UNDERSTANDING OUR NATURE
THE EDUCATED FOOL
Just like Jake Berstein, I have come across this investor numerous times over the years,
highly intelligent, knowledgeable, with a string of degrees and letters after their name. The
problem they encounter is they feel the application of knowledge is all that is needed to make
money. They create vastly complicated trading systems that look great, and then totally
collapse in the market place. These people cannot translate theory into practice. They have no
grasp of psychological aspects of trading and normally have great problems admitting their
approach is wrong.
IT’S EVERYBODY’S FAULT BUT MINE
This person refused to take responsibility for his trading decisions. If he makes a profit he
shouts how wonderful he is, and when he loses he blames everyone from his broker giving
him bad advice, his wife and even the market, which is acting illogically. This investor is
normally insecure, unable to take responsibility, lacks confidence, and exhibits a lot of
emotion in trading.
THE OPINION OR ADVISORY SERVICE JUNKIE
This investor has found the secret of investing. His logic is to get as many advisory services
as possible and wait for them all to be looking at the same trade. Several heads are better than
one he concludes. Once he has a trade that fits these criteria, he gains additional advice from
brokers and friends. This trader’s logic is flawed in that if everyone is looking at a trade to go
in a specific direction, it will normally go the other way. This trader needs to study the theory
of contrary opinion. The old saying “if it’s obvious, it’s obviously wrong” applies to his way
of picking trades.
THE ACTION MAN
This investor likes to trade all the time, he loves the action. He will trade in and out of the
market continuously, rarely holding positions for any great period of time. This trader
normally has a reasonable understanding of market movements, but rarely makes any money.
He cuts his profits and eventually his losses and commission charges erode his account. I
have seen traders like this trade for five or six years every day, not making money, yet still
cheerfully trading.
THE INABILITY TO PULL THE TRIGGER
This investor is one who has great difficulty in placing an order and there are far more of
them than you would probably think. Sometimes traders have a problem making the first
trade, and this stems from a lack of confidence. They’re always agonising over the perfect
trade to so, and end up doing nothing. It also happens after a losing trade, confidence that was
there goes. It’s like the skier at the top of the hill who has had a bad fall and can’t go down
again. The problem is, if you are afraid to go downhill, you can’t be a skier. If you fear to
trade, you should find another profession.
So far the above traders fall into losing categories, and represent the bulk, say, 90-95%. The
other 5% are all different individually, however, there are some points they all have in
common that are outlined below.
SUCCESSFUL INVESTORS
Successful investors may use different systems or approaches to the market, have different
educational backgrounds and be of various ages. However, they would have the following
beliefs that enable them to reap profits from the markets:
1. Self-confidence. This comes from both knowledge of the markets and self- knowledge of
their strengths and weaknesses. They effectively believe that they will make profits in
advance. They believe the game has been won before they begin. If you are not self-confident
in your own ability, it is unlikely you will ever become a successful trader.
2. Money itself is not important; this allows them to emotionally detach themselves from
trading.
3. Losing money can and will occur, and is acceptable to these investors.
4. Profits will occur over a period of time and these can be run to a significantly larger size
than their losing trades.
5. These investors love and enjoy what they are doing, and therefore have no problem
devoting regular time to trading.
6. Open-mindedness and adaptability. Successful traders remain open-minded and receptive
to new ideas when it is necessary. They find it easy to adapt and change and they are not
concerned with admitting when they are wrong.
A well thought out and logical trading method, combines with the above beliefs, will give
any trader an edge in the quest for profits.
BECOMING A DISCIPLINED INVESTOR
