Attachment & The Ego

By David Hobart
17 August 2009

Trading consistently is not about prediction. Rather, it is about identifying possible outcomes, assigning probabilities to them, and then structuring bets around those probabilities. Having a process which consistently identifies suitable opportunities, overlaid with robust execution and risk management capabilities, will allow you to remain unconcerned about individual trade outcomes.

Despite your best intentions, even when you have a good process, attachments can nonetheless creep in to your trading. When they do, it is usually due to a number of common reasons.

The Sources of Attachment

Outcome focused, not process oriented

By focusing on generating X% over the month/quarter/yeTHe mar, and not simply focusing on your process, you are trying to bend the market to your own will. Having a good process with positive expectancy will allow the returns to turn up in their own time. Trying to shift the market with your will is unproductive; rather, shifting your will about the market creates a space of freedom to listen and observe, allowing you to capture the genuine opportunities as they arise. Like surfing, you can’t force a set of waves to turn up, but by listening and observing the ebbs and flows of the ocean, you’ll be able to paddle into a position to ride them.

Projection

In my trading process, I have a macro-economic (macro) and geopolitical framework from which I identify possible trading opportunities. It involves identifying markets that common sense economics would dictate are unsustainably out of balance. Harvesting trading ideas based on a macro framework can offer fantastic risk reward opportunities. It is easy to think that this strategy revolves around prediction and often investors will want to know what I think about the future. When I fall for this trap and project my idea of the future onto the markets, I become attached and lose flexibility.

For my strategy to work, it requires patience and objectivity, both of which remain elusive if you attach part of your ego/identity to an idea. It is helpful to communicate with those around you in such a way that you and your trading style are not identified with a particular market direction. Whether they are investors or your immediate family, setting up expectations and educating those around you can be of great help in ensuring you remain flexible in your approach.

Scarcity

If you are reliant on certain profit outcomes within unrealistic time horizons, you will at some stage inevitably experience attachment. Make sure that your trading business has enough room to weather the inevitable drawdowns that are reasonable within your strategy. If you are under capitalized, your thoughts around scarcity will project onto the world, and it becomes highly likely that you’ll run into difficulty. It is possible to trade profitably when under capitalised, but it takes considerable mental discipline.

Two wills

It seems to me that human beings have two wills. There is one will, which is intrinsic and in the flow of nature. The other is conscious, able to observe, but often resists the natural flow of the other. I call them the creative will, and the ego. When they are in harmony, life works. When they are in conflict, life is difficult.

Ultimately, the source of all attachments is related to ego. This is simply because the ego is often dissatisfied with merely observing the world. To have expression, it projects its own ideas sourced in the past, onto the future, creating cycles and repetitive behavioral patterns.

The alignment of these two wills can only occur in the present moment. It is only in the moment that you can observe. So long as you are projecting your (past) ideas upon the future, you are not observing what is currently going on. Your ego becomes attached to its ideas, as they give it identity. This is the source of all conflict and attachment. Stay in the moment, and your life and your trading will work.

Market Insights

Each month, I publish my thoughts and current market exposures in the Apeiron Global Macro Fund’s monthly performance reports. These can be accessed via http://www.apeiron.com.au/reports.html .

If you would like to find out more about David Hobart’s trading coaching and mentoring programs, please email David at dhobart@traderemotions.com.au .  

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Disclaimer: The contents of www.traderemotions.com.au is general information only and in no way provides advice in a personal or general nature. David Hobart and his related entities can not be held responsible for any loss, cost or expense resulting from your activities related to the subject matter in this document and or relating to www.traderemotions.com.au

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