Blinded by the Present
By D.R. Barton, Jr.
“The chief cause of failure and unhappiness is trading what we want most for what we want in the moment.” --unknown
Living in the current moment is generally a very good thing. Spiritual masters and writers throughout the ages have counseled against living in the past or worrying about the future.
And while staying in the moment is a good thing, obsessing about it can kill even a good trader. Placing too much importance on the current trade is a fault that Market Wizard William Eckhardt talks about in his famous interview in The New Market Wizards.
Eckhardt states, “What really matters is the long-run distribution of outcomes from your trading techniques, systems, and procedures. But, psychologically, what seems of paramount importance is whether the positions that you have right now are going to work.” (Emphasis is the author’s own.)
He goes on to state that this need to make the current trade work is so powerful that traders bend rules to try to will trades to work. In essence, this is the same as a trader's giving in to the “need to be right.”
The theoretical cure for caring too much about the current trade is pretty simple – follow your rules. (Or better yet, develop rules that have an edge in the market and follow them.) But the practical application is a bit tougher!
It’s easy to say that you need to follow your rules, but more difficult to implement. Almost all attempts to micro-manage trades tend to send us toward the human behavior of taking profits quickly and hanging onto losers. Both of which occur because we want to be right.
So how do we combat this micro-management problem as traders? One way is to make systems as mechanical as possible so that a computer or another trader can execute for you at your decision points.
But if you don’t have a staff or a strategy that is easily turned into computer code, then you need a way to keep from over-monitoring. Open your trade, place your stops (and profit targets or trails) and only allow yourself to check prices at set intervals.
Lastly, find a way to ingrain the belief that any one trade is unimportant. Your long term results matter, but this one trade doesn’t. If you can internalize that one thought, you’re well on your way to more consistent trading.
