Wednesday, July 04, 2018

Why Empathy Matters In Markets And In Life

Shoutout to vlogger Meir Kay, who produced an outstanding video that captures the relationship between anger and empathy.  

There's an important psychological lesson here.  

Frustration is a form of anger.  It occurs when we have a goal and something prevents us from reaching that goal.  We develop an idea, place a trade based on that idea, and then a burst of volume comes into the market and moves our position against us.  Our hopes for profit are dashed with the reality of a loss.

We can voice frustration at the market or at the traders who are "obviously manipulating" the market.  We can become frustrated with ourselves and beat ourselves up over how stupid we were to place the trade.  Regardless of the object of our frustration, once we become angry, we enter fight/flight mode and stop processing the world objectively.

The good trader will catch themselves at that moment and take a step back, slow down, calm themselves, and return to their trading.

The great trader, however, will do something quite different.

Remember that markets are always speaking to us.  They tell us where participants are finding value, where participation is waxing and waning, and when participation is dominated by buyers or sellers.  The great trader is like a great listener in a conversation.  That requires empathy: the ability to not just see, but feel what other market participants are doing.

Suppose you bring up a topic in a conversation with someone you care about and they quickly change the subject and start talking about something else.  You can become frustrated, filled with a sense of injustice over being "cut off", or you can step back and say to yourself, "That's friend doesn't normally change topics like that.  This must be very important."  That empathy makes you a better listener.  Going with the conversational flow will bring you closer to your friend.

If you have formulated a great idea for a trade and the market changes the topic on you, perhaps there is an important message there.  Doubling down on your listening skills and drawing upon your empathy opens the possibility of profiting from this new information.  It's yet another way that developing ourselves as traders is not so different from developing ourselves as human beings.  When we replace anger with empathy, frustration with listening, we make new connections and profit from those--in markets and in life.

Further Reading: