What Trading Teaches Us About Life
November 7, 2007 12:21am CST
By Brett N. Steenbarger, Ph.D. Trading is a crucible of life: it distills, in a matter of minutes, the basic human challenge: the need to judge, plan, and seek values under conditions of risk and uncertainty. In mastering trading, we necessarily face and master ourselves. Very few arenas of life so immediately reward self-development--and punish its absence. So many life lessons can be culled from trading and the markets: 1) Have a firm stop-loss point for all activities: jobs, relationships, and personal involvements. Successful people are successful because they cut their losing experiences short and ride winning experiences. 2) Diversification works well in life and markets. Multiple, non-correlated sources of fulfillment make it easier to take risks in any one facet of life. 3) In life as in markets, chance truly favors those who are prepared to benefit. Failing to plan truly is planning to fail. 4) Success in trading and life comes from knowing your edge, pressing it when you have the opportunity, and sitting back when that edge is no longer present. 5) Risks and rewards are always proportional. The latter, in life as in markets, requires prudent management of the former. 6) Happiness is the profit we harvest from life. All life's activities should be periodically reviewed for their return on investment. 7) Embrace change: With volatility comes opportunity, as well as danger. 8) All trends and cycles come to an end. Who anticipates the future, profits. 9) The worst decisions, in life and markets, come from extremes: overconfidence and a lack of confidence. 10) A formula for success in life and finance: never hold an investment that you would not be willing to purchase afresh today.
1 person likes this
• United States
7 Nov 07
I really enjoyed these points. It helps provide some larger lessons for life. I really like the one about diversification, as well as working to your advantage. So many times in life, I see people trying to fit in with the crowd instead of choosing what works best for their own unique talents and skills and predispositions. People need to trust in their own judgment, to know themselves and rely on their inner strengths. Instead of trying to emulate wanna-be starlets and Hip Hop millionaires, they should focus on their own vision and interests. This is also true with making money. Everyone tends to jump on the same bandwagon and follow the same trends, like herds of financial sheep. Instead, people should invest in what they know and trust. They should make money by using their own strengths in the markeplace, and invest that way too. Great discussion.