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Developing a Trading Plan

Why Do You Trade?

Let’s be honest: only a very small number of adventurous individuals would ever think that active trading is a reasonable way to make a living, support a family or manage one’s retirement assets. But when I interview struggling traders they are usually quite convinced that trading is a reasonable venture to undertake and real success, while elusive, is just around the corner.

There is a quirky psychological pitfall called the Lake Wobegon Effect, aptly named for the human tendency to over-estimate one’s abilities. This causes men (as a gender) to make twice the number of all-or-nothing bets compared to women. Apparently this bold attitude has survival value; perhaps not for the person with the delusion, but for the ‘tribe’ as a whole.     

Men also have a tendency to be over-active in the market, which raises the specter of gambling addiction. However, I have worked at addiction treatment centers and in my opinion the typical male trader doesn’t usually qualify as a ‘trading addict,’ although he is risk-seeking and may have some symptoms of Adult ADD. 

One’s level of risk-seeking is somewhat genetically determined (having to do with genes that control  baseline dopamine levels), but I’ve found that there is usually a deeper motivation among struggling traders to’ master the market’ that has nothing to do with an unrealistic appraisal of one’s abilities, isn’t about excitement-seeking and at times has little to do with making money.  

For example, a curious number of my clients are successful CPAs who have decided to day trade futures. What? Have these paragons of rationality lost their collective mind? Not really.

Rather, they have spent most of their lives balancing other people’s accounts and after a certain age I believe they seek out risk in order to balance a more personal account involving their own human potential. While they certainly measure their success in financial terms, they are not fundamentally motivated by monetary gain, as most are already financially secure. They are methodical, they don’t over-trade and they are quite honest and humble about their trading. 

So why do they trade?

I suspect that their motivation comes from what Carl Jung identified as the urge to psychic wholeness. This is nothing esoteric; it’s a deep and universal human need (that surfaces sometime after the age of 40) to finish unfinished business in the realm of personal development. It is this hidden instinct, if you will, that I believe is responsible for the tenacity with which so many individuals work to solve their particular trading problem. Trading is a bone they won’t let go of until they get through to the marrow of the matter, which usually has nothing to do with the market, per se.

www.daytradingpsychology.com (Coaching for private traders.)

www.trader-analytics.com (Peak performance consulting to RIAs, hedge funds and banks.)