The Road to Trading Success: Lose Your Ego; Better to Be Profitable Than Right

The ultimate goal of a trader should be to have overall trading success by being profitable. There is no single-best path one can take on the destination to trading success and profitability. However, there are a few general trading tenets to which all successful traders have subscribed. One such trading tenet is “losing your ego” when trading markets.

Mark Cook, a well-respected trader and trading educator from rural Ohio in the central U.S., for many years has stressed that traders need to lose their egos before getting into trading markets. He is also an advocate of survival in trading. One must survive in this challenging arena before one can succeed. I enjoyed listening to Mark at a trading seminar several years ago. He even used to wear bib-overalls (with no shirt) at some of his trading seminars—just to drive home the point that trading markets is not easy and that ultimate success takes a lot of hard work.

My friend and respected trader and educator Glen Ring also espouses the notion, and may have even coined the phrase, “it’s better to be profitable than right in trading.” Those who know or have talked to Glen know he, too, is a no-nonsense, no-hype trader who takes a yeoman’s approach to the business. When asked what direction a specific market “will” go in the future, Glen is never afraid to say, “I don’t know,” before he adds that, “successful trading is not  a business of predictions but one of the probabilities based on past price history.”

It’s been reported that people who get into the endeavor of trading markets tend to be of higher-than-average intelligence and have more aggressive personalities—called “Type A” personalities. Having higher-than-average intelligence certainly can be advantageous in any field of endeavor. However, in trading, possessing the “Type A” personality can be a disadvantage. Reason: More aggressive and competitive people do not like to lose and do not like to be wrong. It’s a time-proven fact that trading markets, from a shorter-term timeframe, is about absorbing numerous losing trades. But that does not mean “Type A” personalities cannot succeed in trading.  Those with the competitive and aggressive tendencies just need to realize they possess those traits and then manage them properly when trading. (My wife says that I’m a “Type A” personality, but I say I’m not. I just know I’m right and she’s wrong—just kidding!)

Most have heard the simple trading adage, “Cut your losses short and let your winners run.” What this also implies is that during any given year the vast majority of shorter-term traders will see more losing trades than winning trades. Yet, some can still realize profits by getting out of the more numerous losing trades quickly at small losses (by setting tight protective stops), and allow the fewer winners to run and accrue bigger profits.

Just think for a minute about the trader who does not want to lose his or her ego. This is the trader who likes to be right and cannot stand to be wrong. In fact, this type of trader will probably go to great lengths just to be proven right. What does this mean when executing trades? It probably means that the trader who hates to be wrong won’t be willing to get out of a losing position at a small loss. Instead, this type of trader may pull a protective stop when in the heat of a trade, or may not use protective stops at all—in the hope that he or she will be proven correct. This type of trader is likely to see a small loser turn into a big loser, and might even get a margin call from his or her broker. And if this type of trader repeats this scenario and keeps absorbing big trading losses, he or she will eventually be forced to exit the endeavor of trading markets. This is also the type of person who would likely blame the markets or the broker for his or her lack of trading success.

Be a humble trader. If you are not a humble trader now, the markets will eventually make you one—and very likely sooner rather than later. I guarantee it. There are few guarantees in trading markets but this is one that I can make.

That’s it for now. Next time we’ll focus on another important issue on your road to trading success.

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