Chris Perunna wrote Focus on You on his blog yesterday. It echos a lot of what I wrote recently in My First Major Lesson: Trade to Your Personality, though Chris leans a bit more toward Sun Tzu in terms of the know thyself idea, extending it to suggest that knowing one’s self means knowing one’s enemy – that enemy being other traders in the market.
Obviously, this is an adversarial view on trading. He makes that very clear by stating, “It is you versus the other trader.” By definition in some markets you are literally trading opposite another trader (The Zero Sum Game). As such, it is competition in a somewhat indirect way. You never really get to face your opponent, though.
My concern with the way Chris expresses things in that regard, though, is that there’s a difference between individual psychology and mass psychology. Let’s face it. Individuals can be subject to enormous numbers of different personality quirks. If I understand myself, that doesn’t mean I’m going to understand someone else, especially someone with a very different developmental path and background to my own.
It doesn’t matter whether I understand Trader X, though. The markets are a collective expression. Prices move on the basis of group psychology, not the mental processes of Trader X. It’s these broader patterns on which we need to be focused – though certainly understanding how we ourselves react to the stresses and strains of trading can help in that regard, at least to a degree.
Still, Chris’s point that your success or failure in trading comes primarily from inside yourself is spot on. I’m not talking here about trading psychology as folks often think about it, but rather in the broader mental approach to trading that determines where you focus your efforts.
Brett Steenbarger takes things a step further in Eternal Truths About Trading Success. In his post the good doctor discusses some key trader mental traits of good traders. It ties in nicely with Chris’s broader discussion.