Don’t Think About It Too Much
“The Gods Must Be Crazy” is a great 1980’s film that contrasts the frenzy of modern existence with the calm of African tribal life. In one of its very first scenes, a woman turns to the main character and asks, “Does the noise in my head bother you?”
The point, of course, is that some people get more than a little deranged stressing about their careers, relationships, and other driving forces in their lives. So many things compete for attention and pull their minds in conflicting directions that pretty soon they don’t know which end is up.
And this is the same when trading the stock market…
While you might not hear voices or howl at the moon, you might not know it if you look at our trading decisions.
And I’ll be the first to admit when I should be wearing the straitjacket!
For instance…
Consider my actions back on July 25 when the S&P 500 was doing everything I wanted and expected it to do. It was holding support at its 50-day moving average and making yet another higher low. It was also demonstrating a pattern of light volume on selling and heavier volume on buying.
How did I respond to all these positive conditions?
I should have been putting more capital to work? But instead, I exited some long positions and missed the subsequent rally.
So what happened?
I thought too much. I considered all the bad things that could happen, rather than the good things that were happening. And while all this imagination may have been engaging, it cost me a 5%-10% gain in the value of my portfolio.
Going through this several times now, I have come to realize that my head tells me to do one of two things. On one hand, it invents bogus reasons to exit valid longs. On the other, it encourages me to ignore bad price action in stocks I own.
“Don’t worry about it. Sell it later,” the voices told me as my positions eroded.
I’ve found that when I sit back and dispassionately analyze the S&P 500, I’m almost always right.
The problem is following that assessment when trading is underway and things are moving. That’s when I start thinking that I know better, and I usually wind up losing money.
Bottom line…
You need to separate strategic decision making from executing trades. It’s easier said than done, but there are many ways it can be accomplished.
You can recognize this pattern because it just won’t feel right. Those annoying voices in your head don’t want you to succeed, so they’ll try to make you uncomfortable with your decisions.
It might not feel right because no one is talking about them, but the charts look good and they could make a lot of sense as long-term investments.
Safe Trading,
Marcus Haber
Category: Options Trading Basics
