Module 12 Innerworth — Mind over markets

Chapter 140

Anticipating Outcomes

Our emotions are closely tied to our expectations. If we expect to receive love and affection from our spouse after a long, stressful drive through an extra 60 minutes of rush hour traffic, we are upset when we are greeted with reproach for being late for dinner. When our expectations don’t match what actually happens in our lives, we react emotionally and often impulsively. This is especially true of trading, where we have a natural human desire to win, but often face loss after loss.

Trading is a profession where you should work under the assumption that you should see more losing trades than winners, so expecting to win is likely to produce more disappointment than euphoria. To the novice trader, especially, this fact of life can be stress producing and somewhat disappointing. But trading isn’t the only profession where one must face undesirable outcomes, and learn to cope with them. Many professionals must deal with everyday events that are distressing and hard to accept. Examining these various professionals and how they look at circumstances with the proper mindset may offer you a new perspective on handling losing trades.

How one copes is all a matter of the expectations one has, the outcomes one anticipates. Consider an everyday example. A pet peeve of many drivers in rush hour traffic is that fellow drivers are not very courteous. They often impatiently cut off other drivers, drive too fast, and change lanes too frequently. One may experience “road rage” if he or she steadfastly held the belief that “drivers should obey all traffic laws and make no driving errors.” The assumptions and expectations one holds can color how one thinks about things. Imagine a police officer, or a truck driver, who went through the workday assuming that “drivers should not make driving errors.”

The world would be a better place if that were so, but in reality, it just isn’t going to happen. Assuming that this is a realistic expectation, however, is just going to make matters worse. Similarly, imagine a nurse or doctor in an emergency room of an urban hospital who expects to see a calm and peaceful workday with only a few patients with minor injuries. When the steady stream of patients suffering from severe gunshot wounds or fatal heart conditions start pouring in, they will feel especially stressed and frustrated. Or consider the firefighter who expects a firestorm fueled by Santa Ana winds to be put out with just a few shots of water from a fire hose.

He or she is going to be naturally upset as the fire crew works tirelessly day and night yet the fire intensifies and continues to spread. There are many professions where setbacks are the rule, and without the proper mindset, such setbacks can be paralyzing. As a trader, it’s vital to have the right mindset. Rather than assume that one can make easy money by putting on a few half-baked trades, it’s essential to be realistic. It will take a great deal of preparation to find good trading opportunities.

They are out there, but one has to do the necessary work to find them. And when you find them and try to capitalize on them, they won’t always produce a win. That doesn’t necessarily mean you should be disappointed. If you realistically anticipate such setbacks, you won’t be caught off guard psychologically. If you expect a loss, you’ll be able to accept it more easily and you’ll take precautions, such as proper risk control, so it won’t wipe out your account balance. Don’t let a series of losing trades take a toll on your psyche. If you enter trades with the assumption that you may lose many of them, you’ll be able to bounce back quickly, make new profitable trades, and come out ahead in the long run.

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