Handling Changes When Trading- Trading Psychology
I was emailed this article by a colleague…
If you’re a mature adult, you already know that to accomplish anything worthwhile in life takes effort. Nevertheless, millions of people seem incapable of grasping this self-evident truth. It’s as though they’ve never heard of Murphy’s Law:
Nothing is as easy as it looks,
Everything takes longer than you expect,
And if anything can go wrong, it will,
At the worst possible moment.
One of the reasons Murphy’s Law is timeless is because of the annoying reality that life never seems to stay in one place long enough to pin it down. Like a greased watermelon, just when you think you have it under control, it manages to slip from your grasp.
This phenomenon is underscored by yet another reality: The one thing in life you can absolutely count on is that circumstances will continually change. What is unknown is when they will change.
That being the case, it’s dangerous to base your decisions on the assumption that everything is going to continue on as it now is. It won’t. Worse, because circumstances have a habit of changing with little warning, you are often caught off guard. The wise individual is therefore flexible in his planning.
Today you’re on top of the world financially; tomorrow you’re staring bankruptcy in the face because of a competitor’s new product or a bad economy. Today you think you’ve just agreed to the best deal of your life; tomorrow the other party to the deal backs out. Today you look forward to getting to the office; tomorrow you have a new supervisor you can’t stand to be in the same room with.
Relatives die, friends move away, buildings are torn down and replaced by new ones. Changing tastes catch a performer by surprise and make him into a has‑been; an athlete discovers he doesn’t fit in with the new coach’s plans and is out of a job; a mid-level executive finds himself unemployed when his company closes down his division.
Nothing lasts forever, and the individual who is not attuned to that reality is likely to be unnecessarily vulnerable to the inevitable bumps in the road. He is constantly caught off balance and finds himself unprepared to make the rational decisions necessary to leading a happy, successful life.
It’s also important to understand that losses are built into your life’s equation by constant change and factors beyond your control. If you don’t understand this reality, you’re likely to be overwhelmed by frustration whenever things don’t work out the way you planned.
On the other hand, if you acknowledge the reality that life has an annoying habit of not cooperating with your plans, your brain does not self-destruct whenever fate happens to take one of its infamous sharp turns. Thus, even though you accept the reality that life is fraught with adversity, you do more than just hope for the best. You mentally prepare yourself for dealing with the worst.
While dealing with life’s unpleasant and unanticipated changes, you should make it a point to extract the lessons learned and use your newfound knowledge to be better prepared the next time around. The bad experience is history, so let go of it. Instead, focus on the knowledge you’ve gained, because that knowledge can prove to be far more valuable than the fruits of victory.
The following anecdote from David Seabury does an excellent job of making this point:
In South Africa, they dig for diamonds. Tons of earth are moved to find a little pebble not as large as a little fingernail. The miners are looking for the diamonds, not the dirt. They are willing to lift all the dirt in order to find the jewels. In daily life, people forget this principle and become pessimists because there is more dirt than diamonds. When trouble comes, don’t be frightened by the negatives. Look for the positives and dig them out. They are so valuable it doesn’t matter if you have to handle tons of dirt.
Understanding that adversity that often comes with change is an integral part of life will make it far easier for you to move the dirt between you and your diamonds. It’s all part of the price you pay for success. You are much ahead of the game if you accept the reality that everything in life has a price. If you delude yourself into believing otherwise, you will repeatedly learn the hard way that actions do indeed have consequences.
Whether the required payment be in time, money, energy, discomfort, or any other form of currency, I try not to kid myself about it. And once I’ve made up my mind that something is worth the price, I like to pay that price as quickly as possible and get it over with. The sooner the payment is out of the way, the sooner I can move on to other things.
What I’m talking about here is long‑term solutions versus short‑term patching. Dispense with the rationalization that you can temporarily resolve a problem just to get past a rough spot in your path, with the intention of working out a more permanent solution at some unspecified future date. Such a date has a habit of never arriving, and, as a result, the problem only festers and grows.
Deal with the problem now. That which you can confront, you can control.