Philosophy and trading

I discovered philosophy a few years ago after I was the first in my family to step away from religion. Stepping away from religion is a scary thing because your whole belief system about everything suddenly isn't that certain anymore. I needed something to hold on to again, I needed answers to certain questions about life. I went searching and came across philosophy, specifically stoicism and I think this is exactly what I needed. Life, work and trading related. Let me explain.

Stoicism

Those old Greek dudes who practiced stoicism did something incredibly valuable for us. They had very simple, to the point but strong solutions to complicated subjects about life. A recent one I came across which is a beautiful one that applies not only to trading but so many things in life:

Luck is what happens when preparation meets opportunity. - Seneca

Let's take this to trading. Preparation is a big part of trading. Think about it, all our screenings, back testing, rule finetuning, reading, learning, daily routines, weekly routines, learning from our mistakes, watching setups form closely, having rules for every scenario before you enter a trade.

Now combine this with opportunity. Opportunity for us happens if the market conditions are trending, a Follow-Through-Day (FTD) appears, a breakout happens.

When these two align, when your endless preparation perfectly meets a sudden market opportunity, the result is what the rest of the world calls 'luck'. To an outsider, catching a 40% runner in a few weeks looks like you just bought a winning lottery ticket. They didn't see the hours of studying and the discipline of waiting for the right moment. You weren't lucky. You were ready.

Dichotomy of control

Stoics practiced something called dichotomy of control which is very relatable to trading. They did this by splitting everything in two parts:

• Things you can control - your actions, intentions and thoughts.
• Things that are out of your control - the outcome, things that happen without your doing.

That's right, the outcome is not yours to control. Stoics simply say the outcome of your actions are simply not in your control no matter how hard you try. This is because the world is huge, there are constantly things happening which are completely out of your hands, they are simply happening and can at any time impact the thing you are doing and therefore change the outcome. Therefore no outcome is certain.

You can time a perfect breakout, market is in a strong rally, the company is fundamentally strong everything looks great BUT: COVID-19 happens, the strait of Hormuz is blocked or we are hit with an infinite amount of other possibilities happening. And your stoploss is hit.

Focus on what we can control in trading

As traders dichotomy of control speaks volumes. We don't control the market trend and price action. All we have control over is our process, following our rules, entering a trade and exiting a trade and our emotions.

Mark Douglas talked about this in his book Trading in the zone. He also talks about how truly accepting the risk before you enter a trade is the only way to detach your emotions from the uncontrollable outcome.

Things we can control in trading:

• Execution: entries and exits
• Risk management
• Rules: creation / finding / tweaking of 'm and then following those rules
• Emotional control: recognizing fear, FOMO, greed, euphoria and countering that emotion, controlling it and not letting your decisions be influenced by it.
• Learning: from others, your own mistakes and good trades, back testing, looking at old true market leaders (TML's).

Things we cannot control and therefore simply accept the way they are:

• Market environment
• News
• Inflation
• Rate decisions
• Price action

Keeping a stoic mindset definitely helps me as a trader to follow my rules and keep my head cool in any given situation. It keeps you focused on the things where you have actual impact on result.

I thought I had some type of certainty in religion. I found that real peace of mind does not come from certainty about the outcome of things (what religion mostly is), but by being certain about the things you have control over and accepting that there are things we cannot control.

P.S. Don't get me wrong about religion. Religion can be a strong thing for people to hold on to and can really benefit your life. It just wasn't the right fit for me anymore.

I added some books to the bookshelf about stoicism.

Disclaimer: The content of this blog is for educational and informational purposes only and does not constitute financial advice. The author is not a certified financial advisor. All analysis is based on historical market data and technical methodologies. Trading stocks and cryptocurrencies involves significant risk. Always do your own due diligence and consult with a professional financial advisor before making investment decisions.