Success in trading comes down to one thing – beating the person on the other side of your trade.
You want to be buying from the idiot who’s selling just as prices are about to go up … or, conversely, you want to sell your position to some mug just as prices plummet.
Of course, there isn’t one single person on the other side of our trade … there’s just ‘the money’ – that mysterious entity that suggests a smug City persona who I’ll happily earn a few quid from.
The idea that we’re in this hand-to-hand combat can make us think that we have to go it alone to have the best chance of success. Traders worry that if they share their secrets, they’ll be giving the other guy the edge.
But the truth is that trading in isolation puts us in huge danger of doing some really dumb things …
There’s a true story that has become a legend to psychologists … in 1995, McArthur Wheeler was arrested for holding up two banks in Pittsburgh. He’d walked into the banks, carrying a gun, wearing no mask or disguise. Yet he was astonished to have his identity discovered. Why? Because Wheeler had covered himself in lemon juice before entering the banks, based on the false belief that lemon juice made people invisible to cameras.
I’ll pause while that crazy logic sinks in …
It’s easy to just dismiss McArthur Wheeler as a complete idiot. But there are a couple of really interesting things we can learn from this …
That really bad decisions don’t come from a place of confusion – they are generally made with huge certainty.
That if Wheeler had talked to just one person about his plans (admittedly, not a great idea when you’re about to perform a crime), they could have put him straight.
I never thought I’d quote Donald Rumsfeld …
When we trade, we’re not in huge danger from the things we don’t know – the markets are full of uncertainties. As traders, it’s our daily meat-and-potatoes do deal with the unknown!
Instead, we’re in danger of the things we think we know, but don’t know.
And the best way to find out where those shortfalls in our knowledge are … is to share with other traders. By trading as part of a community, where ideas are exchanged – I get loads of useful feedback from traders on how systems can be improved … new trading ideas … and, yes, pointing out errors I’ve made (you know who you are!) ….
Mr Wheeler’s story gave birth to a lot of studies by psychologists on whether people have a good awareness of their strengths and weaknesses.
And it turns out that most of us are blissfully unaware of our weaknesses.
It’s something I find hard to comprehend – probably because my weaknesses are pointed out to me on a daily basis by my loving family members. Without this ‘sharing’, perhaps I would still believe that I was a great dancer … a brilliant cook …
But when it comes to trading, I expect I have weaknesses that even my family haven’t told me about. And it’s those weaknesses – the ones we’re blissfully unaware of – that are the real danger. They could be our ‘lemon juice’ moments.
That’s why, each morning I’m sending out traders who are testing my new strategy a screenshot of my account. That way, they can check the trades they’ve opened against mine – and (sometimes) drop me a line to tell me what mistakes I’ve made with my trades!
Whatever your trading weaknesses are – yes, we all have them – by trading together, we’re a lot more likely to find success.