What Trading Gave Me, and What It Stole from Me.

For a few weeks, I have been doing research projects again. This is as opposed to the past few months, when I was mostly trading instead of doing any science.

My aim was to work out an independent source of funding for myself. I also wanted to rest from science for a little while, to see if this relationship has a chance to last forever.

So, trading turned out to be a refreshment of a particularly painful sort. It did not make my daily life any easier – rather the opposite.

What Did I Expect Trading to Be Like?

You might think that if your only daily concern is making money, your reality becomes very simple. You just work out a strategy in order to gradually increase your assets, and you work out a rhythm.

Then you close your computer at a certain time every day. You enjoy the rest of it in peace and quiet, preferably lying on the beach with a long drink in your hand. Nothing could be more wrong than such a thought. 

Where It started.

Let me start from the beginning. So, why are you getting into trading in the first place? There are safer ways of allocating money, like real estate, bonds or art.

When you go into trading, this is mostly because of your need for adventure. It also reflects a personal preference for high risk, high gain choices. There is a dare to let go and watch the spectacle whenever thunder comes to the market. 

But this characteristic is exactly what pulls you down later on, once you are already in. Your own emotions push you to make fear- and greed-driven decisions. This will eventually lead to losing money at a fast speed.

The more you lose, the more badly you want to play it back, and the whole effect intensifies. 

For instance, if the value of your investment drops below the original entry price, you need to hold off on selling. Wait for better times.

The pain from watching your investment sink may be so high that it will eventually make you sell at a loss anyway. This happens only because you feel an urge to cease the pain and forget about the whole thing, rather than experience this everyday suffering. According to Kahneman and Tversky (1979), losses loom psychologically larger than equivalent gains. 

What Should You Know Before Starting?

If you ever want to go into trading, you should throw out your previous beliefs about yourself. If you thought you were intelligent, do not think too highly of yourself over here.

Most people lose money from trading, and textbook knowledge does not save you from any mistakes. According to Barber and Odean (2000), the most active individual investors underperform the market by a wide margin. Being overconfident about your rational conclusions about what might happen next on the market can even pull you down further.

After all, this is all crowd behaviour, driven by the same hopes and basic emotions. You are just no better than the others, even if you graduated from university with an A score.

The Comfort Zone.

There is just no comfort zone: no strategy that makes you always win and your intelligence has nothing to do with that. I would compare it to poker – good players win only in the long run, as any single hand can just turn out bad by chance. 

Energy Consuming.

Also, it is very energy-consuming; there are so many aspects of the market that it is almost impossible to track all of them. There are global market moves driven by the overall atmosphere, by either greed (aka FOMO) or fear (aka FUD).

There are also local market moves within a given sector, rumours, random pump and dumps, and new technologies taking over the older ones. Even big names from Twitter can influence the market with their tweets.

Also, with time, you make more and more friends in this space, and each one of them represents a different type of trading. There are scalpers who look at the trend and make small gains throughout the day on the basis of small rebounds from support levels.

There are swing traders who gradually buy in once the coin is sinking and gradually sell out when the coin is going up. There are ‘holders’ who stick to the projects they believe in for a long time.

And, there are also traders whose decisions are fully driven by rumour and/or news. Of course, each one of your friends wants good for you. But they bomb you with their own findings and personal advice, which makes the overall picture even messier.

How Overwhelming Is the Information Overload?

Just as if all that was not enough, there are dozens of youtube channels broadcasting every day. Each one of these youtube influencers sounds elaborate and, of course, gives you advice contradictory to all the others. It is easy to find yourself lost in this information overload.

I remember I used to wake up and realize that the groceries I brought from the convenience store two days before were perishing next to my chair. I simply had not found a moment to place them in the fridge for the last 48 hours. 

Yes, this was a difficult time. That would be about the downsides, though. There were good sides to trading as well, and I would like to add a few words about this below.

Trading teaches you a few things about real life. Firstly, it teaches you how to lose all delusions and look at the world very sharply.

What do I mean by that? Let us assume that you are a researcher and you make a living by producing scientific literature. How do you react when your publication is rejected in a peer review process?

Most often, you soothe yourself by telling yourself that you have just bumped into an unfortunate set of reviewers, or that your topic is not easy to publish. Maybe you were unlucky because someone else published something similar in the meantime.

In other words, you immediately come up with a long set of excuses explaining the failure. And what happens when you are trading?

If you make a wrong decision, you lose money – it is simple, it is numbers. If the number drops, it means that you suck, and you need to improve. No excuses there. 

What Does Trading teach?

Secondly, what trading teaches you is that knowledge is power. As mentioned before, there is never a comfort zone to trading. The only way to ever fall asleep with peace of mind is to put your money into what you feel relatively certain about.

And the only way to do that is to find out what has real value in a given market. This takes a lot of work and intellectual effort, as professional venture capitalism is a full-time profession.

But this effort pays off. The reward is that once you gain any certainty with your judgments, you start feeling the stress level slowly go down. You become more and more indifferent to everyday fluctuations in the market. 

Is Trading Really for you?

Thirdly, what trading teaches you is specialization. I could compare this to getting on a diet.

There are thousands of different diets, and it doesn’t really matter which one you choose. If you are strict about it, you will eventually achieve your goal, although some diets will of course be more painful, more time consuming, and give slower progress than others.

Similarly, with trading, it does not really matter if you choose to hold, play the news, invest in new projects, scalp or swing. Just choose something that suits your personality, specialize, and stick to your strategy, rather than frantically jumping from one strategy to another.

It is not essential that you can do everything well; mastering one strategy is good enough, but you need to really master it and not just scratch the surface.

For those reasons, what trading also teaches you is you yourself. You need to know perfectly well where on the greed and fear scale you are. Use this knowledge to protect yourself from making stupid decisions.

According to Baker and Wurgler (2007), waves of investor sentiment driven by shifting collective optimism and pessimism have measurable, systematic effects on stock prices. This is exactly why keeping your own greed and fear in check matters so much.

You have to know well when to trust your own judgment. You also need to recognize when you have a tendency for wishful thinking, as wishful thinking means a loss.

You need to find a trading strategy that matches you and your personality – and this requires a lot of introspection. 

Should You Trust Trading?

Next, what trading teaches you is building trust. There are other people online, whom you might be speaking to on a daily basis.

But after all, these trading friends are people you might never meet in person. You, nevertheless, need to rely on each other. How do you trust someone whose real name you do not even know?

Sometimes you need to stack money for a pool, which means you need to physically send it to someone else whose identity you do not know. You then hope that this person will be honest and will close the deal the way you both agreed.

This teaches you a lot about reading people’s intentions. It is a painful learning process, but it will make profits in the long run.

Benefits.

Lastly, what trading teaches you is that life is very short. Every single little decision has very definite consequences in time and space.

Ever since I started trading for real, I have become very sober about evaluating which actions bring any value to my life, and which do not and should be skipped. If something does not work, one needs to immediately change the strategy rather than cling to the original plan and let the time pass by. I was always rather practical, but recently, this practicality reached new highs, and I feel very good about this.

One side note I would like to make here is that I see one additional, unexpected benefit from trading. Namely, I was always wondering how it feels to have this legendary manly friendship between two dudes.

Time spent at trading let me answer this question. As 97% of traders are men, no one typically assumes my gender correctly, and I used to be called ‘dude’, ‘bro’ or ‘lad’.

So I was spending a few hours a day as a dude, chatting with other dudes. We talked about how to get rich, how to get the first Lambo, how to get chicks, et cetera.

And using tons of non-parliamentary words, of course. It was obviously funny to me, but it was also a really interesting experience.

I finally got a flavour of how brotherhood feels. Feels good!

Conclusion.

To Sum Up, Is It Worth Trading?

It very much depends on the person.

According to Chague, De-Losso and Giovannetti (2020), a study tracked every individual who took up day trading in the Brazilian futures market. It found that 97% of those who persisted for more than 300 days lost money overall, and almost none earned even a modest, reliable income from it.

For me, this was probably the roughest personality training ever, as I needed to drastically tame my own impatience and impulsiveness. But I think that, after all, I am more resilient to stress right now. Research life simply does not compare to trading in terms of pressure for fast results and the overload of information.

And, for more, I tend to see things much more clearly now. It is just as if some fog that was always around me faded away and left the world looking so sharp that it almost hurts the eyes.