Feb 02

If You Had To Choose A Trading Skill….

What would it be?

Great technical analysis skills?  The ability to take small losses?  Better insight into your trading psyche?

While all these skills would be great,  personally I believe there is one ‘skill’ that successful traders possess that underpins all the others.

Without this one attribute, longevity in the markets is pretty much a no-go.

I bet you’re thinking discipline, right?  Blah blah, heard it all before, discipline, stick to plan blah blah…. Wrong.

Well, right, but wrong.  Discipline is definitely required, there is no doubt about that, but what every trader really needs even before discipline, is optimism.

I’m not just talking about a glass half-full attitude, and looking on the bright side – real optimism is much more than that.

How Optimism Makes Us Great

Real optimism is the ability to attribute the good stuff to ‘that’s how life is’, and the bad stuff to “that how things are this moment, but not forever’.  It allows us to bounce back after a blow rather than be emotionally flattened by it.

We all have a disposition one way or another, and it affects our outcomes in pretty much everything.

My two eldest kids are a prime example.

Josie, my eldest, is a naturally gifted runner.  She’s just built for speed, and at 9 years old can kick my ass in a running race.  Which is kind of embarrassing.

Toby is different.  He has flat feet, a stockier build and just generally doesn’t have the natural gifts that Josie does. But Tobes thinks he’s awesome.

So who do you think is a more successful runner?   In fact, they are about the same.

Toby trains passionately.  He believes he is a great runner and when he wins, that’s taken as confirmation that he is, indeed awesome.

When he loses, he takes it as though it’s a temporary loss that will be amended shortly – and uses it to practice even harder.

Josie, on the other hand doesn’t train or practice at all, except maybe twice prior to a sports carnival. She often wins because of her natural ability, but won’t put in the time to train because she gets too puffed out and isn’t fit.  And in her mind that won’t change – ever.   It’s permanent, and that’s just the way she is.

If I had to place bets on who will be the better athlete in 5 years – or even 2 years time, my money would be firmly on Toby because his optimistic attitude will undoubtably end up trumping Josie’s innate skill.

Martin Seligman, the go-to guy regarding optimism, suggests that there are three ways that pessimists think differently than optimists, shown in the graphic below.

optimism vs pessimism


The thing with trading is that the negative feedback is constant.  It doesn’t let up, and it doesn’t go away because the losing trades will keep on coming as long as you’re trading.

No matter what natural trading talent you have, if you think the negative feedback you get from trading defines you – I’m losing, I will always lose, and that’s the way it is for me – you simply won’t have the sticking power – or the mental strength – to get through.

Added to this is the fact that trading is a feel-bad endeavor.   The feel-bad factor of a $1k loss is way worse than the feel-good factor of the equivalent $1k win, which leaves an interesting over-all “feel-good deficit” that most traders are not prepared for.   Unless you are naturally happy and an optimistic person it is a very heavy weight to carry.

A trader with a good streak of optimism will find it reasonably easy to disconnect from losses.  They find it easier than their pessimistic counterparts to accept that their losses aren’t a personal affront, and that their trading can be profitable overall in spite of them.

The Good News About Pessimism

Is that optimism can be learned.  And if anyone can learn it, a trader can!

Traders are used to a good deal of self-reflection and that’s exactly what’s required to change our thinking to a more optimistic outlook.

For those that do have a more pessimistic bent, Martin Seligmans book “Learned Optimism” is a brilliant read.  It’s not trader-specific but is fantastic to help recognise and change unproductive and even potentially harmful thinking.

Or, if you’d like to read more, this is a more in depth explanation.


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