Delusions. Everyone has them in one fashion or another. Many (most?) are harmless. Some can be very valuable as coping mechanisms. But when it comes to our trading, delusions can destroy us.

In trading, delusions can take a variety of forms but they almost always have one thing in common: being able to “beat the markets”. The trader who thinks they can outsmart the markets with some clever math(s). Or the trader who thinks they have a better indicator than anyone else. Or can see something nobody else does. Or is just harder, better, faster, stronger (apologies Daft Punk, you will always be missed!). These are all completely delusional ideas and adhering to any of them too strongly can eliminate you from the markets faster than a F1 racer hitting a wall at 100+ MPH.

I’ll start with one that I’ve heard from traders far too many times. The whole “I can see something that nobody else does” idea. Just think about that for a moment. Are you Rain Man? Are you a legit genuine psychic? No? Then you are simply not seeing something that nobody else in the markets, not a single one of the thousands, hundreds of thousands, of other market participants and their algorithms, is seeing. Or to put it another way… if they aren’t seeing it, it’s because it’s not really there! You’re not in an M. Knight Shyamalan movie where you can confidently declare “I see patterns, everywhere!” so don’t. Trade what you see. Not what you think you see.

Now let’s talk to the indicator fans out there. You know who you are. There’s always that contingent of traders who have bought into some indicator or algo or system or insert_thing_here and since they have paid really good money for it, then it simply must work! Or even better is the idea that it was “developed by German engineers” or a “former NASA scientist” or whatever, mistakenly believing that the credentials of the person behind whatever the thing is, automatically imbues it with special properties and so it must be better than anything else. Really smart (?) people come up with smart-sounding things all the time. It doesn’t mean they are going to actually be useful or valuable, and handing over a large pile of your money in exchange for something doesn’t actually give it the value you want it to have. So don’t fall into this trap. Trading certainly requires some tools, but it’s not about the tools.

And of course there’s always the trader who is convinced that their math(s) prowess is going to unlock the keys to the kingdom and they’ll be richer than dog in no time. Thing is, ask any of those people how that’s working for them and odds are the answer will be a very not-straight-forward way of saying “not good.” They never want to admit that their clever formula or algo or whatever isn’t actually working. It just isn’t quite working yet but will soon. The markets may communicate in numbers, but they are not actually made of numbers. They’re made of people making decisions, some of which are rational and sensible, most of which are not. If you treat your trading like it’s strictly a probability exercise, you’re pretty much certain to blow up eventually (just ask LTCM!)

And of course there are those who think they can “succeed” (whatever that means precisely) on sheer force of will and endurance. The whole “Go Hard” mentality that just trying harder, being more aggressive, refusing to give up, etc. will be enough to see them through. Trouble is you are simply not “harder” than the markets. That would be like trying to be harder than water. Think water’s soft? Hit it at high speed some time, see how soft it is! Nobody is harder than the markets, nobody can just impose their will and see financial gains because of it. Sure it takes an incredible amount of perseverance and determination etc. But that’s just one ingredient in a very complex recipe that also changes from person to person, trader to trader. You will not out-hard the markets.

I’m sure any discussion of delusions and trading could go on for a ridiculously long time, so I’ll leave this one here. But do you have any other good ones to add to the conversation? If so, leave them below!

Until next time, good trading!

Jonathan van Clute
Community Manager, Trading Research Group