Don Miguel Ruiz, a Mexican author in the tradition of Carlos Castaneda, wrote a best-selling book called “The Four Agreements” in 1997.
The Four Agreements sold millions of copies and has acted as a life-clarifying guide for many. In brief the four agreements are:

1. Be impeccable with your word.
2. Don’t take anything personally.
3. Don’t make assumptions.
4. Always do your best.

How might these “four agreements” specifically apply to trading? Some ideas:

1) Be impeccable with your word. 

As down and dirty as Wall Street can be, there is a code of honor among traders. Floor traders and i-bank trading desks are known for confirming deals worth millions, or even tens of millions in profit or loss, on the strength of a verbal telephone commitment, a handshake, or even eye contact and a nod of the head. The whole system works because all true traders, while fierce competitors down to the last tick, are also honor-bound to their word. Those who break the code are rightly banished.
More broadly, traders of physical product must always “make good’ on their delivery promises. If a trader says he can get five cargoes of crude oil, he is honor bound to make it happen, lest the reputation of the firm is tarnished or even crippled. Being impeccable means making damn sure you can deliver, and moving heaven and earth to come through. Developing a reputation like this has benefits internal as well as external, as you become the type of person who “gets it done” in the eyes of your subconscious as well as the eyes of others.

The individual trader, if he is a money manager, can adopt this code of integrity in terms of honesty and transparency with clients. Be open about your strengths, weaknesses, and volatility. Explain drawdown periods rather than sweeping them under the rug. Use adversity to illuminate the quality of your process — how you are handling it, how you are intelligently working through it — and strengthen the confidence of your investors in doing so. And be honest too when the market hands you a huge windfall, as with a major score or exceptionally favorable conditions. Wise investors always appreciate honesty and integrity. The foolish ones will leave you at the first hiccup anyway.

Alternatively, being impeccable can be translated as “doing what you say you will do” on a personal execution level, day in and day out. This translates to consistency of process, an all-too-rare thing among traders. This means, for example, always doing your market “homework” — even if you are sick, even if you are tired, even if you don’t feel like it. As the hockey great Wayne Gretzky said, “the greatest compliment you can pay me is to say that I work hard every day, that I never dog it.” That is a compliment every trader, large and small, can aspire to live up to. Impeccable execution — of the process as a whole, not just buys and sells — is the sine qua non of trading excellence. And as Aristotle pointed out, excellence is not an act, but a habit.

2) Don’t take anything personally. 

When going through a rough patch — or rough season, or even a rough year — the classic temptation is to think the market is out to “get you,” that the market is always opposing you. The truth is more freeing, and more humbling, than that. The market is far more like a force of nature than a personal entity. Does Mount Everest care who you are? Does the ocean care who you are? No.
If a freak storm comes up while you are climbing or sailing, it has nothing to do with “you” — except to the extent you voluntarily exposed yourself to such risks. Many traders are smart enough to consciously reject the “market out to get you” point of view, yet subconsciously indulge in “woe is me” personalization on a subtle level. To put it more bluntly, taking things personally is all too often a form of whining. As a general rule of thumb, whiners are losers. The winners are too busy getting it done — and this means addressing undesirable results in a detached, objective, wholly non-personal way.
What’s more, if you feel the market is hurting you too frequently or too consistently — in other words, if your trading results are consistently lousy enough to give you a persecution complex — then perhaps the problem is your methodology, or your lack of consistent process, or something YOU are otherwise consistently doing wrong… not the falsely imputed malicious nature of the market itself.
Of course, it takes a degree of impersonal objectivity to even ponder that possibility and investigate it. As such, “don’t take anything personally” is empowering for traders because, when you assign yourself responsibility for change, rather than blaming externalities for your misfortunes, you are far more motivated to turn every setback, every challenging experience, into a “teachable moment” from which maximum tuition is extracted. Not taking anything personally is a means of taking responsibility for performance no matter what — something winning traders do.

3) Don’t make assumptions. 

This one is huge. As the saying goes, “When you assume, you make an ass out of you and me” — though often as a trader it is just you. Foolish assumptions have swallowed up entire oceans of profit. The habit of assumption is born of laziness — lack of due diligence, lack of proper investigation and verification. It also stems from a lack of creativity, e.g. the inability to see an alternative range of scenarios — and sometimes emotional bias, meaning irrational predisposition to an expected or demanded outcome.
The number of questionable assumptions traders can make — and DO make, on a routine basis — is veritably endless. From unexamined notions of how a market works, to blinding ideological zeal, to unjustified confidence in a methodology with substantial gaps in process, theory and execution, to casually misguided assignment of blame for a bad result (see agreement #2), there are a thousand ways for foolish assumptions to contribute to a money-losing outcome — which is why, in fact, more traders lose than win.

4) Always do your best. 

“Always do your best” sounds cheesy at first, but how many traders actually take the notion of “always do your best” seriously? Quite frankly, a lot of people half-ass their way through life — and when they get into the trading arena, it only becomes natural and habitual and instinctive to do the same thing. Committing to risk management but not really… committing to a well-developed methodological process but not really… giving lip service to various aspects of trading excellence but not following through… this is a way of life for all too many individuals, and all too many traders. Bad habits in life inevitably show up as bad habits in trading. “Phoning it in” is a big one.

As a point of motivation, stop and ask yourself what might be possible if you really and truly “always did your best,” every single day.

What if you stopped futzing around completely and totally, committing to a higher level of focus and dedication than ever before? What if you really and truly found the absolute best within yourself, and cultivated an iron-clad commitment to maximum trading excellence? What would that look like? What would it feel like? How much pain would it require… and would the pain be worth it?
Furthermore, what if you could figure out how to sustain this level of excellence, day in and day out, not just as a touchy-feely resolution, but true transcendence to a higher path, as the framework for an enlightened and evolved way of life?

How would that impact your P&L, your future vistas, your success as a trader and your sense of life fulfillment on the whole? How awesome would it be?

JS (jack@mercenarytrader.com)

http://www.mercenarytrader.com/2014/01/the-four-agreements-for-traders/