style.
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