Let’s get something straight: being a market participant is not a right, it is a privilege. You have a responsibility to yourself, or your clients, to manage risk appropriately. Our goal is to profit while systematically having protection in place to adjust risk according to the environment. Not only is it not easy, the smartest minds in human history have failed in their attempts to profit from the market. See: The Market Owes You Nothing
A long time ago Mike Bellafiore, from SMB Capital, engraved in my mind that we need to be grateful for the opportunity to participate in the market. This isn’t a right. We need to be humble and know that Mr. Market is here to take it all away at any given moment. The worst trade of your life could be the next one if you’re not careful.
I think this concept alone takes a long time to really set in, but more importantly then be disciplined enough to let it directly influence your behavior. People who don’t know anything tell you not to be emotional when you invest. But that’s like asking me what play should have been called on 3rd down in the 4th quarter last Sunday. Sure I have an opinion, and really strong ones at times, but in reality I don’t have the slightest clue what the coach should have called or whether the QB should have audibled or not. I’m a technical analyst not an offensive coordinator.
The point is, we’re human. We have emotions. It is unnatural to suppress them. But we need to be aware of those feelings and behaviors that come out when nature is at its worst. When we catch ourselves being greedy after a series of successful outcomes or fearful after a consecutive series of poor ones, that’s where the awareness comes in, and that’s where there is edge.
We are going to be emotional. We’re not robots. The key is to recognize when those behavior patterns appear.
I get a lot of emails from people telling me that they’ve learned from me over the years and I that I’ve helped them build their processes and systems. It’s really cool receiving these. But I also get asked a lot about what sort of advice I would give after both my personal experiences and what I’ve learned from the experiences of the hundreds of technical analysts around the world that I interact with regularly.
There are two main points really. The first is that only price pays. So many people get caught up in the day to day noise of economics, politics, company funnymentals and weather patterns. It’s just not worth it. We want to sell things higher than where we buy them, and not necessarily in that order. That’s all that matters. So if that’s our only goal, why are we focused on anything other than price?
The other big piece of advice that stands out the most is Mike Bellafiore’s, “This is a privilege”. I think about it every day, or I try to at least. We’re lucky to be here. We need to appreciate that. This is not a God given right.
We have to keep earning the right to proceed. But even bigger than that, we want to be thankful for both the opportunities and the process itself.