In the last psychological rule I talked about trading games. Well there are also money games. For example, most of us play a game in which we think that to win that game we must have the most money. It used to be that perhaps you won if you became a millionaire.
However, about 1% of Americans are millionaires, so that's not such a big deal. And when you achieve that status, you'll probably notice that nothing changes -- you don't feel any more comfortable or any more secure. So perhaps we need to be a billionaire to be rich... now were down to the top serveral hundred wealthiest Americans.
Most of us can't get there so we adopt another rule. Have the most toys...and you can have anything you want if the down payment (and monthly payments) are low enough. Well, this rule (created by credit cards) has created a nation of financial slaves.
And for the first time since the Great Depression Americans as a whole are now spending more than the earn.
We need a better rule...which is that you are finacialy free when your passive income is greater than your expenses. And most people can acheive that if they want to and are committed. See Safe Strategies for Financial Freedom.
However, what does this rule have to do with trading. Well, what basically occurs is that any psychological issues you have with money will also influence your trading. These include:
1) Fear of Money -- you'll push it away
2) Desire for Money -- you'll also push it away. Traders for whom money is important never do well. If you trade to make money (rather than for fun or to be the best or to follow the process) then you'll probably lose.
3) Money ceilings -- if you only think you are worth so much, then that will be your ceiling.
4) Not being worthy generally --
5) Fear of being punished if you have money --
6) Not having money to get even with your parents.
I've seen all of these (and many more) in my consulting practice with traders over the years.
Psychological Rule #9: Trading is A Game
Trading is a game with certain rules for winning and certain rules for how the game is played. And if you don't know this, then you are playing by other people's rules and probably have little chance of winning. Who makes up the rules? The answer is the people with the most money at stake.
Now, if this is all new to you and you'd like to know the rules you are playing by, then I'd suggest that you spend a day reading back issues of the Wall Street Journal and perhaps a week listening to CNBC. You also might go to the bookstore and pick up a couple of the most popular trading books (my books won't work for this purpose). When you'd done with all of this, then write down what you think the rules for trading might be.
Your rules would probably be something like:
1) Success is created by picking the right stock.
2) Find them and hold them.
3) Diversification is the key to not losing money.
4) Some stock pickers are better than others and they must have a magic secret.
5) If you found this secret, you could make millions in the market (even with a $5000) account.
6) And if you trade, you need to make lots of trades, because the costs become much lower.
and winning in the market involves making 100s of millions of dollars.
7) It doesn't take a lot of work to make money in the market, you just have to find the right investments or the right money manager.
If you haven't figured out that trading is a game, then you are probably playing by these rules. And they are dangerous. Most people lose money playing by them because they were designed (by the people who made them up) to make them a lot of money.
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