Iâm a beginner when it comes to stock trading and am still in pre-startup mode. Iâm waiting for IB to become established here in Vancouver, Canada before I make my first trade. (This will be February at the earliest.) Iâve learned a lot from this forum and other material in the past three weeks since Iâve gotten serious about stock trading. Iâve been a fairly active weekend mountain climber for the past 25 years and I couldnât help but notice the many similarities between mountain climbing and stock trading. I thought I would share these with you just for fun. 1. The Mountain and the Market Climbing: Successful climbers donât think in terms of conquering mountains. The mountain is much larger and stronger than any person or team that wants to climb it. The key to success lies in understanding all aspects of the mountain and developing a climbing plan which is in harmony with the mountain and its moods. The plan takes into account both the ascent and the descent. (The descent is often more difficult and dangerous than the ascent.) When the mountain is in a good mood, climbers are there to take advantage of the situation. When the mountain is in a bad mood however (e.g., bad weather, avalanche conditions) all the good climbers are safe somewhere else. Trading: The market is larger and stronger than any individual or group of traders. The market has its moods. Good traders take advantage of good days and donât trade when the market is in a bad mood. A good trading plan pays at least as much attention to the exit as it does the entry since that is where the real risk lies. 2. Risk Management Climbing: Mountain climbing is all about risk management. The consequences of improper risk management can be severe, including loss of life. There are two kinds of risk: controllable and uncontrollable. The controllable risk has to do with a climberâs techniques, how they use the climbing rope etc. The uncontrollable risk has to do with the mountain and the route: avalanche danger, rock fall, severe weather, etc. Even though those factors cannot be controlled, they can be assessed reasonably well by an experienced climber. Then the decision is to accept the risk, retreat, or find an alternative, less risky route. Even very experienced climbers who have properly assessed the risk sometimes become victims. Thatâs the nature of mountain climbing. Trading: Stock trading is also all about risk management. The consequences are obviously different; losing oneâs capital, while serious, is not the same as getting injured or losing oneâs life. 3. Beginnerâs Peril Climbing: Beginning climbers are typically a danger to themselves and their teammates if they are not properly managed. Thatâs because they donât have the techniques to handle the controllable risk and they donât have the experience to properly assess the uncontrollable risk. Even worse are near-beginners who have learned some skills but have yet to develop any âmountain senseâ. Many experienced climbers (including myself) look back at some of their early climbs and say to themselves: âI was sure lucky to have survived that oneâ. Of course proper training and mentorship is vital. Once a climber has been formally taught the basic techniques, they should go on trips with more experienced people The beginner climber can then practice their new skills, learn new ones, and gain experience by participating in a series progressively harder climbs. Trading: Beginner traders are also a danger to themselves. Proper training and mentorship undoubtedly helps. Personally I feel reasonably comfortable that I can learn effectively from books, websites, discussion groups etc. What make me uncomfortable is that I know there will be no mentorship opportunities for me. Working at a proprietary or professional firm is not really an option for a couple of reasons: these firms donât exist in Canada and I expect to be trading part time during periods when my management consulting business is slow. 4. Characteristics of a Successful Participant Climbing: A successful climber is unemotional, decisive, calm in all situations, analytical, confident, willing to retreat when required, aggressive about proceeding when given the opportunity, and physically fit. Good climbers are always looking for ways to improve themselves. They assess each climb to understand what went well and what could have been done better. Good climbers are more interested in challenging themselves than they are about competing against their peers. (This is not true at the very high end where professional climbers compete with each other.) Every climber has an ego. Fortunately most are very good at keeping it under control. There are a few âchest pufferâ climbers but they tend to be rare. Climbers come from all sorts of backgrounds and walks of life: from trades people to CEOâs of major corporations. Many people are attracted to climbing because of its mystique. However relatively few (20% maybe) really stick with it more than a couple of years. (Many climbers become hikers when they realize the risks are far less and the rewards, from their perspective, are almost as great.) Trading: It seems that a successful trader has much the same characteristics as a successful climber. I even wouldnât be surprised to find out that successful traders tend to be physically fit. A personâs mental state is to a large extent correlated with their physical condition. Many people are attracted to trading because of the mystique and high perceived rewards. However few stick with it long term. 5. The Importance of Teamwork Climbing: Teamwork is all important in mountain climbing. A climberâs success on any particular climb is only equal to the success of the climberâs team. The climbing rope is probably the worldâs greatest equalizer. The garbage collector on one end of the rope is just as important as the CEO on the other end. Both are trusting their lives to each other. Very few climbers go solo and they are generally regarded as being high risk takers. Unfortunately teams sometimes have problems. Climbing trips sometimes collapse when strong willed team members canât make a decision that everyone can accept. Also, in the last ten years or so, a disturbing trend has appeared where climbers abandon the team in the latter stages of a climb. Then it becomes every climber for themselves and âsummit feverâ takes over. This is a contributing factor to some of the losses of life that have occurred on big peaks like Everest. Trading: This is one way in which trading is different from climbing. Trading seems to be much more of an individual effort. Perhaps teamwork has a role in proprietary or professional firms. 6. Opportunities for Rescue Climbing: In Europe and the more accessible parts of North America there is a fairly good chance that a climber in trouble will get rescued. (Only foolish climbers when planning a climb assume they will be rescued if in trouble.) In other parts of the world itâs generally up to the team to get itself out of any trouble it gets into. Trading: Another difference I suppose. It seems that traders are fully responsible for their own safety nets. 7. The Importance of Style Climbing: Successful climbers pay at least as much attention to the way they climb as they do to achieving a particular objective. In the long run climbing well is more important than clawing your way to the top of some peak. Trading: It seems that being able to trade well (with style) is more important in the long run than scoring big through luck. 8. Addiction to Adrenaline Climbing: There is no feeling quite like what you get when youâre on a worthy objective, the climb is going well, youâre being challenged but at the same time you know youâre in control. Some people call it an adrenaline high and I suspect most climbers are addicted to it. Climbers who donât control that addiction get into trouble. They push the risk factor to a point where they can no longer control it. Trading: Since I have yet to make my first trade I donât have any direct experience with this. I suspect though, that when your stock is moving in the direction you want it to and you have a big position, the adrenaline is also flowing freely. It wouldnât surprise me to find out that many traders also have an addition to adrenaline. In summary I have to say that Iâm quite pleased with the similarities between climbing and trading. By relating the two activities I can make a reasonable assessment of what it will be like to be a trader. Iâm looking forward to it.
Manrico, Excellent post! Thankyou for sharing... There are many similarities between the two, and you seem to have already attained an excellent mind state as a by-product of your mountain climbing...I wish you all the best with your persuit of trading...and if I can help in anyway feel free to PM me thru elite... PEACE and good trading, Commisso
YOU DID INDEED NAIL TRADING ON THE HEAD, IT IS QUITE COMPARABLE TO MOUNTAIN CLIMBING. THE PSYCHOLOGICAL BATTLES OF TRADING WILL probably BE EASIER FOR YOU TO CONQUER THEN SOME OTHER NEWBIE ENTERING THE GAME. THE ONE PROBLEM I FORESEE FOR YOU IS, IN YOUR WORDS,"I expect to be trading part time during periods when my management consulting business is slow". TRADING IS A FULL TIME ENDEAVOR. DAY IN AND DAY OUT,8 HOURS A DAY PLUS SOME RESEARCH AT NIGHT. YOU WILL BE GOING UP AGAINST GUYS LIKE ME, WHO WATCH THE MARKET LIKE A HAWK. I HAVE SEEN COUNTLESS NUMBERS OF FRIENDS AND OTHERS BLOW OUT OF THIS BUSINESS, BECAUSE OF THERE SIDE JOBS,PART-TIME JOBS OR OTHER GIGS. THE KEY FOR ME MAKING IT AS A TRADER IS THAT I KNEW I HAD NOTHING TO FALL BACK ON. THIS IS IT , I HAVE TO MAKE IT. THAT IS WHAT PUSHED ME TO EXCEL. THE OTHER BUSINESS YOU HAVE GOING COULD BE YOUR DOOM, BECAUSE OF THE FALLBACK FACTOR . WHEN THINGS GET ROUGH AND YOU HAVE TROUBLE MAKING MONEY AT FIRST (I LOST MONEY FOR 6 MONTHS STRAIGHT BEFORE I TURNED THE CORNER) YOU WILL ALWAYS HAVE IN THE BACK OF YOUR MIND, " I CAN ALWAYS GO BACK TO SUCH AND SUCH.........". SO MY POINT IS, BEFORE YOU CONSIDER RISKING YOUR MONEY , THINK SERIOUSLY ABOUT MAKING THIS YOUR FULL-TIME JOB AND THEN SOME!!!! MIKE
I believe it was Marc Ritchie in his excellent book "God in the Pits" Who speaks to part time or casual traders. He compares them to someone who wishes to practice medicine, or do some doctoring on the weekends in their spare time. They often think he is trying to keep the "insider" market for himself and his buddies on the floor. And he uses this "part time doctoring" as an example of how dedicated and professional one has to be to be sucsessful at this trade.
Of course the psyche of the trader is much more important than the tools he is using. You may be an excellent technician and a bad trader. A trader must have a strong personality but also be very flexible and adapt quickly to the changing conditions of the markets. Of course as mentioned before it is a full time endeavour at leat in the beginning. There are also days where you have to participate in the markets and where you can make plenty of money and other days when it is better to saty out. If you are not involved on a full time basis you won't be able to fully profit for the opportunities that are offered by the markets
Trading is about overcoming your own psychological hang-ups... it is a never-ending internal battle against: a) complacency / fatalism b) anxiety c) hesistation d) a perverse desire to fail ... you heard that right! e) overconfidence f) underconfidence g) euphoria h) despondency By developing the psychological traits in the correct manner, a trader is better armed to: 1) trade with the trend 2) run profits 3) cut losses [In my opinion, 1) to 3) constitute the core definition of the activity of trading] Candle