Why is it easy to be consistent in many aspects of our lives in the real world yet difficult to stay consistent in the trading world?
The answer is quite simple. We’re comparing two different universes.
Yes, in the real world, there’s a lot of crazy stuff going on. Yet much of our lives are routine based, logical and generally predictable.
Yet when it comes to trading, there is not a lot of logic, nor predictability. In fact, markets are a mass of human emotions that often lack sense and reasoning.
Over time you can devise a strategy that irons out some of these issues. Yet for the most part, we need to accept that often the markets will behave illogically. Thus the reason why highly intelligent people are often bad traders. They think they can beat the market by finding order among the chaos. Good luck with that!
There are also not many businesses that will keep you employed if you are consistently wrong. So, in the real world we are constantly adjusting to ensure this doesn’t happen.
Yet in trading, being right only half the time is something you are going to have to accept. And something that your personal psychology is going to need to become comfortable with.
In fact, with the right structures in place, including correct position sizing and risk management, you can make a decent living out of trading by only being right 50% of the time.
In the trading world you often have to think the opposite to what you would in the real world. In the real world if you put in a hard day’s work, it generally equates to a nice pay cheque. Or at least a consistent steady pay cheque over time. In the trading world, you can work hard, and do everything right, yet you can still lose money.
In the real world we are action orientated and always moving from one project to the next, rarely idle. Yet in the trading world, sometimes doing nothing can be the best way forward.
And what do we do in the real world when we see a 50% off sale? Our brain tells us it’s a good time to buy, so we buy. Yet in the trading world, just because a stock has dropped 50% doesn’t necessarily mean it’s a good buy. Just like a stock trading into new all-time highs doesn’t mean it’s expensive.
The real world is not necessarily a good training ground for becoming a successful trader. Yet accepting these limitations before entering the trading arena, and you are probably more than half way to becoming a success.