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Wednesday, August 8, 2007

The Real Purpose Of Trading

I found the following thought-provoking post from Van K. Tharp’s blog, the author of "Trade Your Way to Financial Freedom" book:

The real purpose of trading is not to make money. If that's your goal you probably struggle with it a lot. But all of the following tend to work.
If you goal is to be a great trader, then you probably will do well.
If you goal is to use trading as a way to measure your self-development, then you will probably do well.
If you just love trading and that's why you do it, then as long as you are willing to work on yourself you will probably do well.
Those, in my experience, are the key motivations that bring success in trading.

Are you wondering what he meant by that? Most of us are trading with the intention to make money, aren’t we?

If we think further what he says here, actually it does make sense. This has something to do with how we handle our psychology & emotions.

When we’re trading with the goal in mind of making money, we’re always struggling a lot as our mind is burdened with more stress and our emotions, fear & greed, are getting more attached to trading. As a result, we become more tensed in our decision making. The more tensed we are, the more mistakes we make. The more mistakes we make, the more we cannot make money.

When you love trading, your focus is not on making money. You’ll just work hard and are determined to improve your trading not for the sake of money, but it’s more because you just love it. You’ll focus more on how to manage your risk / losses in order to protect your trading capital (good money management), so that you can still trade as long as possible. And you will just keep on working & working on yourself (psychology & discipline) as well as your trading, learn from it, tweak it, improve it, etc.

Why is it extremely important to work hard on yourself? Because, as mentioned before, the trader itself is the most crucial part of trading. People can learn the same trading system, but the results can be different. What causes different results from the same trading system is the trader itself as a part of the system. Trading psychology is what differentiates winners from losers, even from exactly the same system.

When you do just that, perhaps without your realizing it, your capital will not keep decreasing, but instead it’s growing. Why? Because when you know how to trade well and have had what it takes to trade well, the money would follow you.

Related Posts:
* Why Being Right In Your Trading Does Not Necessarily Mean Making Money
* The Psychological Need To Be Right vs. Making Money
* The Fear Of Losing Money
* Trading System: What Is It and Is It Important?

2 comments:

Eann, Daddy & Mummy said...

Great post! I totally agree with you and I think that psycology trading is the most important lesson of all.

OPTIONS TRADING BEGINNER said...

Thanks!