The Upside of Your Dark Side

BarroMetrics Views: The Upside of Your Dark Side

I just finished a  book, “The Upside of Your Dark Side“, by Kasjdan and Biswas-Diener. The authors argue that in our quest for happiness, our negative emotions have a role to play. If we suppress, ignore or bypass most of our negative emotions we are unlikely to achieve our full potential.

I thought how applicable their thesis is to trading success.

We have fours fears that can sabotage our trading:

  1. Losing money
  2. Being wrong
  3. Leaving money on the table
  4. Missing out

The fours fears trigger our survival impulses and our ‘fight, flight or freeze response’. When under their control we are unlikely to make an optimal decision.

But notice that it is not the ‘fear’ that is the problem, but the response to that fear.

In fact the ‘fear’ may serve a useful purpose. For example, we enter a trade without defining an exit stop loss price or scenario. The market goes against us. We feel fear – fear generated by the fear of loss and the fear of being wrong. But instead of allowing the fear to generate the 3Fs, we exercise our pre-frontal cortex and consider if the movement against our position shows that:

  • Our trend definition was wrong. If I should be selling rather than buying, it means I should exit the trade…
  • Our trade is wrong i.e. the trend definition was correct, but my timing for the trade was wrong. Do I hold or exit? The answer is a function of our money management rules.
  • The movement against our position is ‘noise’ for the timeframe we are trading – in which case, as long as our maximum loss is not hit, we can hold the position.

In this case, we have used the fear to come to an informed decision.

But, the authors’ message go beyond this. They take the view, that if we are to evolve and achieve our full potential, we need to learn from our mistakes. And this involves examining situations in which are uncomfortable.

As a trainer and coach, the one question I am constantly asking myself is: how can I help you attain the success you desire and deserve?

The more I coach, the more the answer is: I have to find ways that will allow you to recognize the reality of your situation.

It’s amazing how many traders hold themselves out as being successful – when their trading statements say otherwise. And, as long as they are only kidding the world, and not themselves, then there is hope they will achieve their dreams. The problem becomes a critical issue when they are not only kidding the world, but also themselves. At that point learning is not possible.

If there is one reason that prevents success it is this: unrealistic expectations of what is possible.

The reality of trading is there is an inverse correlation between our win rate, the timeframe  we are trading, and the avg$win and avg$loss: the shorter the timeframe, the higher the possible win rate and the lower the possible avg$win (higher possible $loss).

End-of-day retail traders I have met walk around dreaming of achieving year after year, 60% and over, win rates. They focus on the win rate as if it were the ‘holy grail’; they fail to ask if that rate is achievable for the ordinary Joe; they fail to ask if the win rate is the main vehicle to making money.  In their quest for it, they lose sight of their goal – to secure long-term profitability; and they jump from trading system to trading system.

If you truly want to succeed, you need to identify what needs to be secured (a positive expectancy), and how you will go about securing it (i.e. find the process that involves ‘mind, method and money’ that works for you).