The Minimalist Trader: High Expectations

[This is the seventh installment in the occasionally updated ENEMIES OF THE MINIMALIST TRADER series. For more, please hit the FRAMEWORK tab above this post]

We’ve all got expectations. We all expect to live long lives, have loving relationships, great friends, successful careers, comfortable retirements, etc. Expectations drive us. They frame our inner debates. Craft our questions. Build us up.

But as Traders, sometimes expectations are precisely the thing that limit us, that crush us. Let me explain…

What I will write in the following paragraphs may be heresy in some of the finer Proprietary trading firms on the Street. I get that. This isn’t a condemnation of their way of doing things. In fact, they will probably flatly disagree with me, and they will be right. But this isn’t about them and their ways. This is about how a Minimalist Trader – me, for example – goes about his trading.

But first, a story. Back in my formative trading years of 1998-2002, I was a high volume Nasdaq stock daytrading scalper. And in our office, it was commonplace for Traders to set daily profit targets. While I was still learning to be consistently profitable, my daily profit target was typically $500. If I could earn $500 (net of commissions) in a trading day I promised myself I would shut it down and call it a day. I was good at this (kinda). For daytraders, and for me at the time, having a target made sense. I looked at it as a reasonable goal. And if I hit my target everyday, then I’d make $10K a month which at the time was BIG money to me (hell, it still is!)

However, here in goal-setting is where my problems began. In setting an arbitrary goal, I automatically set expectations that I would achieve it and would therefore measure myself against these expectations which I more-often-than-not-failed to meet. And then I’d feel terrible and spiral in and out of mini-depressions because of it. And of course, I’d press. I can’t tell you how many times I’d be up $450 for the day and then almostly desperately lunge at trades with terrible risk-reward setups in an effort to make that last $50 to put me over the hurdle – only to give back $350 and end the day up $100 – or worse. And the flip side of this was the countless times I banged out of a trade going my way because I hit my “daily profit target” only to watch that position continue a parabolic move in my direction that would’ve made my entire week (or month!) if I had just hung with it for another 30 minutes. Nothing kills the psyche of a developing Trader more than this. And I was insanely guilty. I had no discipline.

Now I’d like to repeat that there isn’t necessarily anything wrong with having a daily goal and striving to reach it. There are many traders today who thrive in this kind of environment. But as I’m evolving into a Minimalist Trader, I’m throwing away these self-imposed shackles and allowing myself and my trading to bend with the gentle ebbs and flows of the markets (though – as in recent days – these ebbs and flows may not always be so gentle).

In Tao teachings, it is said that bamboo and palm trees receive their strength from their flexibility. Tall, sturdy, yet rigid trees are often uprooted when a hurricane or tornado tears through a town, but the bamboo or palm tree often survives due to its ability to be flexible and bend to the harsh winds that nature sends its way. Their flexibility allows them to adapt.

When I set expectations upon myself, I became very rigid. And my rigidity caused me to become uprooted countless times throughout my nearly 14  year trading career.

As a Minimalist Trader, I’ve given in.

Previously when setting targets and thus expectations, I was projecting “control” upon the market – as if it was even remotely possible to me (or anyone) to control the markets. I was acting as if by setting expectations I could control the markets’ ability to provide me with my targeted profits. I expected it. Well, I’m sure you can all guess how that worked out…

These days, my trading has a long-term perspective. It’s not sexy. It’s not incredibly active. I’m investing in stocks for the long-haul, playing calendar spreads as hedges against short-term volatility, and taking the occasional flyer in insanely small size just to keep myself interested when I’m bored (see my $ICE and $CBOE trades recently). I’m taking what the market will give me. I’m not projecting my needs or wishes upon it. The market doesn’t care about me and my bar tabs.

There is strength in giving in. When you remove yourself from daily expectations and focus on the big picture and the long-term upward trajectory of your account balance, there’s a calm – a serenity – that emboldens you when you wake up to S&P futures down 30 handles in overnight trade (as was the case this morning).

Related Links:

The Minimalist Trader Framework

Why I Trade Options

Never Sell a Winner

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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