If You Think Trading is Exciting Then You’re Doing it Wrong

During the past few weeks I have noticed many traders attempting to engage the market on a daily basis, most, if not all, have been chopped up by the multiple character changes that have taken place since the US equity markets made a short/intermediate term top on February 18th.  As I observed these mostly younger traders insist on engaging a volatile and relatively unpredictable market on a daily basis; it got me thinking about some of the tough lessons that I have learned over the years from overtrading and being too eager to engage with the dangerous beast that is the market.

I believe it is necessary to think of the market (markets in general) as a wild animal that can bite or maim you at any time; therefore, it is crucial to approach trading and investing with caution and to engage the markets only when one is in a position of strength. Anything less than trading from a position of strength will result in unnecessary difficulties, emotional drain, capital losses and in the worst cases, blow ups. There is a superb quote that conveys my attitude towards trading:

“If you think trading is exciting then you’re doing it wrong”

Those who trade for excitement or to satisfy their inner gambling urges are bound to fail- trading should be an unemotional process that is highly dependent upon analysis and pattern recognition. Those who inject emotion and personal bias into their trading/investing activities are stacking the odds against themselves.

One of my favorite tests is to see if I can watch the markets and not actually place a single order. I know that if I can watch the markets for an entire day and not enter into a single new position then I am in the right frame of mind- just because the markets are open doesn’t mean that you have to buy or sell anything. The ability to objectively and stoically watch the markets while not feeling any urge to engage the markets is the ultimate sign of trading discipline. Too often I see traders tweet things like “I can’t wait for the market to open” or “XYZ has earnings after the bell, there should be great trading opportunities”; sure, perhaps there will be some good opportunities but when one enters with a predetermined mindset that there will be “great trading opportunities” one is already putting oneself at a disadvantage. Opportunities appear and are not predetermined, just because a market is moving fast or making a large magnitude move doesn’t mean that a trader should engage it. Markets should always be treated with respect and a healthy dose of awareness of what can go wrong.

Here is a list of things that help me to achieve the optimal trading frame of mind:

  • Sleep: Sleep is absolutely essential, I aim to get 8 hours (although I don’t always) of restful sleep each night. Don’t have laptops or other electronic devices in your bedroom, I find that I sleep better when I remove all electronics from my bedroom.
  • Minimize distractions: Distractions come from all angles in our modern world. The main distractions that bother me are noise from the TV (that is why financial TV is almost always on mute during market hours), and receiving phone calls during market hours (I often place my phone on silent when I am trying to intently focus on the market). In addition, creating a cultivated ‘Home Stream’ (the Suggested list is also a great way to do this) on StockTwits can help one to receive only the most insightful market related tweets.
  • Get exercise and don’t sit for more than 2 hours at a time: All the best traders whom I know find a way to be physically active in one form or another on an almost daily basis. Some days I go to the gym during lunch, other days I will work out after the market close (jogging, yoga, etc.). Exercise improves circulation, increases stamina, and helps to relieve stress.
  • Read books and keep improving your knowledge: Sometimes it is difficult to read books during the week but on weekends I believe it is essential to find a quiet location (library, park, etc.) and read a good book. I also believe in our modern world of high speed information flow and digital immersion that it is necessary to turn the computers and smart phones off from time to time and simply lose yourself in your own thoughts.
  • Don’t engage (trade) the market unless you are in an optimal frame of mind: This means many things, but most of all it means that: You aren’t seeking anything from the market (you are taking what it gives you), you are willing to not make a single trade if a good setup doesn’t arise, and you are prepared to follow all the rules of risk management in a disciplined and unemotional fashion.

James Altucher and John Lee wrote excellent articles on the subjects of stress and trading/working out, I highly recommend that you read them both.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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