Ancient Stoics, Modern Traders

 

Date: 7/15/2021
Author: Chris Hood

 


Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.


I read lots of books.

Admittedly, most of my recent reads have been on either trading or jiujitsu. Still, I appreciate a bit of philosophy in the mix.

Of all the schools of philosophy, I believe the Stoics would have made the best traders.

If you’re a student of ancient philosophy, understand that I know about stoicism’s disdain of material wealth and indifference to worldly success. However, that isn’t the point.

I want to focus on their mindset.

Assume for a moment Marcus Aurelius, between his duties as Roman emperor, embarked on a trading career.

How would he have approached the market, trading rules, taking wins, and dealing with losses?

“If anyone can refute me—show me I’m making a mistake or looking at things from the wrong perspective—I’ll gladly change. It’s the truth I’m after, and the truth never harmed anyone.” – Marcus Aurelius

Here, he summarizes a trader’s proper mindset. The ability to change opinions on a trade immediately and without emotion.

Make no mistake.

For every prediction or opinion you have on your positions, the market will let you know if you’re right or wrong. In trading, it is the ultimate arbiter of truth.

No technical signal, thesis on fundamentals, or expert analysis overrides price action. Price action is reality, and reality is truth.

Aurelius would look to the market to confirm or refute him. And like him, you should accept its lessons and gladly change your opinion.

Understanding and responding to the truth is the key to success.

If the trade is wrong, then get out. However, should the market confirm your predictions, then stay in and make money.

Listen to the data and read the charts.

About a century before Marcus Aurelius, Roman tragedian and statesman Seneca spoke on the necessity of plans and goals.

“If a man knows not which port he sails, no wind is favorable.” – Seneca

This simple quote describes why so many retail traders fail. They have no outcome goals nor written plans to guide them.

If you simply throw on trades at random without creating a plan, you WILL lose in the long run.

You’ll operate on emotion, be inconsistent, and give back any gains you make. I see it happen every single day.

The market ocean is no place for the unprepared.

You’ll struggle with all your might against the chop and waves only to get swallowed up by the trading leviathans that swim silently beneath you.

Undoubtedly, the wise Seneca would have built, followed, and refined his trading plan to achieve his goals…and so should you.

The Roman philosopher Epictetus learned much during his checkered life. Born a slave, he endured a great deal of hardship before earning his freedom and teaching philosophy.

He understood well that success was the result of sustained effort and small victories.

“No great thing is created suddenly.” – Epictetus

It’s unlikely that this wise Stoic would have believed the get-rich-quick hype of many so-called trading gurus.

And under no circumstances would he have thrown all his money into one or two trades.

As Epictetus states, wealth building is the result of a slow, steady process over time. It’s only consistent wins over time with small positions that keep traders profitable and make them rich.

Over allocating to your trades is the quickest way to go broke.

The market does sometimes reward risky behavior, but eventually, your luck will run out. Your capital will just end up making some hedge fund manager even richer.

If you don’t feel like listening to me, that’s your decision.

But at least take your lessons from the great thinkers of the past.

Stay calm and trade stoically.

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