Tuesday, June 04, 2013

Do you get what you want from the market?

The most famous (and thought provoking) comment from Ed Seykota's interview in Market Wizards was his assertion that 'everybody gets what they want' from the markets. What was the point behind this oft-repeated quote?

Well, here is his full explanation:

"Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.

I know one trader who seems to get in near the start of every substantial bull move and works his $10 thousand up to about a quarter of a million in a couple of months. Then he changes his personality and loses it all back again. This process repeats like clockwork. Once I traded with him, but got out when his personality changed. I doubled my money, while he wiped out as usual. I told him what I was doing, and even paid him a management fee. He just couldn't help himself. I don't think he can do it any differently. He wouldn't want to. He gets a lot of excitement, he gets to be a martyr, he gets sympathy from his friends, and he gets to be the centre of attention. Also, possibly, he may be more comfortable relating to people if he is on their financial plane. On some level, I think he is really getting what he wants.

I think that if people look deeply enough into their trading patterns, they find that, on balance, including all their goals, they are really getting what they want, even though they may not understand it or want to admit it."

At the end of the interview, Jack Schwager commented on his disbelief at this notion: "It implies that all losers want to lose and all winners who fall short of their goals...are fulfilling some inner need for a constrained threshold of success - a difficult proposition to swallow."

One way to get through this 'glass ceiling' in your trading development is by not placing such a great importance upon the amount of money won or lost. The best traders tend to see money as a way of keeping score, but not the be all and end all. They tend to focus more upon the process rather than the outcome. They know that, having a robust system, with good risk control and a positive expectancy, they direct all their energies on following their trading rules, knowing that the rewards (money) will follow. The danger comes when they deviate from those rules, which almost always causing losses bigger than anticipated or expected.

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