Friday, August 24, 2007

Weathering Storms in Life and in Markets: Lessons From Trading

My recent posts have examined stress and coping, two important topics for a field such as trading which--by its very nature--involves decision making under conditions of risk and uncertainty.

I was planning a self-assessment of coping strategies for this post, but decided to postpone that slightly so that I could relay an incident that occurred yesterday.

You may have heard that dramatic thunderstorms and some limited tornado activity hit the Chicago area during the day. Very heavy rains fell through the afternoon as Margie and I moved our daughter Devon into her college dormitory. We heard accounts of 50-70 mph wind gusts in the area.

When we finished the move, we went out for something to eat and heard the air raid sirens sound. This told us we were under a tornado warning. The sky was ominous and the rain very heavy, so we ate leisurely and waited for the storm to pass before returning home.

As we left town, I was struck by a feeling that we shouldn't travel home. Instead, my intuition told me, we should stop for coffee and let the storm pass further east. I had the sense that we would be driving back into the storm. Both of us wanted to get home to our son, Macrae, however. We forged on.

The rain became heavier as we drove. At one point, the sky looked not only darker, but a strange kind of darkness.

That's when a very strong impulse hit me. It's the same feeling I get when a market is trying to go higher or lower and I realize that it can't make it. It's as if my body's telling me: NOW! That's when I place my trade to fade the recent movement. My best trades are accompanied by just such an impulse.

I immediately said to Margie, "We're getting off," and I took the first exit from the highway. We stopped at a restaurant and waited out the storm.

Later I heard of cars that were literally stopped on highways and roads, while others kept going, creating accidents. We also heard of cars that flooded and even floated away on streets that were flooded.

We had made the right decision. We returned home late, but quietly and safely. But I also realized that my initial intuition was right on the money. We *should* have stopped for coffee.

I relate this incident because it is such a dramatic illustration of one of the benefits I find in trading: It is training in decision-making. It teaches us to face life's risks and uncertainties and do the right thing. It also teaches us to hone our perception and to learn to trust it and act upon it without hesitation.

When I sensed risk on the roadway with the change of sky color, unlike many drivers, I had the instinct to fade my initial impulse to get home. That's an instinct born of years of trading. My feeling afterward was the same feeling I get after a good trade: the pride a ship captain must get after weathering a storm--or after being wise enough to avoid one.

Keeping your head and making good decisions in the midst of storms, in life and in markets: that's the training that trading can provide.


What Trading Teaches Us About Life

Handling Volatile Markets: Lessons From Neuroeconomics