Winning traders take decisive action. The decisions you have to make to put on winning trades are crucial to success. Where do you enter? When do you exit? How much risk will you take on? Each of these questions must be addressed quickly and with strong resolution. But not all traders can make the right decision at critical moments of investing. Passivity often sets in. It can take on many forms from failing to pull the trigger to holding onto a losing trade. Sometimes, actually taking action is a form of passivity.
For instance, rather than actively letting a winning trade fully come to fruition, a passive trader may close out a position early to lock in profits and avoid the unpleasant feeling of embracing and accepting uncertainty. In his book, “The Psychology of Risk: Mastering Market Uncertainty,” Dr Ari Kyiv (2002) defines three types of passive traders: Cautious, fearful, and insecure. If one of these types is descriptive of you, consider learning how to conquer passivity by gaining awareness of the psychological mechanisms that lie beneath it.
Cautious traders are passive in an attempt to avoid risk. They obsess over any possible flaw in their trading plan. They try to seek out perfect trading information in a fruitless attempt to control the inherent uncertainty of the markets. Many times, their thorough search for all pertinent sources of information is merely an excuse for not taking on risk. But information is never fully complete. When you are trading, you are taking a risk, and you must accept the fact that no amount of perfectionism or caution will guarantee success. All that cautious traders end up doing is failing to take action.
The second type of passive trader is a fearful trader. Fearful traders don’t trade to win. They constantly try to avoid losing. It’s not a very satisfying way to trade. As Dr Kyiv puts it, their need to avoid loss “leads to a sense of quiet desperation.” Rather than enthusiastically trading the markets, and expecting success, they passively wait for their doom, which they think is inevitable. Your destiny is never set, however. By taking an active approach to trading, you’ll increase the odds of realizing huge payoffs.
Insecure traders are passive because they continually seek approval. Insecure traders seek out acceptance and reassurance. They can’t make a decision independently and spend hours gathering the opinions of others, and hope that other people can make key decisions for them. Their primary intention is to avoid responsibility. If someone else were the impetus for their decision, then it’s never their fault when the trade goes sour. It’s always someone else’s fault. By putting the blame on others, the insecure trader is able to avoid facing his or her limitations. A grandiose self-view can be maintained.
But looking toward others and avoiding an honest look at your abilities will lead to stagnation. Trading requires action, and fully engaging in trading activities requires a full awareness of what you’re doing. You must actively look inward to your own intuitive sense of the market action and trust what your instinct tells you. Only when you are fully committed to looking at the market through your senses, and fully accepting your experience on its own terms can you trade freely, creatively and profitably.
In the end, there are no guarantees. You must take risks. The key is to find the proper balance. Risks can motivate you, but they can also overwhelm. By finding a level of risk that motivates you, but does not overwhelm you, you will stay energized and be ready to actively trade the markets rather than allow profits to pass by.