Forgiveness is the key to success in the Stock Market

By David Hobart
29 September 2008

When we are emotionally connected to outcomes in trading, we tend to lose balance. This connection or attachment can have a brutal effect on our trading performance over time. The reason we are attached is that we often assign meaning to the outcome.

Typically the meaning that we attach to the outcome of a trade relates on some level to our sense of self worth. This may on the surface seem a bit of a stretch, so let’s walk through an example so that you get the idea.

Firstly, let’s assume my strategy has a positive expectation of return, and on average, 40% of my trades are profitable. Then let’s say that my strategy points to a trade idea that the equity market should fall from current levels over the coming week. So I follow my entry, bet sizing, and stop placement rules appropriately and then begin to monitor the trade.

If I am balanced and unattached, things go smoothly. I get stopped out or make money; it doesn’t really matter as I know I make money over time despite losing money on 60% of trades.

If however, yesterday I lost money doing the same thing, or even the day before as well, then some doubts begin creeping in, and I start to watch the trade more closely.

Clearly I am hoping that this will be the trade to turn the tide, so I take a little more interest in it – I become more attached to the outcome. Now what is it in this case that is causing me to increase my emotional connection?

It is doubt. I am beginning to doubt myself or my strategy, and this is causing me to feel some emotional connection to the trade. Like my self worth is connected to the outcome.

Things can get unpleasant from here if we let them. But they needn’t. What we really need to do is press the emotional reset button so that we are clear of the past and free to create a future of our choosing.

So how do we free ourselves from yesterday’s trades? How do we clear the past out of the way, so that our past doesn’t become our future?

We forgive.

We forgive ourselves for the mistakes we made; we forgive ourselves for our imperfect decisions and our irrationality. We give ourselves some slack and love ourselves for who we are and where we are at.

So how do we forgive ourselves you might ask? Begin by forgiving the market. It is not a dragon that needs slaying; it is your teacher and humble servant. Now there is a context we can talk about on another day …

If you would like to find out more about David Hobart’s trading coaching and mentoring programs, please email David at dhobart@traderemotions.com.au  .

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