Why are you Trading?
I recently met up with an old buddy over coffee to catch up with old times. He is also a trader but he is an institutional trader who is currently on a career break. In the midst of our discussion, he asked me, “What are you trying to achieve?” We chatted for a bit but eventually moved on to other topics.
So, this morning, I decided to revisit my plan. And that led me to the discussion today:
Why are you Trading?
Many people (including myself) tend to get pulled into different directions once in awhile and the reasons could be due to pressure, noises and events surrounding us. As a perfectly normal human being, our decisions are driven by our emotions in that Moment. The Moment can sometimes last from a few hours to a few days pending on how engrossed you are in that activity. That’s fine but the impact of it is that we get diverted from our initial goal.
If you’re one of them, please take some time out from trading and ask this simple question. Why are you Trading?
5 Why’s
In case you’re struggling to answer this simple question, or if you’ve tried doing this exercise in the past but did not see any results, why not try this – ask yourself why 5 times.
FYI, this is a technique introduced by Toyota (see Wikipedia) to identify the root cause of your action.
Let’s try this example:
Why are you trading (1st Why)? – I’m trading for the money
Why do you need the money (2nd Why)? – I want to achieve financial freedom
Why do you want Financial Freedom (3rd Why)? – I want to have sufficient funds in the future?
Why do you need those funds (4th Why)? – I want to be able to support (financially) my partner and children irrespective of the economic circumstances.
Why do you want to do that (5th Why)? – I want to give the best to my family.
As you can see, it's not rocket science, yet it can be a pretty effective technique.
Refocus
Ok, the above is just an example of how you can use this technique. However, once you’ve done the exercise, don’t stop there. With an in depth understanding of what you’re doing and why you’re doing it, you can leverage on the answers and refocus. For example:
I found great motivation to make trading a success. As mentioned in my article - 5 Important Ingredients required for an Effective Trading Plan – I have ingredient #2 in front of my now – me family.
Now that I know how much money I need, I can calculate the breakdown of what my yearly and monthly financial targets should be based on the bigger picture.
Well, I think you got the point.
With a clearer picture of what you want to achieve, you can now refocus on your short, medium and long term goals and actions.
Conclusion
Traders, occasionally, get too bogged down about the market and that they forget why they are trading.
So, remember this - Review and Revisit your Trading Plan once in awhile. It’s actually a great way to maintain focus and motivation. Well, that’s also provided that you have a effective trading plan.
Anyway, thank you for reading and happy Friday!!
