3 things I learn about life from learning trading

Throughout the multitudes of topics I briefly engaged in, I find there is no topic that beats trading in understanding personal development and mental development. Well, programming comes close but it is not so much of an emotional roller coaster in comparison to trading.

Recently, I have been more studious in studying options trading because hey, we all heard great stories about trading. And of course the horrendous tragedy that most people find themselves in.

As part of my education of learning, I purchase 2 books that appear when I search for the top 10 trading/investment books. I also regularly watch videos from Option Alpha and Tasty Trade.

Here is an excerpt from one of the book that hits home.

Of real interest is the academic community's belief that the markets are efficient, which assumes that traders have rational reasons for their behavior, knowing what they are doing and having a good reason for doing it. Academicians also believe that the markets are basically random, which seems to be a complete contradiction to a market that is supposed to be efficient. ... What you need to do is determine how the majority of traders perceive the external conditions in relationship to either their fear of scarcity, or their fear of missing out, or both.
-- The Disciplined Trader, Mark Douglas

This book is centered around the human psychology in the trading environment. It touches on understanding the nature of the trading environment, reviewing and training our mental ability with regards to trading. All in all, it goes into the thinking methodology recommended for trading.

3. Insistence on our individualistic right can be costly

There are many biases and experiences that govern our thoughts, behaviors and actions. It is easy to shout to the world that we are right. But to recognize and admit that we execute a decision erroneously is difficult both in our personal life and in trade.

Previously, when I briefly dabble in crypto trading, I was elated when my capital doubled. However, if you could recalled, crypto bottom out as quickly as they rally. I lost my gains and more. Till date, I have lost track of how much I lost, but it is most likely in the mid-thousands.

Why have I not taken the profits off the table, knowing how volatile crypto is? Majority is due to my own inexperience. Partially is due to the fact that my own optimism fail to catch what the market is showing at the at point in time. I falsely believe that the market will bounce back. But much like the dotcom bust, some of crypto remains worthless or even evaporated.

In life, we could be govern by morals, beliefs and/or motives etc. Sometimes, there is value in insisting that we are right. But sometimes we will put ourselves on a very bad light if we don't actively employ open-mindedness and logical reasoning on our beliefs and behaviors.

2. Reality is always right

But right does not mean infallible.

It may or may not be associated with morals. Think about it. Does your right to own a particular object undermines the right of another human being? If your answer to it is genuinely no, then maybe we should look into the whole supply chain.

During this Covid-19 situation, the stocks tanked, only to rally shortly.

Despite high unemployment rates.

Despite limited earnings.

Despite the fact that some of the big companies are going bankrupt through this almost economic drought.

Still, the market is always right. The market is efficient in a way that it enables two parties with opposing value system to transact. The notion of buying reflects a thinking that they believe in the potential reward of the security. The notion of selling reflects a thinking that the potential reward of the security is diminished.

This period of time has been a real eye-opener. As many will say, unprecendented. If we superimpose the notion of trend of the market into real life, we will have some insights about the art of influence.

Very few people can go against the grain and create huge waves, unless you are Elon Musk-esque status level. In which a single tweet can cause a 11% fall in the stock price of Tesla.

After watching a few cult videos, I come to learn that influence starts to grow exponentially when you reach a critical mass. But prior to that, the cult leader might be leading an unassuming life. You need a system to integrate what you want peopel to believe in a palatable manner and slowly expanding your radius of control over it.

1. Understanding irrational matters rationally

All in all, the mental framework that I gather thus far is that, in many situations, there are many benefits to be "with the crowd". However, cumulative quality wisdom is also derived from a diverse set of thinking that has not been swayed by the collective group. Because no matter which group you are in, it is still make up of individuals who might or might not be right.

We are living in a paradoxical world but that is what makes life so interesting. Just like the market, our life is in a constant flux. Certain period of time, it is stable but we will also have to brace ourselves for the volatility. Or maybe your life is more like the current crypto market after 2018, full of erratic ups and downs.

What I learn is that if we could perceive all that pass in a detached manner, sometimes we could even take measures to hedge our risks or to reap our rewards, just like what the options market allow traders/ investors to acheive.

Perhaps then we could learn how to identify and work with the flow in life could help us to manage our life better.

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