Trading And Karma
Tuesday 2 November 2010
It’s been said that there is no better place to observe human behavior than on a trading desk. When I first worked in that environment in New York, I heard a comment that I found perplexing. A relatively new trader had entered the room, strutting and boasting openly and loudly of his recent successes.
“I did it again! Making money and acting funny! I am on fire, baby! I am the man!”
The trader went on and on about how he was “always right on target” and just couldn’t seem to lose. Shaking his head at this garish display, an experienced trader seated nearby turned to the person at the next desk and said, “The market gods will not approve of this.”
Although I didn’t understand at the time, his meaning soon became clear: The markets have a tendency to humble those who become too proud, and the bragging trader was tempting fate by openly reveling in his recent success. Traders who are successful over the long term rarely allow their victories to go to their heads, because in trading and in everyday life, pride often precedes a fall. Consider it a sort of “market karma” that keeps traders in line when they become too full of themselves.
In fact, in the professional environment, traders who are performing exceptionally well are often asked to rein in their trading. The risk management department of a trading desk understands, through years of experience spent observing traders, that often our greatest victories are followed by our worst defeats.
Is there really an outside force that controls the fates of traders? Are the market gods quietly observing, waiting for traders to slip up and violate some code of conduct?
No, traders sabotage themselves when they lose perspective. Successful traders sometimes become overconfident, and then move away from the very elements that gave them success in the first place. The market gods — or karma, or yin and yang, whatever you want to call it — are really just an expression, a personification of this tendency toward self-sabotage.
Respect the market in the same way that a sailor respects the sea. Like an ocean, think of the market as a vast force of nature that can be navigated but cannot be dominated. Keep your head on straight when you’re trading well, and fight the urge to declare victory over the market.
“I did it again! Making money and acting funny! I am on fire, baby! I am the man!”
The trader went on and on about how he was “always right on target” and just couldn’t seem to lose. Shaking his head at this garish display, an experienced trader seated nearby turned to the person at the next desk and said, “The market gods will not approve of this.”
Although I didn’t understand at the time, his meaning soon became clear: The markets have a tendency to humble those who become too proud, and the bragging trader was tempting fate by openly reveling in his recent success. Traders who are successful over the long term rarely allow their victories to go to their heads, because in trading and in everyday life, pride often precedes a fall. Consider it a sort of “market karma” that keeps traders in line when they become too full of themselves.
In fact, in the professional environment, traders who are performing exceptionally well are often asked to rein in their trading. The risk management department of a trading desk understands, through years of experience spent observing traders, that often our greatest victories are followed by our worst defeats.
Is there really an outside force that controls the fates of traders? Are the market gods quietly observing, waiting for traders to slip up and violate some code of conduct?
No, traders sabotage themselves when they lose perspective. Successful traders sometimes become overconfident, and then move away from the very elements that gave them success in the first place. The market gods — or karma, or yin and yang, whatever you want to call it — are really just an expression, a personification of this tendency toward self-sabotage.
Respect the market in the same way that a sailor respects the sea. Like an ocean, think of the market as a vast force of nature that can be navigated but cannot be dominated. Keep your head on straight when you’re trading well, and fight the urge to declare victory over the market.
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