By Sam Evans, Co-Founder & Lead Coach
It has been over sixty years since the great Albert Einstein passed away. He left us with some exceptional work and some amazing quotes that resonate to this day. We can apply these quotes to trading and specifically the trader’s mindset.
If for some reason, you have never heard of Einstein, he is universally regarded as the father of modern physics. He is best known for developing the general theory of relativity. In fact, two interrelated theories: special relativity and general relativity. As well as what is dubbed the world’s most famous equation E = mc2.
As well as his academic prowess, Einstein was also known for his love of music and his philosophical approach to life. For this article I thought it would be useful for us to apply some of the teachings of Einstein to our trading activities and see what we can learn from a different perspective.
“The only source of knowledge is experience”
Yes, of course we need to learn and we do this by attending courses, reading books, and studying but to truly learn, to apply what we have learned, requires doing. I have often described the journey of trading as being much like the journey of life, in that the more experience we gain, the more we learn about ourselves and how we behave in certain situations.
Through experience, we can truly apply our learning and improve our trading and mindset. For instance, trading on a demo account has its benefits and is something we recommend. We won’t know how we will truly behave until we start risking our own money. Through this, we can understand our weaknesses. I personally struggled with over-trading. it took a lot of work for me to overcome it.
“Memory is deceptive because it is colored by today’s events”
How difficult can it be for a trader to let go of what they think about the market and plan around what they actually see? Every single trade we take is either going to win, lose or breakeven and let’s face it, the outcome we want each and every time is for it to win. After all, that is why we are trading in the first place, is it not?
However, our memories of the trades which have won or lost in the past can often lead us to pass on a new opportunity when it comes along, even if it is a solid setup with low risk and a high potential reward. It can be near impossible to take a trade after a series of losses. Sometimes it can be just as difficult to place trade after a few wins too because we get used to the “taste” of being on the right side of the market.
No matter what happened before, we must learn to take each opportunity as we find it, no matter what we think or feel. Whether we win or we lose the day before, we must learn to let that experience go. We must approach each new day with the right mindset. To be able to look to the charts objectively and with no emotions from the previous day.
We must also journal so that we aren’t relying on our memory. There are two benefits to journaling. Firstly, our memories are deceptive, and we may believe something that is simply not true. Secondly, we may discover something wonderful. For instance, your rules say you always choose no less than 5:1 trades but you discover that 70% of your trades always get to 4:1.
“We cannot solve our problems with the same thinking we used when we created them.”
This is probably one of my favorite quotes of all and ties into my other points above. How many times have you made the same trading mistakes over and over again, enduring constant frustration and misery each time but have never done anything about it?
Through your journaling, you can look back and learn. Remember, trading is a journey, albeit a journey with a destination, where you aim to be consistently profitable. Once you become profitable, then the next leg of your journey begins.
Is it time to change what you’re doing? It was Albert himself who also said that doing the same thing over and over again and expecting a different outcome is the first step towards insanity. If you are getting good results from doing something a certain way then carry on doing it that way. On the other hand, if you are not, why continue with the same course of action? Einstein was suggesting that we need to shift our mindset to overcome our problems with a different approach to what we were using beforehand. I couldn’t agree more.
“Human beings must have action; and they will make it if they cannot find it.”
Hands-up, who likes clicking buttons?! I think that patience is often one of the hardest things to develop in our trading skill set. As humans with emotions, we tend to want to get results and get them as soon as we can. The problem with adopting this attitude in trading is that the market does not always present us with good opportunities.
We can easily fall into a state of boredom (especially when day trading) and take reckless entries into the market when there is nothing on offer, just because of our lack of patience. Let’s face it, we judge ourselves by our performance and our results. What happens when there is little happening in the market? We get bored and try to make something happen.
Einstein clearly recognized this trait in human behavior and if not controlled, these impulses can often get us into trouble. A disciplined trader, with the right mindset, waits for the market to present an opportunity. They then follow through with a solid core strategy and rule-based plan. If there is nothing to trade, then the trader moves on. Don’t go jumping into the market because you feel the need to trade. The market will always be there after all, so save your money for another day.
“Any intelligent fool can make things bigger and more complex… It takes a touch of genius — and a lot of courage to move in the opposite direction.”
Of all of the quotes I have shared with you, this is perhaps the most impactful of the lot. There is always a temptation to make things more complicated; to go into more detail than is necessary. To make something which should be clean-cut into something messy instead. Trading by nature is simple. There are no major ‘secrets.’ We, as humans, make it complicated.
For me, Einstein was perhaps the most academic mind the modern world has ever seen, making discoveries about subjects which the average mind couldn’t even comprehend. He knew his own mind, dared to think forward, and always keep true to himself at all times. When it comes to mastering your mindset, what better teacher is there than Albert Einstein?
Take care and be well,