Module 12 Innerworth — Mind over markets

Chapter 143

Keeping Up Appearances: A Dangerous Activity

Have you ever been at a party and felt a need to impress others. Many see trading as an exciting profession. It’s a glamorous job. Traders are seen as rich and powerful. People like to hear about how traders make huge profits, and they secretly hope that you can tell them how to make some easy money. It’s often tempting to want to bask in the glory of success, to be the center of attention or the object of envy. But winning traders know how to stay humble. They don’t seek out glory because they know that the profits they realize today can quickly evaporate tomorrow. Bragging about their success and then feeling the need to keep up appearances as a skilled, wealthy, and profitable trader has doomed many traders. Don’t let your psychological needs for glory and recognition hamper your trading performance.

In the end, the profitable trader tries to conceal his or her trading success when talking to people who aren’t in the business. Why? The more you present yourself socially as a “successful trader,” the more psychological effort you will spend defending this reputation. Several research studies have documented that one of the biggest obstacles to sound decision-making is the need to save face in social situations. When people make a mistake, they tend to dread admitting the mistake to others. They are so reluctant to face the adverse social consequences of having made a poor decision that they stay on a losing course of action, rather than admit they were wrong.

For example, a trader may be reluctant to sell off losing positions in order to avoid the possible social criticism that acknowledging a failure may bring. This phenomenon isn’t restricted to trading. It happens in large corporations as well. When a large sum of money is dumped into a failing project, corporations don’t cut off resources; they tend to increase funding because they just don’t want to admit they have made a mistake. Remaining on a losing course of action, however, can spell disaster. Doing whatever you can do to minimize these psychological processes will enhance your trading performance. And in this case, that means keeping your trading performance to yourself.

Consider what may happen if you bragged to your friends about how you’ve been holding a potentially profitable position, and plan on making a big killing in the next week. What would you do if the price fell hard? What would you do the next time you saw your friends? Tell them about how you failed after bragging about how much money you planned to make? Not only would you dread telling them about how much you had lost, but you may also unconsciously avoid admitting to yourself that you made a big mistake. Secretly you may hope that the trade will turn around so that you can save face with your friends.

In the back of your mind, the powerful need to save face and protect your reputation can influence your trading decisions. Trading is hard enough. Why introduce additional social and psychological pressures that will adversely influence your trading results? Keep the specifics of your trading career to yourself. There is no sound reason to discuss the specifics of your trading career at social gatherings. It’s often done just to build up your ego, and enjoy the attention of others. You’ll pay a price for this short-term gratification in the long run, however. So follow the advice of seasoned traders: Be quiet and stay profitable.

Comments are closed.