Psychological Analysis. Adam Sarhan

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      The American Tailwind

CHAPTER 2 Why You Aren't Beating the Market

      HOW I ACCIDENTLY STUMBLED ON MY SECRET WEAPON: PSYCHOLOGY

      Early on, I learned that your psychology (a.k.a. your mental capital) and your psychology alone will determine your success in life and in the market. Life, and the market, are filled with endless opportunities, more opportunities than any one person can possibly enjoy. Trust me, there is more than enough to go around a few trillion times. Your job is to be open‐minded, train your mind to recognize opportunities, and act on them whenever you can—because if you don't, someone else will. Even if you don't act on one opportunity, just like an elevator or the proverbial bus, there will always be another along shortly, guaranteed. It's illegal for anyone to guarantee results in the market, but I can guarantee you that there are what feels like an infinite number of ways to make money in the market, and your job is to find one that works for you and run with it.

      Throughout this book, I will share with you what I've learned, but the key is for you to think differently, demand the best from yourself, and commit to doing the right thing, even if you don't feel like doing it. Your future self will thank you. Again, thanks to grace from above, here's how I stumbled across the connection between psychology and winning.

After my initial, gut‐wrenching losses in the market, I dedicated myself to learning everything I could. I read every book about trading I could get my hands on. Over the next six years, I earned an undergraduate degree and a graduate degree in political science, but my “real” education was in capital markets and psychology. I stumbled upon psychology and how it impacts just about every aspect of our life when I realized how psychology was a major force that impacted both political science and capital markets.

      In my early 20s, I was studying political science during the day, markets at night, and working in between, and I realized that a golden thread between political science and investing/trading was psychology. The biggest blunders in both political and market history usually came from people who lost control of themselves, threw logic out the door, made lousy emotional decisions, and/or just became intellectually lazy. The opposite is true for the biggest success stories in both worlds. The most successful leaders, traders, and investors tend to be extremely logical and very disciplined, they respect risk by making great risk‐versus‐reward decisions, they do the work other people do not want to do, they've mastered themselves, and they make rational (not emotional) decisions—especially when they are under pressure. So, naturally, hungry to learn more, I dove into psychology, and that ultimately became the foundation of everything I do and part of the title of this book!

PAPER TRADING

      Without realizing it, I turned into a learning machine. At every waking moment, I was reading about the market and trying to apply what I learned. Because I was buried in debt and had no money, I could not actively trade in the market. Instead, I wrote a daily and weekly “newsletter,” which covered my thoughts about the market, what stocks to buy and sell, where to enter and exit each trade, and how much to risk when the trade went the wrong way. Basically, I wanted to get my ideas out of my head and put them on paper so I could have accountability and actually track my ideas. I started a paper trading account—essentially a ledger of when I would have bought and sold—so I could track how I would have done if I had been working with real money. There's a benefit to trading with fake money—you're not emotionally attached to what happens; this way your emotions do not infect your decision‐making process. But the downside to paper trading is that when real money is on the line, your emotions are involved, and everything changes. So your real‐world results are rarely the same as your paper trading results.

During the early paper trading days, I lost a lot of fake money, but the more mistakes I made, the more I learned, and I wasn't paying the painful “market tuition” price that marked my very first experiments with the market.

      Looking back, now that I'm in the smart money circle, the mistakes I made seem mind‐boggling. I had no discipline. I failed to respect risk. I jumped from one shiny object to another. I did not understand portfolio management. I did not follow a time‐tested strategy—or any rules at all for that matter. Basically, I made СКАЧАТЬ