How a mentor can ensure balance of power for trading success

I was reading an article by one of my favourite authors Devdatt Pattanaik in today’s ET, wherein he wrote about the relation between kings and priests. Since kings were absolute monarchs in older times, there was very little to prevent them from turning absolute dictators. But only a few kings were tyrant, while a vast majority of them were not. Devdatt wrote that it is really the priestly class, who held sway even over the king’s edicts, having the power to either overturn them, helping prevent the monarchy from turning into dictators and tyrants.He describes how Hindu kings always sought the approval of the raj guru, the priest of the court. Similarly the Church ruled or dominated many a Christian ruler and even in Islam, the influence of the priestly class is well recorded. In Zorastrian faith, the king and the priest were always one, separated only in function.Overall, it was seen that the king could be superseded, if at all, only by those that spoke to God or carried the word of God among men.This ensured that the monarchy stayed within boundaries and did not allow absolute power to go to their heads. The messengers of God were thought to be an equal, if not an even higher, power than the king himself! This was very necessary, as the rulers or kings walked a very lonely path and suspicion was an ever present aspect of their lives. This can many times lead to paranoia and send people out of balance.It struck me as to how similar is a trader’s life, for, he or she also walks a lonely path. At least, the king is anointed and accepted as the ultimate power. For a trader, that is not the case. He is self-anointed, as he chose to be a trader all by himself. His status in not recognised officially, to the extent that if one says one is a trader, people continue to ask you what you do for a real living!So, in a sense, it is even worse than being a king, you are utterly alone and not even recognised. When that is so, success or failure can get greatly magnified in one’s mind. Success can go to your head and make you complacent and careless, while failure can depress you and make you fearful and lose all confidence. Both are undesirable as an outcome of trading.We, therefore, need a balancing of power of these emotions to keep us on the right path. We need our own messenger of God!While that may sound lofty, it is actually easier than it sounds, provided you are ready to do it. What you really need is a companion who shall be privy to whatever you are doing in the market. This can be a friend, spouse , business partner, boss etc. It has to be someone who knows what is being done and does not sit on judgment. That is very important. Sometimes bosses can be pains — because they are more focused on you doing well (as your failure may make them look bad!).Business partners can tilt both ways – be good or bad influence. Friend or spouse is the best. And they work best if you take them into confidence. You cannot hide anything from them. Since they have your best interest at heart, there is a good chance that they will give you unbiased feedback.Why is this necessary? The main reason is that it prevents you from deluding yourself of your invincibility when you are on a hot streak (your colleague will often advise you not to get carried away) or get depressed and go on a destructive spiral (the friend or spouse can be a calming influence and prevent your self-sabotage streak).This is of incredible value because, we rarely recognize, or are able to control, impulses even if we recognise it when we are by ourselves.Let me give you an example.You have a couple of trades soon after the open and since you were on the right side of the market, both of them come through and you are up, say 25,000 before an hour is out in the morning. Now you are feeling on top of the world, thinking that you can spot all the moves. You take another trade and that too comes through and another 10,000 rolls into the kitty. Now, you feel you are hot, the trades are jumping out and hitting you in the face. So you quickly get into a couple of more and this time, raise the quantity. But Wham! These two slam you and take away about 30,000 of the morning’s winnings. Now, you are feeling cheated. The 35,000 made in the morning is yours and how dare the market take it away from you! So now you are searching for trades to get into (whereas in the morning the trades were jumping off the screen at you). Now, your goal is to somehow make back the 30,000 that is lost before the day ends. So you get into a couple of trades more and before you know, those two slam you too.You overstay the trades because now it is no longer about whether the trade is right. Instead, it is all about the end result— which is 30,00 of profits before the day ends. Of course, by the end of the day you are now minus 20,000.Sounds familiar? We have all been through this. How do you think you feel? Frustrated, angry and ready to blame everyone and everything! Except yourself. Wait, worse is to come.The next day, the market is going to do what it is going to do. But what about you? Are you ready to do what the market needs you to do? Oh no. Today it is all about recovering yesterday’s 20,000 loss. The day is similar, the charts have not changed too much, but there is a significant difference. You have fears in your mind, and there is a decided outcome on agenda – 20,000 absolutely has to be made! Plus, no way you can lose today! When you have that as the preamble for the day, guess what, the market is going to whip you again!Why is that? Because you are not looking at the market— you are looking at the version that you have created in your mind. And all your actions are from that version.Let’s change the scenario a bit here. Cut back to yesterday when you are up 25,000 in first two trades. Then you take the third and that comes through too. Your companion is not in the same mental high that you are. So he or she can see the market as it is – probably at a stage where the opportunities are beginning to dry up for now. So now you want to make the next couple of trades and it is at this time the companion says you need to ease off, after all, you have made good money.In fact, she may remind you of a couple of earlier occasions when something similar happened and you lost the day’s gains in a similar fashion. If you are smart, then you will listen to her, and quit for the day while you are ahead.Let’s take another scenario. You lost on the earlier day and are now 20,000 minus. And you are aching to make it back. We already discussed that you are not going to be objective about the market. You are now in recovery trading, almost revenge trading. You are in a mood to punish the market for what it did to you yesterday. In all likelihood, most people tend to short the market in such times. Take that, you stupid market, they say in their minds. I will show you who is the boss here!If you discussed this plan of action with your colleague, then it is quite likely that your companion may not agree with you on the course of action. If you get into a practice where you consult one another before taking the trade, this discussion can prevent you from taking stupid trades that will create more losses. The value of a companion, therefore, is priceless!One of the useful practices I have found is for one of you (assuming there are two of you) to pick the trade entry while the other exits the trade. This way you can probably eliminate a lot of emotions that go with trading. Of course, this demands that both of you operate on a similar-looking page and have some agreement about how to approach the trades. I follow this practice often.What I do is, tell my companion the nature or scope of the trade so that she can plan the exit. Like, I may say a trade is a pure day play. This signals to my companion that I don’t expect to carry the trade unless there is a compelling reason to do so at the end of the day. It also signals that she can exit whenever she feels. Sometimes it is chart-based exit, sometimes it is target-based exit, sometimes it’s based on screen reading.At other times, I may signal to her that the trade is expected to be a multi-day one or something where I am looking at a larger target. My companion shall then deal with the trade from that angle, looking for bigger signals of confirmation or negation before exiting. We may even have a discussion on the prospects (which we generally don’t, when it is a pure day play).The key thing is that I have to place and keep the faith in my companion’s decision to exit the trade. No criticism or trying to show that I was right or she was wrong with entries and exits. High trust levels are essential if this has to work. You see, when we enter a trade, we believe we have done our stuff and that too intelligently and, therefore, we are quite reluctant to see it fail. So we don’t take criticism very well, especially if the trade proves to be correct later (after closing it out, that is).Hence it is essential to have a good rapport built in and the contours discussed in advance, such as targets, technical signals for confirmation or negation on which both of you agree etc. etc. This way you know matters will be taken care of. I can guarantee you it really eases the load off your mind if you can split the job.In case you don’t have such a companion but do have someone with whom you can discuss the trade, then it will still be a lot better than doing it all by yourself. Of course, here it is essential that the companion is also actively watching or participating in the market in some manner. He or she cannot be at work in an office while you are trading in the market actively! Then it won’t work.If you cannot find such an individual to partner you, then the next best thing would be to discuss the activity of the day (truthfully) at the end of the day where the other person (who essentially understands what you are saying or doing) and can offer some sane, unemotional comments.Many times, a mentor can play such roles. The advantage here is that the mentor is someone who is far ahead on the pathway that you are currently treading. If someone has accepted you as a disciple, then understand that he will do his best to give you unbiased advice. Also, his advice will be coated with knowledge and experience and is, therefore, likely to be so much more valuable.So, there you go. Find that mentor or companion and see how the results of your trading and investing change dramatically! You will progressively slip off the pathway of consistent errors and start treading the pathway of logical trades and analysis. They will give you the balance of power, which is so necessary to keep your head about you in the tumultuous world of the markets.

from Economic Times https://ift.tt/2X75lLl