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 as traders. Paul and Kim both sat through our primary training, Foundations of Stocks and Options, and they had funded trading accounts. However, that's where the similarities stop. Paul had grown his account from $30k to over $1,000,000, and Kim had decimated her account from $250,000 down to $30k.
I was simultaneously impressed and heartbroken at the same time. I came to find out that both Paul and Kim had sat through the live teachings of foundations classes at the same time. They heard the same words, saw the same examples, and for all purposes their education was identical.
Their stories kept me up that night as I pondered their different results. Both were intelligent, and they both had a desire for success. Why was one able to prosper while the other lost capital? The distinction between the two is the difference between success and failure.
Understanding this difference requires many traders to consider an element most would prefer to avoid. I refer to them as personal filters. We all have them. Metaphoric lenses which skew 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. The reality is, most successful traders work hard to compensate for their 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.
The four filters impacting how you trade the market are your human needs, your global beliefs, your personal beliefs, and your values and rules.
There are six 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. However, yours are probably different. Even now, you imagine how somebody with a need for Certainty and Significance might trade differently than somebody who has primary needs of Growth and Uncertainty & Variety? 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; write down two that stick out to you.
The second filter you are looking through are your Global Beliefs. These are beliefs 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 place. Let's take money for an example. When I ask, "What is Money" I'll get things like:
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?
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, and when you are stressed you might hear:
Each of these "I am..." statements are coloring the way you trade — both your analysis and your execution. You must begin to create guardrails in your trading plan that protect you from you. Somebody who believes they are a perfectionist gets frustrated when they are stressed must have a clear strategy in place to balance those filters.
Values are ideas which you would do anything to achieve or avoid. They are your toward and away values, respectively. When you 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. For 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.
As an example, here are the differences 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 trading filters and the pitfalls they create.