The True Sage Has No Desires

I'm not sure where I read the phrase in the title, but it was attributed to the Tao Te Ching. I’ve tried a few times to find the passage it was from but the closest I got was the phrase “Ever desireless, one can see the mystery”. It makes the same point. Let me explain.

In speculative endeavors, like trading or sports gambling, you can’t let your emotions sway you, ever. It’s not that you shouldn’t have feelings—you are human and that is not possible. Only that you have to always make decisions after you have detracted the effect of your emotions as much as you possibly can. But the thing is, as you approach the markets each time, you come with all the emotions that your life is currently churning up in you. Including feelings from the recent past in your trading.

And emotions are messy. The problem with emotions for us humans is that first they occur, and then you have to decipher them. You have to ask yourself: “what am I feeling?” and then you have to ask yourself “why am I feeling this way?”; and you could still be wrong. That’s why therapy helps if you can find a good therapist because they would have enough experience to help you gain more clarity. Despite the fact that you can be very wrong about your own emotions, introspection is very important because once you think about your feelings, they lose power over you. And that is very important in trading.

Emotions are the source of trading biases.

It could be any old emotion, as long as it is stronger than your mind. That’s because emotions make you desire something. What’s more, you as an individual have specific emotions that you are susceptible to. Some people are generally more fearful, others are generally more overconfident, others are more sensitive to ego hits.

There are two ways emotions can become stronger than your mind. Something big happens in your life, like the loss of a loved one, or you get promoted at your job, et cetera, or, a string of small inconveniences or good fortune reach a fever point. Once the emotions are high, it is a question of time. There’s a window where anything you do will be influenced primarily by your feelings. That’s why you write the angry email and wait. Or why you leave the room if you’re arguing with someone.

One of the earliest books I read about currency trading is the “The Psychology of the Foreign Exchange Market” by Thomas Oberlechner. It has a chapter that talks about the different analogies that traders view the market— as a game, as war, etc. Each trader has their own preferred analogy. I tend to see the market as a battlefield.

There is nowhere where emotions can ruin you more than in war. In war, you have to practice perfect economy: you never go further than you need to, or use more resources than a battle requires. Emotions ruin that. If you take a hit, and you desire revenge, so you marshal your forces with that objective, you will lose. Even when you’ve taken a big hit, you can feel bad and angry, but to plan your counterattack, you have to let go of those feelings—you have to let go of your need for revenge. War forces you to be practical to the core. You can only think about opportunities and dangers, and how to navigate them. You can’t even desire to win, as counterintuitive as that sounds. You have to be desireless.

Trading is the same. Say you have a financial goal, and you decide that for the near term future, you will try to win more trades; or say you are in a losing streak, and you want to get back to break even. Both of these desires will influence your thinking, and will make it more likely that you won’t meet your goals. Chances are you will convince yourself that low EV opportunities are actually high EV opportunities. Or you will just make poor choices like increasing your bet size, which comes with it’s own set of new emotions. In trading, like in war, you have to understand the maxim that to be unconquerable lies in yourself, but the chance for victory is provided by the market. You can only manage your risk, but the number of opportunities and how much you can make in each one is not in your control.

Emotions from your life also affect your trading if you let them. Say you are stressed up about something in your life outside of trading. The stress will affect how you trade. Same thing if you are exuberant about something in your life.

Being desireless is the antidote. It is an ideal to aspire to, and you have to train yourself to become this way. When you are desireless, your ego is out of the way. You don’t want the market to do anything, so you can see things with more clarity. The opportunities and dangers will stick out to you, and, unencumbered by your own emotions, you will make the perfect move.

It is not easy and it is a constant battle within yourself. Start by being more introspective. Carefully monitor your feelings and note when they are starting to influence your trading process, and then counteract them by thinking your way through them. Take them from a boil to a simmer, so that between your mind and your heart, your mind is the stronger one. Know the kinds of emotions you particularly succumb to and be extra careful around them. Your goal is not to completely get rid of emotions, but to not have them affect your thinking and your actions.

It is almost a law in life that the more you want something, the more unlikely you are to get it.

Another tricky thing about emotions is that they can lurk inside you without your awareness. A lot of people think that psychopaths don’t have feelings but that isn’t true. They do, but they feel them a lot less than neurotypicals to such a degree that they can be unaware of them. But they can still be swayed by their emotions. What they struggle with is self awareness. My point is that you need to be open to the idea that you may be acting under the influence of an emotion you are not aware of. So dig deep when you are being introspective.

Whenever I’m involved in the markets and I catch myself in the throws of an emotion, say FOMO or tilt, I remind myself: “The true sage has no desires”, and it helps me gain more clarity and make better decisions that are not influenced by my feelings.