A few years ago I was in Orlando and had the privilege of meeting two TSU students in person – Paul and Kim. Naturally, the conversation turned to their success (or lack thereof) as traders.
Paul and Kim had both sat through our primary training, Foundations of Stocks and Options. Both had funded accounts. That's about where the similarities stop! Paul had grown his account from $30k to over $1,000,000 and Kim and decimated her account from $250,000 down to $30k.
I was simultaneously impressed and heartbroken. I came to find out that both Paul and Kim had sat through the EXACT same foundations classes. Literally. They heard the exact same words. Saw the exact same examples. For all intent and purpose their education was identical.
Their stories kept me up that night. Both were intelligent. Both had a desire for success. What was the difference that made the difference in Paul over Kim? The distinction between the two is the difference between massive success and crippling failure.
Understanding this difference requires many traders to consider an element most would prefer to avoid. I call them "personal filters." We all have them. Metaphoric lenses that alter the way we see the world (and our trades). I might have a red filter in front of me, while you have a blue filter. What very few individuals have is the MONEY filter. That natural ability we all covet where individuals seem to magically turn everything into gold!
The reality is, the vast majority of successful traders have had to work hard to compensate for their own filters. If it is a conscious effort, the process is expedited. If it is subconscious, it's a tenacious battle to overcome your limitations before you run out of cash.
Below are the 4 filters impacting how you trade the market.
There are 6 Human Needs that everybody desires. I've borrowed this from Tony Robbins, who borrowed it from Jim Rohn, who borrowed it from Maslow. The point being, it has been well documented! Here are the needs:
Out of the six human needs, two will be primary. For me, it's Love & Connection and Contribution. Yours are probably different. Even now, can you imagine somebody with a need for Certainty and Significance might trade differently than somebody who has primary needs of Growth and Variety (Uncertainty)?
Which two needs are primary to you? Grab a scrap piece of paper and jot them down. Don't stress about the exact right choice (maybe certainty is your need?!) just write down two that stick out to you.
The second filter you are looking through are your Global Beliefs. These are beliefs (or opinions) you have about external elements. You can understand your global beliefs by answering questions like:
Whenever I ask these questions in a live class, the answers are ALL OVER the map. Let's take money for an example. When I ask, "What is Money" I'll get things like:
- Money is scarce
- Money is a tool
- Money? What's that!?
- Money is a problem
- Money is required
Can you imagine how somebody who believes money is scarce might trade differently than somebody who says money is a tool?! How about the definition of a successful trade? Some will say a trade is only successful if it makes money. Would you agree? I'll come back to that in a moment.
Now we are going to get personal! Everybody has a belief about who they are. These tend to be "I am..." statements. Some would say:
To complicate things, our personal beliefs change when we are stressed (not that trading would ever be stressful, right?!). Under stress you might hear:
Each of these "I am..." statements are coloring the way you trade. Both your analysis and your execution. As we'll talk about in a moment, you must begin to create guardrails in your trading plan that protect you from... you! Somebody who believes they are a perfectionist that gets frustrated when they are stressed must have a clear strategy in place to balance those filters.
Values are that which you would do anything to achieve or avoid. They are your Toward and Away values respectively. Think about it. What is it that you would do anything to achieve? Success? Friendship? Independence? Adventure? What is it that you fear most and therefore would do anything to avoid? Failure? Humiliation? Embarrassment? Loss? Anger?
Now, we must take this a step further. Two people may have a Toward Value of Success, but define it much differently. Example:
Let's consider Failure:
See the difference?
I'm not here to say one is right or wrong. I'm also not here to try and help you change your filters. What I am EXTREMELY interested in doing is helping you create a set of guardrails that protect you from yourself.
Out of curiosity, would you like to see the difference between Paul and Kim?
Needs: Certainty and Love / Connection
Global Beliefs: Time & Money are both scarce
Personal Beliefs: I tend to be a perfectionist
Values: Toward - Success. Away - Failure.
Rules: Any time a trade is profitable I am successful. If I lose money on a trade I would consider it a failure.
Needs: Growth and Love / Connection
Global Belief: Time is a gift, Money is a tool
Personal Beliefs: I am on a journey to my goal
Values: Toward - Progress, Success, Grace. Away - Loss
Rules: Anytime I follow my rules for trading I’m successful. Each time I put in some hours back trading I feel like I’m making progress. Mistakes come up, but that’s why we all need grace! Money comes and goes... life is most important. I only lose if I quit trying and forget how much I've already gained.
Can you begin seeing why Paul and Kim would have drastically different trading results? One was not right or wrong... but one WAS much more profitable.
In my experience, it's not a new indicator or chart pattern that is holding a trader back. Rather, it's a misunderstanding of their personal trading filters and the pitfalls they create.