Let’s start by discussing desire.
I am sure you have heard the market mantra of fear and greed, but what is greed?
Greed is desire. The reason you are reading this website and looking for trading knowledge is that you have desire. A desire to make money, win, impress, feel good, feel safe, feel secure, provide, prove something to yourself or others, altruism, be it sincere or misguided. There are many more reasons I could list that we all share as humans that make us enter any field of endeavour.
Misplaced desire, which is usually unrecognized, can bring us undone. Think of a recent time when desire for something thwarted your plans and intentions. Be it the chocolate binge whilst on a diet, the purchase of an unnecessary item, or perhaps the out-of-character over-consumption of alcohol at a work party resulting in inappropriate behaviour. These are all emotion-based reactions, and mostly unconscious thinking at the time, resulting in a certain behaviour.
There are also other more complex desires, like a desire to avoid emotional pain. You will continue to do something even though you know its not serving you in the long run. For example you avoid a confrontation with an employer or client because you don’t want to experience the discomfort of a showdown.
These complex emotions play out in your trades, because we don’t trade the market as it is but instead according to our desires and beliefs. We live our beliefs too, acting out the beliefs, be they good or bad for us.
"Your desire to trade comes from many emotions, and it is the unrecognized and unacknowledged emotions that will sabotage your trading decisions."
I teach trend trading. Trend trading (in fact most trading) involves selling losers and holding winners. Many traders have great difficulty in holding winners. Why? Because of desire.
It’s human to harness a good result, particularly when it is possible that the good result may turn into a not-so-good result. We are taught the saying when young “a bird in the hand is worth two in the bush”. You need to replace that saying with…
"The trend is your friend until the bend at the end"
When you trade, your desire to win and take a profit can be emotionally excruciating. All struggling traders I meet have one of two problems. When they are in profit:
They don’t know when to sell, OR
They know when they should sell but don’t.
Why do they repeatedly do this? Desire.
- They desire to make more (be greedy) and refuse to take a profitable sell signal in the hope it will go higher again. And if you don’t know what your "sell signal" is you will most likely just hang on and hope. Or...
- They desire for the price to go back up to the recent high so they can get back the profit that they once had a few days or weeks ago, before the price fell. Or...
- They desire to avoid paying tax, so they don’t sell even though the asset is falling. Or...
- They desire to be right. They have a “price target” on their stock trade and want it to go to that price before selling, even though the price is clearly falling and they are losing money. Or...
- “I want the price to do this, I want the price to do that, I want, I want, I want…..” (desire)
The Market is the boss, do what it tells you and you will get paid.
And...YOU'D BETTER LISTEN! Or you are going to get smacked around very hard for being a selfish trader and not listening to what the market is telling you.
"You cant tell the market what you want, it tells you what you are going to get!" Listening to the market means being able to see the market for what it is, not wishing it was doing something else.
Anxiety is fear. Another reason you are reading this website and looking for trading knowledge is that you have fears. A fear to not lose money, to guard and keep what you have earned and stored. To feel secure, safe, protected, comfortable and know that you are not exposing yourself to too much risk. To feel good about your decision, pacify your emotions and justify your decisions to trade. To know that it is the “right” decision and you won’t be wrong, and the many more fears I could list that we all share as humans. These are the reasons we consider our actions before we enter any field of risky endeavour.
Misplaced anxiety, at most times unrecognized, can bring us undone. People that like to be in control of things or situations usually suffer from anxiety. They want to control not because they are “control freaks” but because they calm their anxiety by knowing or planning what’s going to happen. They can get extremely upset when things change or plans go astray. It’s because the threat of the unknown is a major fear and they become anxious. Most fears are irrational when we stop and think about it, but we don't always examine them that closely. Most of these emotions are unconscious thoughts in your mind at the time, resulting in a certain behaviour.
There are also other more complex anxieties, like fear of emotional pain. You continue to do something even though you know its not serving you in the long run. For example: You only date “uneligible” people. If you were to date a truly eligible person you would have to face the fear of possible commitment, or, perhaps, stepping up as a person yourself. So you unconsciously scare away good prospects because of the anxiety (fear) that commitment brings. These complex emotions we hold in our minds can play out in our trades, because we don’t trade the market but, just like desire, we tend to trade our beliefs. We live our beliefs too, be they good or bad for us.
Anxiety (fear) is what it means to be human. We are fragile creatures, physically and mentally, and our biological self knows it, so it protects us with anxiety. It wants us to be on the look out for danger.
I am sure you have observed an anxious animal, in fear of its safety for itself or its offspring. Imagine a once beaten dog. It either cowers and wimpers in the corner or bites you when you try to feed it. Hence the saying: “bite the hand that feeds it”.
"95% of traders lose or break even. Why? Anxiety. They bite the hand that feeds them. That hand is the market and traders self-sabotage because of fear."
I prefer the word "anxiety" to "fear" because I think it describes the condition of many traders, and it's also, unfortunately, a condition of many people in this Age of Information. We are bombarded with information about everything, not just the markets. Much of that information is laced with fear to sensationalise and heighten your need for safety, therefore making a product more attractive. Any wonder we are all on edge.
Anxiety makes traders do things like:
They don’t buy when they get a clear buy signal in their method or system for fear of being wrong, so they miss good trades. Or...
They cant let winners run to their fruition because it means letting the trade go and not trying to control it. Anxious people like to control, or at least “know whats going to happen” . Unfortunately no one knows what the market is going to do next. Not even me! (I wish) Or...
They do continual research, reading or courses (analysis paralysis) because they want to be “right” (in control) to lesson anxiety before acting. Trading is not about being right, its about being in flow with what’s happening. That’s very hard for people who are anxious, or have a need to be right. They want to be right because they fear the unkown.
You can't control the market, or know how it will be tomorrow, next week or next year. It's like living with an irrational, neurotic bi-polar animal. It swaps from being a bear to a bull, to being euphoric and then depressed. If you try and feed it when it isn't hungry it will rip you to shreds, and if you don’t take what it offers you it rarely gives you a second chance to accept the offer again later. On the current deal that is - there is always another deal, but always with the same conditions.
Ok, so what do I do about Desire and Anxiety?
When you're trading, you are entering into uncertainty. One thing you can be certain of is that those two emotions Desire and Anxiety, with all their complexities, will sabotage your trading.
Become self-aware, calm yourself so you can listen to the real emotions behind your motives. Feelings and emotions are the mind's way (yes the mind, please note all rational, cognitive types) of telling you something is not right. Either the way you are thinking or the way you are trading is out of sync with who you truly are. Realize that you are your beliefs about life, and your trading and your life will be much improved.
Look carefully at the 10 rules of trading, are you following them? Your level of emotion will be much reduced if you are. Below is the link