Skip to main content

Inner Voice of Trading: a lesson on ego and risk

The Inner Voice of Trading Michael Martin
Michael Martin was kind enough to recently send over a review copy (via the FT Press) of his new book, The Inner Voice of Trading

I've started reading through the book and have highlighted an important lesson on risk mgmt., ego, and the emotions we feel as humans who trade. 

Here are a few thoughts from chapter 2 of Michael's book, paraphrased or direct quotes, that address some of these issues: 

Most traders drawn to risk management focus on the external "how to" aspect of trading, vs. the inner aspect of emotions and psychology. This is where trouble begins.

Our American education system has ingrained in us the need for accuracy and regurgitation of info. We become conditioned to this accuracy model and the rewards of rote learning. The longer we remain in this reward model, the more it colors everything we do in life. 

In the school model, one's self-esteem is tied to being right. Avoiding mistakes, especially public mistakes becomes paramount. But in trading, one can be wrong in most choices and experience regular "outlier" events in the course of trading the markets. Traders must somehow learn that they will miss out or be incorrect regularly and still have a shot at great success. 

Traders need to have a survival plan. Know when you will get out of a trade before you get in.

If you don't take the small loss today, your capital and trading career may not survive tomorrow.

The most successful traders surrender their egos to not knowing the frequency or magnitude of any trend. They quiet their mind and follow their inner voice.

Most of the world can't keep their losses small. Professional traders and investors who've been around for decades are usually those who play the best defense

I'll try to review the book in full after I've finished reading it. Till then, check out Michael's book along with this interview on The Inner Voice of Trading, and visit Martin Kronicle for more on trading from Michael and his interview guests.

Popular posts from this blog

Moneyball: How the Red Sox Win Championships

Welcome, readers . T o get the first look at brand new posts (like the following piece) and to receive our exclusive email list updates, please subscribe to the Finance Trends Newsletter .   The Boston Red Sox won their fourth World Series title of t he 21st century this we ek. Having won their first Se ries in 86 years back in 200 4, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it? Quick background: in late 2002, team own er and hedge fund manager, John W. Henry (with his partners ) bought the Boston Red Sox and its historic Fenway Park for a reported sum of $ 695 million. Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship. This brings us to one of my fav orite scenes from the 2011 film , Moneyball , in which John W. Henry (played by Ar liss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pi

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

William O'Neil Interview: How to Buy Winning Stocks

Investor's B usiness Daily founder and veteran stock trader, William O'Neil share d his trading methods and insights on buying winning stocks in an in-depth IBD radio interview. Here are some highlights from William O'Neil's interview with IBD: William O'Neil's interest in the stock market began when he started working as a young adult.  "I say many times that I didn't get that much out of college. I didn't have much interest in the stock market until I graduated from college. When I got married, I had to look out into the future and get more serious. The investment world had some appeal and that's when I started studying it. I became a stock broker after I got out of the Air Force."    He moved to Los Angeles and started work in a stock broker's office with twenty other guys. When their phone leads from ads didn't pan out, O'Neil would take the leads and drive down to visit the prospective customers in person.