Should you treat trading like a hobby? How’s your discipline?
August 30, 2008
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John Forman - The Essentials of Trading author
The Winning Mental Edge blog (thanks to Charles Kirk for the link) speaks on the topic of deciding whether trading is for you or not. A part of the point is that as much as our society respects and rewards persistence in many ways, it’s not always a good thing in terms of trading. It can sometimes lead one to stick with trades or a strategy (or trading overall) for too long, and not giving up when that’s probably the better course. Certainly, it’s hard to argue against that.
One part of the post presents something which definitely warrants some thinking and discussion, though. To quote:
Here’s an exercise that may help you decide if trading is right for you. Ask yourself, would you trade for no money. Suppose that you did not have a dime to bet. Would you enjoy following stock prices anyway? Would you enjoy reading about stocks, making forecasts, and seeing if you were right just for the fun of it? If the answer is yes, trading may be right for you. But if you think, why bother following the markets just for fun, then you may want to consider whether trading is right for you. In other words, if you are in it only for the money, it may not be right for you. But if you are not losing any money, why not pursue trading? As long as it does not hurt you psychologically (or financially) or consume your time when you should be doing other things, what is the harm?
The question I would bring up here is one of whether trading is a hobby or a wealth/income creating venture. I’m not saying it couldn’t be both. It’s just that doing trading and tracking the markets for fun (hobby) isn’t necessarily in line with treating trading like a business, as so many folks advise. Is that advice faulty? Or is it dangerous to think put money at risk as a hobby?
On a somewhat related (sort of) subject, Brett Steenbarger says the following in his The Fundamental Error of Trading Coaches post.
The fundamental error that trading coaches make is to assume that, because such problems interfere with trading discipline, they can be solved by imposing stricter discipline.
It’s always rubbed me the wrong way when people have said the solution to trading problems is “be more disciplined”. It fails to ask (nevermind address) the question as to why the lack of discipline is at issue. Brett speaks directly to that in this piece.
Here’s another interesting bit from a fellow blogger. One of the subjects I discuss in The Essentials of Trading is the concept of risk-adjusted return. Bill Rempel takes that in in his post Sharpe Thinking.
Minyanville has a nice little article on The Investor Psychology Cycle.
Here are some other posts which might interest you:
Thnx for the linklove.
Hell no you shouldn’t trade if you’re not in it for the money!
I could just as easily spend all my spare analytical capacity on Fantasy Baseball and get a useless, time-wasting, number-crunching good time out of it!