Trading as Character's X-Ray

I've pondered in the past how much we really know ourselves, or each other. Real-life heroes, for instance, seem to me to be born that way, and fate provided an opportunity for them to do something extraordinary that most people wouldn't do. The person who leaps between the subway tracks and puts his body over a child who fell down there wasn't necessarily trained to do such a thing. I don't think there's anything specific to their gender, ethnicity, racial background, or anything else that drives them to behave heroically. In that split-second, where most people's desire for self-preservation would have held them back, some individuals choose to do something with what we might describe as a very bad risk to reward ratio.


0624-contemplationBut stepping away from the subway tracks - always a wise move, both figuratively and literally - let us consider more elementary aspects of our character. How well do we really know ourselves? What can we do to reveal our inner nature which, in my estimation, most people elect to keep hidden by the veil of ignorance their entire lives?

Slopers know I've never had an interest in watching sports, but over time I've come to accept that athletes of all kinds are people who, by the very nature of competitive situations, have demonstrated themselves to be people of extraordinary character. By this I don't mean they are paragons of virtue; some of them are, and some of them act detestably. What I am saying is that one does not become a world-class athlete (or a world-class anything) without having substantially more drive, self-discipline, determination, and resiliance than the average fellow.

Trading is, let's face it, extraordinarily challenging as well. We are all in a daily competition with one another. Although our scores aren't normally a matter of public disclosure (unless you are running a big fund or otherwise have to reveal your results), we all have a sense as to how we're doing versus the market as well as how we're doing versus our own expectations.

There are a couple of reasons this has been on my mind lately. First, my children are becoming more serious about their sports, and I've been reading what I can about sports psychology. Much of the advice laid out in such books is almost identical to the kinds of things successful traders speak of. My respect for athletes has definitely kicked up several notches since I am witnessing up-close the mental challenges in what are assumed to be physical activities (my disdain for the mere watching of sports, however, remains completely grumpy and sourpuss).

The second reason is what happened with me earlier this week. Dedicated Slopers may recall that on Wednesday, after the FOMC announcement, I panicked a little later in the day and gobbled up long positions left and right, which was not in my plan nor executed in a sensible, rational fashion. It was emotional, and when it comes to good trading, following the whirlwind of surprising emotions is hardly a recipe for success.

I brooded quite a bit about my failure on that day (so much so that Slopers started insisting I just put a lid on it), and the next day I tried to share my thoughts more eloquently in a video about the difference between being nimble and rash.

The reason this matters so much to me is that I simultaneously want to know more about my character while at the same time I'm afraid of what I'll discover. I think that most people like to feel positively about themselves. Mentally healthy people don't want to tell themselves what rotten humans they are. But I also think people who want to grow and improve aren't afraid to look at themselves in the mirror and be prepared to face some truths they might not want to face.

Perhaps the fatalistic side of me as showing. At the risk of sounding irresponsible, I do not believe I am wholly responsible for what makes me tick. Yes, I am largely in control of what I choose to do, and the sort of person I'd like to be, but I also believe there are some core elements that are difficult if not impossible to change.

I've never had the opportunity to save someone's life, but faced with a circumstance in which I could help someone at risk to myself, I would hope that I would be compelled to do so. If I weren't, I would see that as a weakness in character. But what if I did take the risk and save someone from danger, ignoring the peril to myself? I frankly don't think I would deserve much credit for such a thing. I simply got lucky. I simply happened to be born that way (whether or not I was, I have no idea; again, there hasn't been the opportunity).

The only thing I can point to as a situation in which I was pretty pleased with how I was "wired" was during a couple of car spinouts I experienced. I'm a pretty careful driver, but there have been a couple of times when my car starting orbiting out of control (once on ice; once on a slick rainy/oily surface). In each instance, I got completely Spock-faced and calmly directed the car back to safety and control.

Am I some kind of great guy that I didn't shriek and grasp my head with my hands? No; there was simply something about me that didn't freak out and took on the task in a very detached way.

It's that same sort of calm detachment that I yearn for in trading. Part of the reason I trade such an absurd quantity of positions (currently 12 long, 63 short) is to make it almost impossible for me to act rashly. The awkwardness and unwieldiness of my portfolio forces me to take time to think, because whereas I could exit a single SPY position on a moment's notice, even the most panicked and adept trader would take several minutes to exit that many positions.

Through my many years of trading, I can think of several things I've learned about myself:

(1) I never get tired of charts. Call it a mental illness, but seriously, I've looked at hundreds of thousands of these things, and I still look forward with excitement each day to looking at some more. This isn't work; it's play; and that's all I've ever asked of my gainful employment.

(2) I favor the short side far more than the long side. I wish this weren't so, and I'm starting to think I'll go to my grave with this being the case, but for reasons I don't understand - impatience? pessimism? a propensity to worry? - I am always more enthusiastic and forgiving with short positions compared with long positions.

(3) Although I've made progress, I wish I never acted rashly during market hours. This is a battle I am slowly winning, which is why what happened last week weighed on me so heavily. I recognize this shortcoming, and I know what to do to conquer it. But it's an ongoing battle with my default nature.

If you, as a trader, find yourself to be utterly capricious, emotional, and profoundly lacking in anything resembling discipline, don't be surprised if you consistently lose in the markets. Someone with those characteristics is not someone you want to wind up with on a deserted island, because the chances of you surviving are lower than if you'd simply wound up their on your own.

I am flawed, and I recognize that. My flaws are made crystal-clear to me during some instances of trading. Trying to trade for a living also serves as an uncompromising X-ray into your character. I can only hope that, with determination and persistence, I can attenuate some of my shortcomings. I will leave this world still flawed, but I am striving to be less so once that day arrives.