Thursday, December 22, 2016

Self-Awareness and Overcoming the Dark Side of Our Trading

Good market observers offer knowledge; great ones impart wisdom.  I'd put Peter Brandt in that latter category.  His Factor Commentary contains plenty of knowledge, tracking technical patterns across macro markets, but almost always comes across with heavy doses of wisdom.  So it was recently when he wrote about his end-of-year practice of halving his positions in the last two weeks of December and tightening stops on the rest.  Might he miss some market action as a result?  Yes, he points out:  that is precisely why he's stepping back during the quiet period.  He recognizes that compulsive trading is dangerous trading.  By stepping back from trading, he is controlling any compulsive tendencies and not allowing them to control him.

Peter writes in his recent commentary, "I have to always guard against my inner compulsive self...The decision [to get out of the market] has everything to do with gaining emotional distance from the process of market speculation in preparation for a new year."  Notice that Peter's strength is his self-awareness, not any Zen capacity to eliminate any and all negative emotion.  His ability to observe himself enables him to stay in control; not trading is a strategy that helps his trading!

The broad idea here is that many weaknesses represent strengths taken too far.  The passion for trading can turn into compulsive trading.  Confidence can turn into overconfidence.  Risk prudence can turn into risk aversion.  Every strength has a dark side at the point at which it is overused.  Creativity helps me generate unique and promising trade ideas.  Taken too far, creativity gets me tinkering with processes and losing discipline.  Look deeply into a trading weakness and you'll often find a strength to be harnessed.  Self-awareness helps us achieve that harnessing.

Further Reading:  Trading With Self-Awareness