Trading your way to financial freedom is a dream for many Americans.
The siren call of answering to no boss… marching to the beat of your own drum… and enjoying the financial freedom to do what you want… is difficult to resist.
Alas, you will quickly learn that successful trading is not an easy game.
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When new traders start out, they often look for a secret system or technique that will hand them the keys to their financial castles.
But in doing so, they completely ignore the far more critical areas of philosophy and psychology.
After all, what could these unrelated and obscure disciplines possibly have to do with trading?
The world’s best traders will tell you exactly what.
Ask them, and they will tell you that successful trading doesn’t require a particular secret technique.
Instead, it requires a steely toughness (psychology) and clearheaded self-knowledge (philosophy).
As Socrates advised, “Know thyself.”
The Single Most Important Lesson of Successful Trading
It is chock-full of psychological insights and lessons for would-be traders.
Tharp cites the work of the philosopher Karl Popper, the psychologists Daniel Kahneman and Amos Tversky, and leading trading system programmers with equal relevance.
Tharp’s most crucial insight comes down to this: “There are an infinite number of ways of making money in the market. It’s just that everyone has to find his own way.”
It turns out that an investment philosophy is much like a life philosophy.
Each of us has to develop our own trading philosophy. It must be molded carefully to fit our personality.
I like to think of different approaches to trading like competing styles in martial arts.
In martial arts, there are different schools of fighting, such as boxing, karate and jiujitsu. Each martial art has a unique philosophy.
A karate black belt fights his opponents differently than Muhammad Ali did in the boxing ring.
Trading also has its different schools: fundamental analysis, technical analysis, value investing, growth investing… or even options or futures trading.
Trend followers surf the waves of long, sustained trends across dozens of different markets.
Value investors look for cheap stocks and out-of-favor sectors.
Activist investors prod company managements to maximize shareholder gains.
Yet each discipline has the same objective.
In martial arts, the objective is to defeat your opponent.
In trading, it’s to make money.
How to Find Your Holy Grail
Investors spend decades searching in vain for the single “holy grail” – a system or philosophy that unlocks the secret of the financial markets.
Here’s the irony…
You won’t find your holy grail of investing by imitating Warren Buffett or George Soros.
Instead, you’ll find it by studying many approaches.
The most crucial step to finding your holy grail is to decide what you want to trade and how you want to trade it.
If you prefer the nonstop action of the markets, learn to day trade. After all, the financial markets are the best live “video game” available.
If, like Warren Buffett, you prefer a “life of lethargy,” invest in value stocks.
If you are fascinated by high-risk story stocks like Silicon Valley venture capitalists, focus on technology and biotech.
In short, find a trading philosophy that suits you.
Just as there’s more than one way to defeat your opponent in martial arts…
There’s more than one way to make money in the markets.
But it’s only by understanding different trading styles that you can choose a philosophy that suits you.
The investment styles of Buffett and Soros could not be more different.
Yet both figures are among the most successful investors in history.
And therein lies a valuable lesson…
Like all the world’s great traders, you must develop your unique trading style.
To “trade your way to financial freedom,” you must find your own holy grail.