Statistics that habitually substantiate that only 10-20% of traders are reliable net winners are music to the ego’s ears. No self respecting ego could tolerate the prospect of being in the realm of the also ran, those poor, impoverished, less able 80-90%.

Moving back into the unfamiliar shadows the ego usually brings with it an account balance fresh from a rendezvous with nemesis.

A renegade from self inspection, the ego, as befits the original usurper, skulks off in search of more accommodating environment.

Ironically, the ego enjoys its separateness yet slashes towards an undeclared desire for belonging that cannot be articulated. With the ego in the head trader’s seat the drive for action will be dominant, for the ego both needs and loves being in the thick of the action, whatever the merits marketwise. The ego is a vicious force in our trading.

No question that on our trading skills balance sheet the ego is an everlasting occupant in the liability column, the benefit column being considerably overshadowed until it reaches for the light. The way of the deliberately undertaken “egodectemy”, self sought and administered.

The diminishing noise of the ego facilitates the growing incidence of quieter qualities such as intuition. Intuition is perhaps the yin to the ego’s yang, the passive to the active. Unlike the ego which announces itself with such instantaneous urgency, intuition presents itself self effacingly.

It doesn’t require the ego’s display. Intuition is not exempt from egos predatory pulse. To the ego, all is fair game. So, as well as the necessity to be watchful in monitoring our trades we need to be vigilant for contaminations by the ego. For trading mastery, read 24/7 ego monitor.

Prioritizing intuition allows for the gradual development of trust which in turn allows for intuitive insights to be made tangible as signals to act upon. Running before you can walk is one of the ego’s most cherished mantras. Of course, intuition is only one of the skills available to counter the ego’s threat and itself is not infallible, in trading or elsewhere. Trading intuitively doesn’t preclude mistakes.

One of the real culprits, I have to believe, is in the difficulty traders have in separating the reality of a losing trade from the psychological sense of feeling like a loser.  At some level, many traders equate losing with being a loser.  This frustrates them, depresses them, makes them anxious—in short, it interferes with their future decision-making, because their P & L is a blank check written against their self-esteem.  Once a trader is self-focused and not market focused, distortions in decision-making are inevitable.

A particularly valuable section of the classic book Reminiscences of a Stock Operator describes Livermore’s approach to buying stock.  He would sell a quantity and see how the stock responded.  Then he would do that again and again, testing the underlying demand for the issue.  When his sales could not push the market down, then he would move aggressively to the buy side and make his money.

What I loved about this methodology is that Livermore’s losses were part of a grander plan.  He wasn’t just losing money; he was paying for information.  If my maximum position size is ten contracts in the ES and I buy the highs of a range with a one-lot, expecting a breakout, I am testing the waters.  While I am not potentially moving the market in the way that Livermore might have, I still have begun a test of my breakout hypothesis.  I then watch carefully.  How are the other averages behaving at the top ends of their range?  How is the market absorbing the activity of sellers?  Like any good scientist, I am gathering data to determine whether or not my hypothesis is supported.

Suppose the breakout does not materialize and the initial move above the range falls back into the range on some increased selling pressure.  I take the loss on my one-lot, but then what happens from there?

The unsuccessful trader will respond with frustration:  “Why do I always get caught buying the highs?   I can’t believe “they” ran the market against me!  This market is impossible to trade.”  Because of that frustration—and the associated self-focus—the unsuccessful trader does not take any information away from that trade.

In the Livermore mode, however, the successful trader will see the losing one-lot as part of a greater plan.  Had the market broken nicely to the upside, he would have scaled into the long trade and likely made money.  If the one-lot was a loser, he paid for the information that this is, at the very least, a range-bound market, and he might try to find a spot to reverse and go short in order to capitalize on a return to the bottom end of that range.

Look at it this way:  If you put on a high probability trade and the trade fails to make you money, you have just paid for an important piece of information:  The market is not behaving as it normally, historically does.  If a robust piece of economic news that normally sends the dollar screaming higher fails to budge the currency and thwarts your purchase, you have just acquired a useful bit of information: There is an underlying lack of demand for dollars.  That information might hold far more profit potential than the money lost in the initial trade.

I recently received a copy of an article from Futures Magazine on the retired trader Everett Klipp, who was dubbed the “Babe Ruth of the CBOT”.  Klipp distinguished himself not only by his fifty-year track record of trading success on the floor, but also by his mentorship of over 100 traders.  Speaking of his system of short-term trading, Klipp observed, “You have to love to lose money and hate to make money to be successful…It’s against human nature what I teach and practice.  You have to overcome your humanness.”

Klipp’s system was quick to take profits (hence the idea of hating to make money), but even quicker to take losses (loving to lose money).  Instead of viewing losses as a threat, Klipp treated them as an essential part of trading.  Taking a small loss reinforces a trader’s sense of discipline and control, he believed.  Losses are not failures.

So here’s a question I propose to all those who enter a high-probability trade:  “What will tell me that my trade is wrong, and how could I use that information to subsequently profit?”  If you’re trading well, there are no losing trades: only trades that make money and trades that give you the information to make money later.

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