Trading psychology: what to work on?

Marcus Aurelius.

That's it; that's the post.

No, but seriously, I think that's pretty much all trading psychology comprises.

The fact of the matter is, there is a lot out there that people write about trading psychology, but like any risk taking endeavour, it comes back to what you can control versus what you cannot.

See, I've always been of the opinion that a good trading method is one in which you can reduce your own anxiety.

As someone that has suffered from anxious periods in the past, I know that when you are feeling this way you certainly cannot act rationally.

There would be times in which I would get worked up about the smallest things and looking back on them, I ended up saying 'what the f*ck was I worried about?'

See, if you're in a position and you are concerned about it, it means two things.

First, you have too much risk on the table.

Secondly, you probably are only pretending to yourself that you have a valid thesis for being in the trade.

And in fact, I think the latter has a large effect on the former.

As a discretionary trader, who follows a framework that is adaptable to certain market conditions, I'd argue that I probably don't have the ability to look at expectancy, since this would largely be system based...

But system based trading, I feel has the ability to have the edge eroded away.

This can have profound effects on the psyche of a trader, especially when it's set into your head that you shouldn't deviate from the trading plan.

Conversely to this, following a macro based approach can leave you sitting on the side lines for a long time, as we well know this year.

Back in April, Refinitiv released this article referring to the amount of cash held in money market funds.

I've had less than 40 trades in 2020 so far, simply because I have not had enough conviction on taking an idea - FX has been horrible and yes, I know I should have just gotten long stock futures, OK?

This is OK because it stops me losing money, but it doesn't allow me to make a lot either, especially since I start a trade off extremely small...

But because of that, I've not had amped up anxiety once.

However, coming into a period of resolution tends to allow opportunity to thrive.

With Brexit outcomes becoming clearer, the US election out of the way, and potentially more knowledge over a vaccine timeline in Q4 (I won't hold my breath for too long on that one, though), it's likely that opportunity will become available once again.

And this is great for the psyche.

If your convictions are allowed to be made clearer, then naturally this gives you the confidence to excel.

Last year, two trades made up a fair whack of profits; the first was buying GBPCHF in Q4, and buying cable on election night.

Something we can take solace in, then is the Pareto Principle.

80% of our outcomes will come from 20% of our inputs.

If we are able to have adequate risk on the table to make use of those real killer opportunities, then that is all a part of controlling only the factors that we can, and not expecting things we cannot control to be within our domain.

So what to work on?

It's cheesy, cliche and a bit cringe...

But seriously, reading and trying to understand Stoicism is a fantastic method for reframing your thoughts towards risk and your behaviours.

Here's a pretty good site to get you started.

But, talking of opportunity, I want to mention a firm that I have been looking at, and it's again all to do with the metals cycle that was spoken about a month or so ago...

This idea is to do with a broader theme of there being a 'Great Reset' and a decoupling of trade from China.

Check out Vale.

They're the largest miner of nickel in the world.

I'm going to continue this piece in greater depth tomorrow, because I want you to digest the Stoicism stuff I spoke about above...

But I reckon there's a few good reasons why nickel is going to take off over the next few years, and this could be a great way to play it.