We all know traders who get pissed and angry when a trade goes against them. These are usually the same people who sit in front of their screens, cheering the market on in hopes that it will move favorably to their position.
That type of psychology rarely leads to profitable trading.
Now, this isn’t to say that I have never faced these same reactions. But these types of emotions occurred more so during my early experiences with day trading.
Either way, my purpose today is to create is a little analogy for traders to think about. Hopefully the trading analogy below will help to alleviate these kinds of emotions and provide a clearer vision for profitable trading. It may seem cheesy but I think this trading analogy will add value to a trader’s psychology.
Alright, let’s ride the bus:
You live in a world where the only transportation allowed is riding a bus. This bus is no ordinary bus; we will call it the bus of probabilities. The bus driver is a guy named Mr. Market. Mr. Market does not know who his passengers are or where they hope to go. Additionally, this bus of probabilities only has two stations that it travels to. The two stations are stop loss station and profit target station. Everyone hopes to catch the commute to profit target station. But here is another dilemma. When the bus comes to pick you up it is never on schedule and some days it doesn’t come at all. You need to be patient with Mr. Market if you want to catch a ride to profit target station.
But when Mr. Market does give you the opportunity to ride the bus you need to act accordingly and get on! …Now it gets interesting.
Every time you get on the bus, there is a 60% probability that you make it to profit target station. You can have a strong conviction that this is the bus ride you finally make it to profit target station but it does not matter. Furthermore, Mr. Market could have gone to profit target station the last five trips but that still does not affect where he will take you on the next trip. As I mentioned earlier, Mr. Market does not know who you are or where you want to go. Once you are on the bus, your destination is completely out of your control. You can yell, scream or even pace around the bus but your destination’s outcome will never change. Mr. Market randomly drives to the different stations with no reoccurring pattern whatsoever but at the end of the day, 60% of the time you make it to profit target station.
Once you are in a trade, the outcome is entirely out of your control. For instance, buying pullbacks provides me with a near 60% probability of a profitable trade. My conviction, hopes or frustrations do nothing to affect the probability and therefore have no connection to the outcome of the trade (stops and targets can take care of that for us).
Think more in this fashion and you will find it easier to sit in a trade and not get so caught up in adverse emotional reactions. And hopefully it leads to more consistent, profitable trading.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.