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Certainty

The need for certainty is innately human. Unfortunately, markets cannot provide this certainty so we attempt to craft it by imposing a set of predicted outcomes upon a market that cares little for our predictions. As our predictions are proved incorrect, we adjust them to suit the market thereby never having to admit that we were wrong. This is the hallmark of those with predictive methodologies. The predictions are never wrong it is just that the market did not conform to the original prediction so a new one had to be made.

The point is not that people make predictions despite the overwhelming evidence that that they are hopeless at it, but rather that people continue to listen to them despite the fact that they are invariably wrong.

This raises the question: with a new calendar year upon us what do we do? The answer to this is simple and I have distilled my thoughts for the New Year into five main points.

1. Accept all possible outcomes

It is said that acceptance is the fine line between misery and ecstasy. As a trader, you need to accept all possible outcomes; all possible defeats and all possible victories. This also means that you accept what the market is doing at any given time – railing against the market going up when you are short is pointless.

2. Anxiety exists in the past and the future, not the present

The trader need only exist in the moment. The past and the future are irrelevant. What separates the ordinary from the extraordinary is that the extraordinary do not let fear overcome them. It does not stop them from achieving what they want to achieve. Too often people are bounded not by any external constraint but by their own fear.

All of us feel fear as to be afraid is natural. To be afraid of the unknown and the unstructured is a feature of evolution and has served us well.

Fear is an effective and powerful enemy for the trader, it is also not as harmless as many people imagine. It is one of the most powerful of our foes because we can give our fears as much power as is necessary for them to overwhelm us if we so choose.

3. Dream, the power to imagine

Habitual imagery is important to what we believe about ourselves. Pessimism breeds negative expectations and negative outcomes. Optimism breeds positive expectations and positive outcomes. We have a tendency to become what we think about ourselves.

As traders you must acquire the power to believe in the possibility of all positive outcomes. Believing follows a set path.

  1. The evolution of a set of intuitive responses. This is to a degree an intellectual response based upon a sequence of trials. Through this, we obtain a sequence of reinforced beliefs in our trading system and ourselves.
  2. Evolution of an intuitive sequence of beliefs, this leads to the concept of faith. This is the highest level of belief. It is your belief in your ability as a trader. Most important is the faith in yourself that you can keep going in the face of adversity. My belief is that people by and large are weak and they falter at the first hurdle. The greatest skill some people possess is the ability to make excuses for themselves.

4. Recover, learn the skill of resilience

Taking risks involves the implied assumption that failure is possible but not inevitable.

When we face defeat traditionally, we encounter grief. This emotion can be handled like other emotions it merely takes appropriate strategies.

The first stage is to acknowledge that something has gone wrong. If we possess the rationality necessary to be a trader then we cannot hide from what has happened. Denial is not part of our nature. A loss is a loss and no amount of rationalization can distort this fact.

Denial gives way to anger at almost any inappropriate source. We are angry at our system, the advice we took, the black box sitting on our desk. These are all scapegoats for the true villain which is you. Your mistakes are your own.

5. Point your bum in the right direction

If there is a single technical point that will enhance your trading success it is understanding the prevailing trend in the market and pointing yourself in that direction.

Having eschewed the notion of prediction I will leave the final word to Psychic Nikki ‘astrologer to the stars’ who last year predicted that Barack Obama would be assassinated, a plane and a meteorite would collide and that the stockmarket would go up and down. What more do you need to know.

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The Trading Game Pty Ltd (ACN: 099 576 253) is an AFSL holder (Licence no: 468163). This information is correct at the time of publishing and may not be reproduced without formal permission. It is of a general nature and does not take into account your objectives, financial situation or needs. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs.

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