Saturday, April 14, 2007

Good Question

One of the keys to being a good trader is to understand the psychology behind making successful trades. I am a human being and come with all the inherent emotional and mental complexities. As much as I would like to believe that I can gain and lose money with no inner consequence that is never truly the case. I may be able to minimize such effects over time as experience teaches me that the less emotion I invoke into the process the better my results. Being a Christian should also be of some help if I can keep in mind on what is truly important.

I use this as a preface to an article that I recently encountered on one of the biggest dangers of trading - particularly trading for a living. If I take the past 10 years or so, I would have to say that my cumulative track record has been impressive. I don't know what my compounded annual return has been but suffice to say it is well above the market's return. For that I do feel a sense of accomplishment because I know the amount of work and perseverance it has taken - and of course I am thankful that God has given me the ability and opportunity.

However, in the midst of that was my attempt at trading for a living during the 2002-2004 period - give or take. It really couldn't have been less successful. There were moments of triumph - months when I met my own expectations - but they were in the minority. I have tried to go back in time and dissect exactly what happened. Why the change in performance simply because I was sitting at home instead of in an office? I believe there are many answers to that question - some more important than others. But answers, nonetheless. Now I think that I have found the key answer in the aforementioned article.

Trading became my primary source of self-esteem. After an amazingly successful period in 1999-2001 I really felt like I had become good enough at my craft to support myself. Yet, unbeknownst to me at the time, I had also wrapped up a good chunk of my validation in that pursuit. It's how I began to measure my worth. It was my reason for getting up in the morning and consumed a lot of my energies.

Trading is hard enough - 90% who attempt it for a living don't succeed. Try basing who you are on whether or not you are successful. There is no way to eliminate emotion from that equation. In fact, emotion is only exaggerated in such a case. In this respect I don't think there is any way I could have avoided failure. The immense pressure - both from internal and external sources - could only have one resolution. I could have climbed the mountain successfully for awhile but any prolonged string of miscues was going to have a snowball effect that could not be stopped.

So what happens when a person's primary source of validation becomes their primary source of frustration and disappointment? Clearly, depression is a natural byproduct. Validation is tied ever so closely to hope...and with your primary source of hope removed you are in a world of hurt. I didn't have that kind of perspective in the middle of it all. I wish I had. If you can have some sense...any sense...of self-awareness and insight in that kind of turmoil, I believe the chances for a better ending are much improved.

It's easy to talk about God needing to be your primary source of validation. There is no question it is Biblical and God wants to be the One to whom you go to find peace and rest and fulfillment. But how hard is that? I'm not even sure what that looks like. I have moments of validation from God...primarily when I am engaged in direct ministry...but those moments are few and far between. I have bosses to answer to and family and friends to support and encourage. I have friends who want my time and help in a variety of ways. I have guys to disciple. And at the end of the day I have my own goals and ambitions and hopes and dreams. I like to think they are godly pursuits and I do my best to make sure that God gets the glory in it all although I know I fail at that constantly. So there all these sources of validation running around. I feel like I am more diversified in those sources than I was a few years ago which means the odds of depression returning have been greatly reduced but it doesn't answer the bigger question...Where is God on my validation list?

Still working on that one.