A daring trader prepares for the epic battle he performs each day against the evil markets; those remorseless monsters who always seem hungry for money and ready to strip the poor traders of their modest capitals.
Armed with his analysis, our brave trader steps into the dangerous mercantile ground and eagerly studies the sharp and treacherous price spikes, waiting for the exact moment to slay the bears and bulls that guard his beloved treasure.
Just like yesterday, his adventure drains all his strength. It is the inevitable result of a turmoil of excitement and disappointment, which alternate along with his successes and failures. Elliot's uncertain waves control his emotions as much as the price; but our heroic trader, intoxicated with this cocktail of cortisol and epinephrine (stress hormones), cannot see how his mood is enslaved by the price flux.
I decided to launch this series of psychological articles, as I think many trading professionals could greatly appreciate the opportunity to break these subjective patterns that prevent our minds from any clarity, calmness or wisdom when facing the markets.
Attachment, blindness and madness
If our emotional variability is directly dependent on the market tides, always dragged by our fallible expectations, we must realize that our minds are not working as the best tools we have to get the desired results. In fact, such mind has become our worst enemy and its chaos will lead us to a financial catastrophe.
The essential hallmark of such state of mind is an absolute inability to stay detached, to maintain an honest view that distinguishes between our analysis of the market and the hopes we place upon it. Our minds become so subjected to the expectations of favorable outcomes that soon we see nothing more than the drama of our desires confronted with the price action.
Trading profitably in any market requires clarity of vision —which is not omniscience—; lucidity to make good, responsible, sound and clever decisions. To risk less or more, to hold our position or to avoid further losses, to await a bigger profit or to settle for a humble one; these are everyday dilemmas that demand our highest degree of gravity and intelligence. But it is unreachable if our relationship with the market is just a stormy marriage.
We have all witnessed or suffered the curse of emotional dependency in interpersonal relationships. Our hopes on the relationship and the beloved one weigh so much that soon we get blinded, completely unable to identify the true nature of our bond with the other. We don't understand what happens because we don't really want to. We prioritize our hopes and despise the truth because we fear that it won't indulge our desires.
That's the same whimsical stance that damages our trading system and blinds us every day to the market's risks and opportunities. Pretty much like in a conjugal hell, this blindness comes from our disdain for the real thing and turns us into bitter warriors, challengers of a market where our role should be different: the role of analysts, researchers, observers... sages. Our financial belligerence is the reflection of our contempt against reality. But just as we despise objective truth, it correspondingly despises our whims.
In the ancient symbology of Tarot there is a card that portrays accurately this typical mindset of an immature trader: The Fool —sometimes called “The Madman”—. It's the only card without number (it represents the zero) because it symbolizes the vagueness, the lack of values, the nothingness. Nevertheless this vacuity could be as well the beginning of everything... the starting point for a satisfactory future —because there lies a limitless potential.
In order for this naive and dreamy wanderer to reach a good fate —in spite of his disorientation— he must first become aware of the wisdom he carries (unknowingly) in his bag, and he must commit to it. Otherwise, this poor dreamer will only continue to move merrily toward the abyss in front of him (because of his blindness).
A madman is someone who persistently rejects his reality. Sadly, we all do that whenever we operate greedily in the markets, pretending that our dreams are more vital than the facts that must be studied and understood. Our anxiety is just the symptom of an awful state of mind that drives us merrily onward to the abyss.
A venture of honesty
Profitable trading is a luxury of the sober, even if others may enjoy some exciting strokes of luck in their intoxication —the same way they suffer strokes of bad luck—. The state of consciousness we need for consistent profitability contains virtues like patience, foresight, common sense and a mature kind of boldness that invites us to welcome calculated risks, admitting always in advance the possibility of losses.
The foundation of this mindset is a radical, absolute, merciless honesty. We cannot deceive ourselves or dodge the essential questions if we really want to nurture a state of mind that moves us to a relative stability within the financial mayhem of the world. First and foremost, our stability is mental; then it gives rise, as a consequence, to the possibility —not the promise— of financial stability.
Therefore, in psychological terms, the first step towards profitability in trading implies assessing (introspectively) whether we have to any degree these psychological traits that are undeniable signs of emotional maturity.
If we don't possess these qualities in our ordinary life, it's useless to force their emergence when we operate in the markets. We have them or we don't. However much he fakes gravity, sooner or later the fool gets tired of his theater and starts breaking the plates, behaving in accordance with his true feelings. Psychic repression is not a real solution.
However, if we acknowledge our lack of the necessary virtues, we are practicing already the most critical of them: honesty. It's the starting point for everything, the limitless potential always available to us —as long as we use the wisdom contained in our bag
When we allow dreams of wealth to invade our minds, we don't care anymore about the practical managing of our opportunities. But trading may be a incentive to cultivate the psychological conditions we need in every area of our lives, in order to dissolve the dangerous infantilizing effect of our (unchecked) desires .
If the first step is to examine ourselves, the second is to acknowledge our shortcomings: Maybe I am courageous, but I don't measure the consequences of my acts. Maybe I am patient, but not enough. Every psychic weakness is a source of future frustrations, because it always overrides the decisive factor of profitability: our lucidity.
We work with uncertainties and probabilities. Those are the raw materials of our craft. That's why it's paramount to have a clean vision for our decisions: a sober and factual sight, protected against our own desires. We know, in our statistical adventure, that such sight cannot ensure the ultimate success; but it does ensure the optimum performance of our human faculties... that is already a great edge.
In the worst case —in the case of losses— a clear advantage always arises from cultivating our emotional maturity: spiritual fortitude. We'll always be strong enough to accept losses (even the worst ones) with relative inner peace. In fact, we would always accept that possible outcome before it occurs. We won't be like those who fall from the heights following the crash of their dreams; because our dreams don't belong to mythic heights but here, within our hands... small and practical; comprehensible, manageable, human and fallible —just like us.
____
In next articles, we'll delve deeper into these psychological dynamics that strengthen or hinder the clarity of our judgment, and we'll explore practical proposals (mainly based on the Adlerian philosophy) that could help us reach a profitable state of consciousness.
Armed with his analysis, our brave trader steps into the dangerous mercantile ground and eagerly studies the sharp and treacherous price spikes, waiting for the exact moment to slay the bears and bulls that guard his beloved treasure.
Just like yesterday, his adventure drains all his strength. It is the inevitable result of a turmoil of excitement and disappointment, which alternate along with his successes and failures. Elliot's uncertain waves control his emotions as much as the price; but our heroic trader, intoxicated with this cocktail of cortisol and epinephrine (stress hormones), cannot see how his mood is enslaved by the price flux.
I decided to launch this series of psychological articles, as I think many trading professionals could greatly appreciate the opportunity to break these subjective patterns that prevent our minds from any clarity, calmness or wisdom when facing the markets.
Attachment, blindness and madness
If our emotional variability is directly dependent on the market tides, always dragged by our fallible expectations, we must realize that our minds are not working as the best tools we have to get the desired results. In fact, such mind has become our worst enemy and its chaos will lead us to a financial catastrophe.
The essential hallmark of such state of mind is an absolute inability to stay detached, to maintain an honest view that distinguishes between our analysis of the market and the hopes we place upon it. Our minds become so subjected to the expectations of favorable outcomes that soon we see nothing more than the drama of our desires confronted with the price action.
Trading profitably in any market requires clarity of vision —which is not omniscience—; lucidity to make good, responsible, sound and clever decisions. To risk less or more, to hold our position or to avoid further losses, to await a bigger profit or to settle for a humble one; these are everyday dilemmas that demand our highest degree of gravity and intelligence. But it is unreachable if our relationship with the market is just a stormy marriage.
We have all witnessed or suffered the curse of emotional dependency in interpersonal relationships. Our hopes on the relationship and the beloved one weigh so much that soon we get blinded, completely unable to identify the true nature of our bond with the other. We don't understand what happens because we don't really want to. We prioritize our hopes and despise the truth because we fear that it won't indulge our desires.
That's the same whimsical stance that damages our trading system and blinds us every day to the market's risks and opportunities. Pretty much like in a conjugal hell, this blindness comes from our disdain for the real thing and turns us into bitter warriors, challengers of a market where our role should be different: the role of analysts, researchers, observers... sages. Our financial belligerence is the reflection of our contempt against reality. But just as we despise objective truth, it correspondingly despises our whims.
In the ancient symbology of Tarot there is a card that portrays accurately this typical mindset of an immature trader: The Fool —sometimes called “The Madman”—. It's the only card without number (it represents the zero) because it symbolizes the vagueness, the lack of values, the nothingness. Nevertheless this vacuity could be as well the beginning of everything... the starting point for a satisfactory future —because there lies a limitless potential.
In order for this naive and dreamy wanderer to reach a good fate —in spite of his disorientation— he must first become aware of the wisdom he carries (unknowingly) in his bag, and he must commit to it. Otherwise, this poor dreamer will only continue to move merrily toward the abyss in front of him (because of his blindness).
A madman is someone who persistently rejects his reality. Sadly, we all do that whenever we operate greedily in the markets, pretending that our dreams are more vital than the facts that must be studied and understood. Our anxiety is just the symptom of an awful state of mind that drives us merrily onward to the abyss.
A venture of honesty
Profitable trading is a luxury of the sober, even if others may enjoy some exciting strokes of luck in their intoxication —the same way they suffer strokes of bad luck—. The state of consciousness we need for consistent profitability contains virtues like patience, foresight, common sense and a mature kind of boldness that invites us to welcome calculated risks, admitting always in advance the possibility of losses.
The foundation of this mindset is a radical, absolute, merciless honesty. We cannot deceive ourselves or dodge the essential questions if we really want to nurture a state of mind that moves us to a relative stability within the financial mayhem of the world. First and foremost, our stability is mental; then it gives rise, as a consequence, to the possibility —not the promise— of financial stability.
Therefore, in psychological terms, the first step towards profitability in trading implies assessing (introspectively) whether we have to any degree these psychological traits that are undeniable signs of emotional maturity.
- How honest I tend to be with myself in my daily life?
- Am I distinguished by my patience and sound reasoning?
- Am I wisely cautious or just a coward?
- When I reveal bravery... is it just an impulsive recklessness or, instead, the self-confidence of knowing what I am facing and the maturity of responsibly exposing myself to that?
If we don't possess these qualities in our ordinary life, it's useless to force their emergence when we operate in the markets. We have them or we don't. However much he fakes gravity, sooner or later the fool gets tired of his theater and starts breaking the plates, behaving in accordance with his true feelings. Psychic repression is not a real solution.
However, if we acknowledge our lack of the necessary virtues, we are practicing already the most critical of them: honesty. It's the starting point for everything, the limitless potential always available to us —as long as we use the wisdom contained in our bag
When we allow dreams of wealth to invade our minds, we don't care anymore about the practical managing of our opportunities. But trading may be a incentive to cultivate the psychological conditions we need in every area of our lives, in order to dissolve the dangerous infantilizing effect of our (unchecked) desires .
If the first step is to examine ourselves, the second is to acknowledge our shortcomings: Maybe I am courageous, but I don't measure the consequences of my acts. Maybe I am patient, but not enough. Every psychic weakness is a source of future frustrations, because it always overrides the decisive factor of profitability: our lucidity.
We work with uncertainties and probabilities. Those are the raw materials of our craft. That's why it's paramount to have a clean vision for our decisions: a sober and factual sight, protected against our own desires. We know, in our statistical adventure, that such sight cannot ensure the ultimate success; but it does ensure the optimum performance of our human faculties... that is already a great edge.
In the worst case —in the case of losses— a clear advantage always arises from cultivating our emotional maturity: spiritual fortitude. We'll always be strong enough to accept losses (even the worst ones) with relative inner peace. In fact, we would always accept that possible outcome before it occurs. We won't be like those who fall from the heights following the crash of their dreams; because our dreams don't belong to mythic heights but here, within our hands... small and practical; comprehensible, manageable, human and fallible —just like us.
____
In next articles, we'll delve deeper into these psychological dynamics that strengthen or hinder the clarity of our judgment, and we'll explore practical proposals (mainly based on the Adlerian philosophy) that could help us reach a profitable state of consciousness.
Well, sorry for that... mistakes of a newbie.