In general people have a much higher self image and a higher opinion of their level of skill than is warranted by the true facts. I happily suffered from this grand self delusion but sadly have gotten over some of its helpful effects. It is much easier to see this in others to the point where it is amazing where people get such delusions in almost an inverse proportion to the actuality. Practically it must be a requirement of survival to maintain a modicum of self respect and to alter the self image. Otherwise reality can be depressing. The Churchillian idea of running from one failure to the next with no loss of enthusiasm is a daunting prospect. Everyone has their strong points and it is easy to inflate the wins in the mind. The problem is recognizing the weak points. It is nearly impossible to do.

One of the great things about trading is it highlights your weaknesses right in the face. Self delusion is one of the greatest dangers in trading where only the facts matter. There is the type 1 delusion: to think one is smarter than the markets, and the type II delusion where you think you are dumber than the market and get washed out of a winning position. Delusion is deadly in the markets. The numbers don't lie. You are as good as your results, at least in the market. This is why it is good to have other interests, at which you might excel as markets are not always kind and the competition is always tough and relentless. In Mistakes Were Made (But Not By Me), Carol Tavris and Elliot Aronson explain how people actually change their recollections of the past to fit their present delusion. Rationalization and justification and excuses are big lies.





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