What is ego in trading?
If the ego evaluates everything that happens directly to you, of course it hurts your trading. If your attention is focused directly on you and that means that whether you make money or lose money, whether you are right or wrong in your assessment, you are not focusing on what it is directly related to.
You have to concentrate on the market and your methods, not on yourself. The mind is limited in what it can concentrate on. If you think directly about yourself rather than the actual trade, you can easily miss important points.
Do not make the mistake of thinking that your ego is unstable and that you must support yourself through trading. In this case you will have a double problem. Your self-esteem will be hurt. And your trading will be disrupted.
Traders who want to demonstrate how significant they are will be inclined to exceed the optimal mode of tradeBoth in terms of the size of positions and the frequency of trades. Although they may have some significant gains, this trade will eventually destroy their account.
A trader who wants to protect his ego from being hurt if he makes a wrong decision or loses will tend to hesitate to enter the market. Consciously or subconsciously, he will think that something terrible will happen if he is wrong and loses money. Therefore, it is only natural that he will delay his entry into the market until he has received sufficient confirmation. He either misses out on a good dealor, even worse, will haunt her after it is too late.
Any trading method needs consistency so that probabilities don't lose value. If your ego is confronted with a consistent application of probabilities, you will essentially stop making random trades and getting random results.
Examples of the Dangers of Ego in Trading
There are numerous examples of traders who got into trouble because of an inflated or dangerous ego. The first example is. Nicholas Leeson, a trader who bankrupted Barings Bank by exceeding the allowable amount of trading. His ego drove him to break every rule prescribed in the textbook (and in the bank). He was so involved with his ego that he ignored the direction and strength of the market.
Another example is. Victor Niederhofferwho led his hedge fund to losses. In his book, The Education of the Speculator, he writes:
"I'm an old trader, and I trade yen at foreign exchange market. I once had the best report of all traders. I was rated the best in my field, and my picture was in all the papers. Clients crowded to my door. Currency brokers were telling me where their clients' stop orders were placed and where central banks were placing buy and sell orders. The great Soros called me more than once to trade in his own accounts.
But I made a mistake. I bought a dollar when the dollar/yen exchange rate was 93. It went to 88 in a matter of hours. I was eaten alive. The banks won't lend to me anymore, and many of my customers are gone. I still have a few private clients who don't want to put all their money into stock exchange. They fear it will collapse, as it did in 1929 and 1987. They are turning to me to get a big return, but without risk or downturns. I can do it, but they don't want me to take risks, and I can't do it without risk. Risk creates opportunity. However, I'm modest because I've lost many times."
He was not humble enough. His writings smack strongly of ego. He declares moderation, and yet he, even after writing all of the above, came to the point where his fund was at a loss.
How do you fight an inflated ego?
How can you as a trader overcome the problems that ego can lead to? First of all, maintain a state of distancing yourself from your trade. When you separate yourself from the trade, you can say, "This is my trade. This is me." Understand that you are more than your trade. It is very easy to become what we do and judge ourselves accordingly. We have to separate our behavior from our essence. "This is what I do, and this is who I am."
Do not confuse the result of the trade with your own self-esteem. Keep your self-assessment for the future, whether or not you actually achieve a certain goal.
Get in touch with your own essence. Our human nature extends far beyond our ability to achieve a given goal within a given time frame. It is enough to accomplish something to the best of our ability.
Treat mistakes as lessons learned and be able to forgive yourself. Study past mistakes and make that study part of your future ground rules and principles.
Evaluate yourself. Pay attention to what you are doing right. Pay attention to the moments in which you correct yourself. This will raise your own self-esteem, and when you appreciate yourself, your ego will become healthier and more elastic, and you will be able to keep it out of your trade.
What if you could separate your ego from your trade and realize that you are so much more than your trade?