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May 31, 1999

Book Review: The Tranquil Mind of the Successful Day Trader

By Gregory Bresiger

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  • Book Review: The Tranquil Mind of the Successful Day Trader

It was the great philosopher and economist F.A. Hayek who argued that one of capitalism's virtues was that it is much more than a system of profit and loss. Capitalism, or what Hayek called a system of several property, was a discovery process, a method through which we use trial and error to learn about the world. Only through a process of trial and error could human beings master most skills, because failures provide essential data.

I don't know if Howard Abell, the chief operating officer of Innergame Partners, a proprietary trading arm of Rand Financial Services, has ever read Hayek, but his new book details a discovery process, a process of trial and error (with an emphasis on the error part) as an essential part of succeeding at day trading.

Those who day trade, no matter what style employed, are going to fail. They're going to fail a lot sometimes, says Abell, who quotes one successful trader: "I think that successful traders have a personality, that they're not afraid to have 19 losing trades out of 20, because the 20th can be a trade that's much greater than all 19 put together. They're not hung up on losing money. They're willing to accept the loss, to take a loss and come back and make another trade, and know there's always tomorrow."

The discovery process - the search for bargains - goes on until some traders can spot profits very quickly.

But the key issue of this book, the search to determine if one is a candidate for digital day trading, is more psychological and metaphysical than technical: Does a professional have the makeup to withstand the rigorous, messy, sometimes destructive process? It is a question that Abell mentions, although he cites few horror stories.

However, there are plenty - men and women, both professional and non-professional traders - who found out, after they lost a lot of money, that they could not withstand the pressures of digital day trading. There are many ways to get into this dicey field, but only the individual can determine whether this is right for him or her.

Abell rightly quotes George Soros on this point: "Values are closely associated with the concept of self - a reflective concept if ever there was one. What we think has a much greater bearing on what we are than the world around us."

In other words, even day trading can have everything to do with metaphysics - the world of the day trader is also what he or she perceives it to be. (A notion that the philosopher Immanuel Kant taught and which influenced Soros, a student of the Kantian philosopher Karl Popper.)

So, even if the day trader thinks that he is making progress, even if he perceives himself as doing well, if he is easily rattled, if he has a low sense of self-esteem, then he will fail as a day trader.