Market Wizards is one of my favourite trading books. It is a collection of interviews with elite traders. One of the most memorable interviews features a futures trader called Ed Seykota. He increased an account of $5,000 in 1972 over 250 times by mid-1988, and he also mentored a few great traders of his generation. His interview in the book reveals some interesting insight which is not found anywhere else.
According to the interview, Seykota considers psychology, not trading system or technique, to be the primary reason for a trader’s success. He believes that traders lose in the long term because they “like” losing. He is not referring the usual small losses that one has to take to protect his account, but those unreasonable moments when traders give back their hard-earned profits over and over again for no logical reason. Seykota puts it really well in the interview:
“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.
“I know one trader who seems to get in near the start of every substantial bull move and works his $10 thousand up to about a quarter of a million in a couple of months. Then he changes his personality and loses it all back again. This process repeats like clockwork. Once I traded with him, but got out when his personality changed. I doubled my money, while he wiped out as usual. I told him what I was doing, and even paid him a management fee. He just couldn't help himself. I don't think he can do it any differently. He wouldn't want to. He gets a lot of excitement,he gets to be a martyr, he gets sympathy from his friends, and he gets to be the center of attention. Also, possibly, he may be more comfortable relating to people if he is on their financial plane. On some level, I think he is really getting what he wants.
“I think that if people look deeply enough into their trading patterns, they find that, on balance, including all their goals, they are really getting what they want, even though they may not understand it or want to admit it.
“A doctor friend of mine tells a story about a cancer patient who used her condition to demand attention and, in general, to dominate others around her. As an experiment prearranged with her family, the doctor told her a shot was available which would cure her. She constantly found excuses to avoid appearing for the shot and eventually avoided it entirely. Perhaps her political position was more important than her life. People' s trading performance probably reflects their priorities more than they would like to admit.
“I think that some of the most flamboyant and interesting traders are playing for more than profits alone; they are probably also playing for excitement. One of the best ways to increase profits is to do goal setting and visualizations in order to align the conscious and subconscious with making profits. I have worked with a number of traders in order to examine their priorities and align their goals. I use a combination of hypnosis, breathing, pacing, visualization, gestalt, massage, and so forth. The traders usually either (1) get much more successful, or (2) realize they didn't really want to be traders in the first place.”
To solve this problem, one must know how to talk to his own subconscious mind to resolve the conflict. As he said, “A fish at one with the water sees nothing between himself and his prey. A trader at one with his feelings feels nothing between himself and executing his method.” This idea is beautifully illustrated in the following video by Teal Swan:
If you like this topic, you shall surely check out Seykota’s website: The Trading Tribe.